Around 5 p.m. one night earlier this summer, Eric Wallace, co-founder and president of Left Hand Brewing, got a call from his son, who works at the nearby Rosalee’s Pizzeria. What he said was shocking: The pizzeria had run out of beer. The delivery truck hadn’t come because there was no one to drive it. They needed to borrow some beer.
Wallace and the owner of Rosalee’s loaded some kegs into their cars and brought it themselves.
“We literally drove kegs over in our cars to get them beer for the weekend,” he said.
This is just one example of how businesses in Boulder County are coping with the global supply-chain crisis. It’s affecting them in ways that are at best inconvenient and at worst business-threatening. What is in short supply?
“It’s everything,” said Paul Arnold, president of Boulder-based PG Arnold Construction. “There seems to be an issue du jour.”
Pick an industry. Pick a good it depends on, a raw material it needs for production or a product it sells. Chances are, it will be short, and it will be getting more expensive.
Lumber, steel, aluminum cans, plastics, computer chips, cars, gasoline, asphalt, wood stain, drywall, insulation, mechanical equipment, tires, bicycle-repair parts and on and on.
Looming above all of that are two other factors. One is the shortage of the thing that every industry needs to function: labor. Local businesses are not just struggling to find qualified employees for themselves. Their suppliers and distributors don’t have the workers to transport goods from point A to point B, further disrupting the already fractured supply chains.
“We can’t get drivers,” Wallace said. “Our hometown accounts in Longmont didn’t get their beer for one week because there were no drivers. Our distributor had no drivers. The only reason we solved it with Rosalee’s is because my son works for them.”
The other overarching factor is that this supply-chain crisis is not the same for large companies and small businesses. National and multinational companies, with their greater purchasing, logistical and recruitment abilities, are beginning to freeze out small businesses from the goods, materials and labor markets. With shortages projected to last into 2022 and beyond, small businesses could find themselves at a tipping point.
“The supply-chain crisis, there’s no other word to call it, is having two levels of impact,” said Tim Heaton, CEO of the Colorado Advanced Manufacturing Association. “There is another crisis brewing between large and small companies.”
The numbers of the crisis are staggering. Lumber prices went up 340% from January 2020 to March 2021, Heaton said. Hot rolled steel has hit $1,500 per ton, an all-time record, and even with the pandemic receding is only at 80% of its pre-COVID production capacity. The price of plastic resins fluctuates so fast, Heaton said, that he couldn’t quote how much it has gone up.
These drastic changes in the advanced manufacturing industry also affect companies in other industries downstream that depend on manufacturing products.
“It’s creating extra work on planning and coordination,” Arnold said. “It’s really been all over the map. Cost is obviously an underlying factor in everything. All our materials prices are up significantly. I just walked a project with a roofer. They said the insulation they use are on a nine-month backlog. Usually that stuff is just sitting in inventory somewhere. It’s just a normal material that is always available.”
Tim Jackson, the president of the Colorado Auto Dealers Association, said that so far in 2021, auto manufacturers have produced 700,000 fewer cars than expected, leading to empty dealer lots and chronic shortages of cars available for sale. At the same time, sales numbers have held steady, meaning that the few cars that are made often get pre-ordered months before they are made and never even hit the lot for sale.
“The lack of inventory is pervasive amongst all brands, makes and models,” Jackson said. “On average, our dealerships have less than 10% of the normal inventory they would have in a regular year.”
As an example, Jackson cited Mountain States Toyota at the interchange of Interstate 25 and U.S. Highway 36. He said the dealership would normally have about 900 vehicles on its lot. Now it has less than 80, he said.
The biggest cause of this, Jackson said, is the global shortage of computer chips. Most major automotive manufacturers source their chips from the same companies that use the same plants — all in Asia. Those were hit early and hard by government-imposed lockdowns when the COVID-19 pandemic hit. As with steel manufacturers, chip producers fell so far behind during the pandemic that they have never been able to catch up with their order backlog.
At Left Hand, Wallace is dealing with these issues on multiple fronts. The brewery is building a new outdoor beer garden and has encountered numerous materials shortages during the effort, including lumber, asphalt and even wood stain. Wallace said the beer garden’s fence is only two-thirds stained because they ran out and couldn’t get more.
The most critical shortage Left Hand is dealing with, though, is aluminum. Wallace said that aluminum manufacturers, like makers of computer chips and steel, fell far behind on their production schedules during the pandemic and have yet to catch up. That also coincided with the shutdown on bars and restaurants, meaning that people could only buy their beer in cans or bottles, putting further strain on the supply chain.
Wallace said that Left Hand is in no danger of running out of bottles, but that’s not the point. When Left Hand sells its beer to liquor stores, Wallace said, stores base their orders and lay out their shelf space based on the physical size of the packages they’re ordering. Because six-packs of cans and six-packs of bottles are different sizes, Left Hand can’t just bottle a beer it normally would can and ship that to a liquor store, Wallace said.
And he worries about the ability of a small, independent brewery like his to compete against the giant beer, seltzer and soda companies for the tiny aluminum-can inventory. Those corporations are able to buy up huge amounts of inventory at once, effectively freezing out all other businesses.
“That’s a huge concern,” Wallace said. “That’s almost anti-competitive. Larger breweries and seltzer companies are buying everything. We’ve been screaming about anti-competitive practices for years. This is not just supply chains, this is about the ability of big companies to monopolize supply chains and distribution. If we get froze out of cans, that’s 50% of our volume. God help us if we have to deal with that.”
This problem is affecting every industry.
“It’s a tale of two supply-chain crises,” Heaton said. “Big businesses will survive. Small businesses may not.”
Dave Fischer, a technician at Boulder Bicycle Works, said that sourcing repair parts, tires and tubes has become increasingly difficult, and that complete bikes are getting nearly impossible to find. He said that Boulder Bicycle Works will set notifications with their distributors so they can buy parts as soon as they come in stock, but that even being prepared and ordering immediately can be futile.
“Oftentimes, parts disappear within minutes or less of us being notified that they were in stock,” Fischer said. “The larger retailers and shops have more buying power. They are able to source parts in large quantities and smaller shops like us have to do their best to find what they can.”
Arnold equated mass purchases by big companies to panic-buying. He said that the larger homebuilding companies such as Lennar and Richmond Homes have been buying up to a years’ worth of lumber, drywall, furnaces and other products at a time.
“They know they’re gonna build 10,000 homes in a year,” Arnold said. “They can better project what materials they will need. For us, for companies like us, so much of our backlog and future projects are all more custom builds. We just don’t know quite as certainly what products we’re going to need to purchase.”
And as small businesses get squeezed out by big companies over inventory on one end, they get squeezed out over labor on the other. The labor shortage is stopping goods from getting from producer to supplier. It also means that larger businesses are stepping up their game to attract the few workers who are on the market.
Heaton said that the manufacturing sector in Colorado has a record amount of job openings right now. For the 86% of Colorado manufacturers that employ 20 or fewer people, competing with big business to fill those positions is becoming untenable.
“There is such a huge demand for workers right now,” he said. “The large companies can pay the bucks and give the benefits to get these people. Large corporations are just sucking up all these unemployed people who are coming back to work. That 86% of companies, they’re getting squeezed.”
Other local problems are also affecting the labor shortage. Wallace said that, more than anything else, the lack of affordable housing in Boulder County makes it difficult for Left Hand to recruit and retain employees.
“Longmont has not done enough to build workforce-attainable housing,” Wallace said. “In terms of supply chain, that’s not supply chain, but it is. We don’t have the supply of houses. The supply-chain issues and the labor shortage and how that intersects with this housing shortage that we have, that’s gonna be the long challenge.”
“Long” is the key word. This supply-chain crisis and everything that is accompanying it show no signs of abating. Steel manufacturing has still not returned to its pre-pandemic production levels. The labor shortage will continue to disrupt supply chains. Jackson said that computer chip production will take about two more years to recover.
“We’re in this for a while,” Jackson said.
Why is there no end in sight? The COVID-19 pandemic may have been the catalyst, but with that largely in the rear-view mirror, a myriad other factors are combining to make this problem extraordinarily difficult to solve.
Extreme weather events and industrial catastrophes have further hampered production of valuable goods. In February, the massive winter storm and devastating power outages in Texas took offline 80% of plastics manufacturing in the U.S., Heaton said. Arnold said that had a big effect on the construction industry.
“That hurt everything down the line,” he said.
Similarly, the global chip shortage was made far worse in March when a plant owned by the Japanese electronics giant Renesas Electronics burned down. Production did not restart until mid-April and was not back to full capacity until June. That plant alone is responsible for about one-third of all the chip production in the world, Jackson said.
Additionally, the trade war with China that began in January 2018 had already weakened the foundation of global supply chains, with tariffs increasing production costs in both countries. The survival of those tariffs seven months after the inauguration of a new United States president is a cause for consternation.
“Don’t underestimate the effect of tariffs on the supply-chain crisis,” Heaton said. “We were in the middle of a trade war when COVID hit. We had hoped the new administration would end the tariffs, but they haven’t. We are still fighting the tariff headwinds that feed into this. We are not bringing in as many imports, but also not making up for that with more domestic production.”
There simply are no easy answers or fixes.
“Everyone wants to boil it down to one simple problem and one simple solution,” Wallace said. “That ain’t our modern world.”
