Where Does the Supply Chain Crisis Stand Now?

There are signs the tide may be turning even as challenges continue in some sectors.

Jakir Hossain 31 May, 2022 | 4:38AM
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A year ago few people outside the shipping or manufacturing industries had ever heard the term supply chain.

But now “supply chain issues” are front and center in most investors' vocabulary, and when it comes to the outlook for inflation, supply chains are seen as one of the primary factors that will help determine how fast price pressures cool off from 40-year highs.

Global supply chains are the networks between companies and their suppliers needed to turn materials into the products they sell. Massive supply chain shortages emerged in the wake of pandemic lockdowns that shut businesses around the world and kept workers at home.

There were hopes that supply chain issues would start to abate in the first half of 2022 as the effects of the pandemic became contained in more countries. But other events, such as the war in Ukraine, have added new bottlenecks. And with lockdowns in Shanghai and other key cities across China, pandemic-driven snags are hurting supply chains again.

Whether it was Tesla (TSLA) missing key materials for production or the current baby formula shortage in the United States, supply chain issues have been hurting both consumers and companies as rapidly reopening economies have overwhelmed the system.

Across a wide spectrum of industries, companies have been trying to get a handle on when supply chain logjams will improve, but it’s been a moving target virtually everywhere

“No one really knows,” says Morningstar senior equity analyst Michael Field, who covers shipping and logistics. “Nearly every company has supply chain issues. The number of companies doing anything about it is far fewer.”


Field points to a few bright spots. Labor availability has improved in key areas, such as ports, to help move goods across the world. Companies have been signing long-term contracts with shippers to secure transportation, which was normally a buy-it-as-you-need-it market prior to the pandemic, Field says.

Some of the industries most significantly hit by global supply chain shortages include semiconductors, automobiles, industrials, retail, and restaurants. Below, we’ll highlight how issues have progressed for each of those industries.


For all the woes hitting other industries, when it comes to shipping and logistic companies like Maersk (MAERSK B), supply chain issues have been a boon, and led to higher shipping rates.

For customers, it’s a mixed bag as those rates now come with long-term contracts. “This effectively means that the input cost inflation we’ve seen across consumer and industrial products is likely to persist for some time,” Field says.

Although these long-term contracts should help move goods, substantial issues remain, with delays in the first three months of the year averaging seven days, nearly twice as much as in 2019. Ocean schedule reliability hasn’t fared any better, with about 36% of cargo being delivered on-time, less than half that of prepandemic levels.



Semiconductors have been one most significant sources of global supply chain snarls, affecting a wide spectrum of industries. These include mobile phones, autos, and even lightbulbs.

Computer and tech companies have been struggling to keep up with roaring demand that started when workers shifted to working from home. Coronavirus factory shutdowns slammed chipmakers, also known as foundries, capacity to produce, leading to a backlog of orders. Morningstar technology strategist Abhinav Davuluri does see a light at the end of the tunnel.

“It’s more likely than not that the [semiconductor] industry turns in the other direction,” he says.

However, it’s still a mixed picture.

Firms like Taiwan Semiconductor Manufacturing (TSM) have been prioritizing higher-value chips that are more lucrative to their businesses: leading-edge chips, those that utilize the most advanced manufacturing processes, also known as nodes, to produce.

Those chips are used for the latest phones, computers, and cloud supercomputing. Companies like Apple (AAPL), Nvidia (NVDA), and Advanced Micro Devices (AMD) have been among those spending billions to contract with Taiwan Semiconductor for their advanced nodes to manufacture chips.

On the other hand, lagging-edge chips, those made with older or less advanced nodes, are typically used in autos, networking hardware, and industrial machinery, which aren’t as lucrative for foundries. Those chips are on the backend of the production line, but that is starting to turn around.

“The PC market is starting to slow down, freeing up capacity at foundries to focus on other semiconductor needs,” Davuluri says.

“Foundries are also trying to improve production capacity, but that takes time to come online,” he says. “The industry will improve, but pockets will remain throttled.”

Still, the long-term story looks good, Davuluri says, as the semiconductor industry takes steps to safeguard against shortages.

“Chip-making is very concentrated in Asia,” he says. Companies are investing to diversify their supply chains to other parts of the world. Taiwan Semiconductor, Samsung, and Intel (INTC) have been working to increase capacity in the U.S.

Incentives for domestic semiconductor firms to expand production in the U.S. may also be on the way from the government. A bipartisan bill to provide roughly $52 billion in investment to improve semiconductor production in the U.S. is undergoing review. Both the House of Representatives and the Senate have passed their own versions of the bill, but a compromised version has yet to be finalized.

Market share

Additionally, the normally lean-running industry has started to hold onto inventory to serve as buffer for customer orders, Davuluri says.

Still, various challenges remain. Russia’s war on Ukraine may disrupt the flow of necessary materials utilized in manufacturing semiconductors, such as neon and palladium. Davuluri also points out that firms supplying the tools and technology to manufacture chips, such as ASML Holdings (ASML), are struggling to provide them because of the global semiconductor shortage, pushing back the timeline for new capacity.


Autos have been ground zero for semiconductor chip supply chain issues stemming from the pandemic. That has helped trigger a shortage of new cars, and led to a massive spike in used car prices.

European automakers production has been hit as the war oin Ukraine, a large supplier of important wiring systems for vehicles, stalled production for companies like Volkswagen (VWAPY) and BMW (BMWYY). Volkswagen had to shut down two factories in Germany as a result.

In the U.S. Ford (F) and General Motors (GM) are still stumbling due to parts shortages in recent months. In late March, Ford halted production at its Flat Rock, Michigan plant where it manufactures Mustang vehicles due to a lack of semiconductors. Likewise, General Motors shut down production at its Lansing Grand River assembly facility due to a “temporary parts shortage,” Reuters reported.

Morningstar sector strategist David Whiston says there’s not much companies can do in the short-term but try to negotiate with suppliers. It takes roughly six months to manufacture a chip and get it to the automakers, Whiston says.

“What you can get, you allocate to the most lucrative vehicle models,” he says. “Companies don’t expect major relief or meaningful improvement until the second half of 2022. It’s a gradual process. I think the worst is over, but it’s still bad.”

The situation seems to be stabilizing. U.S. light vehicle inventory supply has remained steady at over 1 million vehicles in the last few months. While shortages continue Whiston thinks the industry’s inventory supply bottomed out in September 2021, when inventories reached 973,000 vehicles.

Inventory levels

In the long-term, he sees some automakers taking steps to protect themselves from future supply chain shortages. General Motors is one, he says. The firm has working to reduce the number of chips used in vehicles by 95% by switching to microcontrollers that can consolidate the functions that individual chips perform, the Detroit Free Press reports.

One sign that conditions are improving is a declining Manheim Used Vehicle Value Index, which measures pricing levels for used vehicles. The index started to decline from its all-time high in January and is down 5.7% for the year. As inventories are replenished and supply better meets demand, used vehicle prices should also come down from their all-time highs according to Whiston.

Used vehicle price levels


Like many other sectors, industrial companies are hoping that supply chain issues abate in the second half of the year, but “no one really knows,” Morningstar senior equity analyst Joshua Aguilar says.

That uncertainty has forced companies to offer a wider range on earnings this year. During its investor day in March, 3M (MMM) didn’t offer long-term targets, an unusual occurrence, Aguilar says.

Adding another layer to concerns is inflation on goods used for production. As input costs rise, companies will need to raise prices to offset losses due to inflation. This has also been a problem for 3M because they’re locked into long-term contracts, Aguilar says.

Companies faring well in the inflationary environment thus far include those that operate in niche markets, such as electromechanical and electronic instrument provider Ametek (AME), or have strong branding power, such as electrical and power component supplier Hubbell (HUBB).

Labor availability is also compounding the issue for various companies and has led to an increase in the backlog for orders..

“Sherwin Williams (SHW) and PPG Industries (PPG) are missing earnings because they just couldn’t get the materials to sale,” says Brian Bernard, Morningstar’s equity research director for industrials.

Aguilar says the question for industrials with backlogs is if those orders will translate to revenue, or if customers will end up canceling them. However, given that there is typically a high cost of failure when customer use alternative products, he believes orders should stay, but that cashflows from those sales will be pushed back.


Many retailers have been hurt by supply chain issues, and like companies across the other sectors, they expect issues to remain towards the first half of the year and start to alleviate during the second half of the year.

Retailers have mixed exposure to supply chain disruptions, according to Jaime Katz, Morningstar senior equity analyst. Key issues remain in the transportation of goods and labor, but some companies have fared better than others.

Companies with domestic supply chains such as Bath and Body Works (BBWI) and William-Sonoma (WSM) have been able to increase manufacturing in the U.S. and are largely protected from global shipping delays, Morningstar senior equity analyst Jamie Katz says.

To help improve inventory, retailers have been starting to order products in advance to get more lead time before they have to put them on the shelves, and so far, despite rising shipping costs, some have been able to pass on those costs to customers.

“The ability to pass on those cost increases [to consumers] has been reasonably solid, benefitting from the fact that consumers’ overall economic health was in decent shape,” Morningstar analyst Zain Akbari says.

For retailers that typically sell lower ticket items, such as Bath and Body Works, consumers can more easily absorb higher prices. For furniture companies like RH (RH), formerly known as Restoration Hardware, a 10% increase in price may turn away customers, Katz says.

But smaller retailers are expected to struggle more when it comes to the cost of shipping goods, Katz says.

“What is the incentive for logistic providers to move products from companies like RH, which has only $2 billion in sales, to the front of the line now they’re doing more logistics and ocean freight?” Katz says.

To try and solve that problem some companies have been shifting manufacturing to facilities that are closer to their consumers. Toymaker Mattel (MAT) invested $50 million in a manufacturing plant in Mexico, now their largest in the world. The move follows various other retailers as they attempt to diversify their supply chains out of China—which started even before the pandemic due to rising labor costs.

Big-box retailers are also taking steps to solidify their supply chains. Walmart (WMT) recently revealed plans to increase wages for truckers and will provide training so  current employees can work as drivers to improve internal logistics. Target (TGT) has sought to expand their number of regional distribution sites, BJ’s Wholesale Club (BJ) also bought distribution centers and trucks.

Restaurants & Food

An amalgamation of rising ingredient, labor, and utility costs because of supply chain disruptions have been pressuring companies in the restaurant industry.

The cost of common inputs for cooking, such as sunflower seeds used to make cooking oil, meat, and wheat have skyrocketed as the Russia-Ukraine war exacerbated supply chain disruptions. The price of wheat has risen 70.4% in the past year and more than doubled in the last three years. Corn and soybeans price are nearly double what they were three years ago.

Food-related returns

This has been a major issue for restaurants, as they often utilize a broad basket of commodities to operate, and the all-around increase in prices has dramatically increased their cost of goods sold.

Rising costs for running physical locations such as utilities and labor, are also leading to higher expenses fFor chains such as Darden Restaurants (DRI), the owner of Olive Garden. Fuel and the tight market for drivers have also posed idiosyncratic risks for those with a large footprint in delivery, such as Domino’s Pizza (DPZ).

Despite inflationary pressures, sales at companies such as McDonald’s (MCD), Starbucks (SBUX), and Chipotle (CMG) have been on the rise. However, that rising revenue is due to companies increasing prices for consumers.

“Operators have been raising prices but they're reluctant to outrun the consumer,” Morningstar equity analyst Sean Dunlop says. “The balance that we've seen is that restaurant margin levels margins have started to decline.”

Companies that have a large number of franchisees might be better positioned to resist inflationary pressures. McDonald’s, which owns about 5% of its stores, and others make money off of royalty sales. As a result, company-level margins may not be impacted to the same degree as individual stores.

“Your heavily franchised operators,'' Dunlop says like Yum Brands (YUM), Restaurant Brands International (QSR) and McDonalds are actually quite well positioned to navigate this to the extent that their franchises remain solvent.''

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Jakir Hossain  Data Journalist for Morningstar

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