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December 01, 2021

FTC Investigating Supply Chain Disruption

The probe, which promo companies can participate in, will look into potential anti-competitive practices and much more. It comes as tentative progress on supply chain disruption faces new threats.

By  Christopher Ruvo

Could anti-competitive practices be playing a role in the unprecedented disruption plaguing global supply chains?

The Federal Trade Commission intends to find out.

Federal Trade Commission building

The FTC, which focuses on enforcement of U.S. antitrust law and consumer protection, has launched a probe that aims to better understand the reasons driving supply chain issues, which have caused a plethora of problems in the promotional products industry throughout 2021.

The federal agency will examine whether the disruptions are leading to specific bottlenecks, shortages, anticompetitive practices and/or contributing to rising consumer prices.

As part of the inquest, the FTC is ordering nine large retailers, wholesalers and consumer good suppliers to provide information detailing the primary factors disrupting their ability to obtain, transport and distribute their products.

Per the order, the companies will have to share information about the impact these disruptions are having in terms of delayed and canceled orders, and increased costs and prices. The FTC also wants to know what products, suppliers and inputs are most affected, and gain insights into the steps the companies are taking to alleviate disruptions, among other things.

The FTC is issuing the orders to Walmart Inc., Amazon.com Inc., Kroger Co., C&S Wholesale Grocers Inc., Associated Wholesale Grocers Inc., McLane Co. Inc. Procter & Gamble Co., Tyson Foods Inc. and Kraft Heinz Co.

The companies will have 45 days from the date they receive the order to respond. Notably, the FTC is requiring the companies to provide internal documents regarding the supply chain disruptions, including strategies related to supply chains; pricing; marketing and promotions; costs, profit margins and sales volumes; selection of suppliers and brands; and market shares.

The FTC says it has authority to order the information from the companies under Section 6(b) of the FTC Act, which authorizes the commission to conduct wide-ranging studies that do not have a specific law enforcement purpose.

“Supply chain disruptions are upending the provision and delivery of a wide array of goods, ranging from computer chips and medicines to meat and lumber,” FTC Chair Lina M. Khan said in a statement.  “I am hopeful the FTC’s new 6(b) study will shed light on market conditions and business practices that may have worsened these disruptions or led to asymmetric effects.”

Promotional products companies have the opportunity to participate in the probe if interested, as the FTC is soliciting voluntary comments from retailers, consumer goods suppliers, wholesalers, and consumers regarding their views on how supply chain issues are affecting competition in consumer goods markets.

“These comments provide an opportunity for market participants to surface additional issues,” the FTC said in a statement.

An Uncertain Time for the Supply Chain

Word of the FTC probe comes at an uncertain time for global supply lines. On the one hand, some say the supply chain pressures are lessening, but other signs indicate more trouble may be brewing, with the new omicron variant of COVID-19 not least among the issues.

On the bright side, CEOs from Walmart and other major retailers told President Joe Biden this week that the global supply network crisis is improving.

Walmart CEO Doug McMillon said inventory levels are up 10% compared to last year and that, regarding supply lines, “We are seeing progress. The port and transit delays are improving. … We’ve really seen a lot of improvement.”

McMillon asserted that certain initiatives the Biden administration enacted to get domestic supply lines moving more efficiently helped Walmart drive, over the last four weeks, increased throughput of about “26% nationally in terms of getting containers through ports.” In southern California ports specifically, there’s been a 51% improvement in flow-through, he added.

In other positive signs, promotional products suppliers recently told ASI Media that cargo container pricing and availability have both improved – key developments as the containers are essential for getting overseas-made promo items to North America, and their relative cost can affect end-product pricing.

Furthermore, following two straight months of contraction, China’s manufacturing sector expanded in November, with a gauge particular to production output rising sharply, a good sign for promo and other industries that rely on Chinese manufacturers to produce the goods they sell.

Still, disruption remains.

For instance, China is imposing mandatory quarantines of up to seven weeks for returning Chinese seafarers, including those working on cargo ships. That’s leading to labor availability issues, making crew changes more difficult. It’s also compelling some ships to reroute to navigate around China’s restrictions, which prolongs delivery of shipments. Longer shipment times contribute to a problem that’s become familiar to promo products pros and cost some business throughout the year: lack of sufficient inventory.

Domestic problems persist, too. Low vacancy rates at warehouses in California’s Inland Empire are causing challenges, for instance.

And, as The Wall Street Journal reported, hundreds of thousands of empty cargo containers are still filling marine terminals and truckyards in southern California, “tying up scarce trucking equipment as ocean carriers scramble to return empty boxes to factories in Asia. The gridlock on the export side of U.S. supply chains is the mirror of the congestion tying up imports, and officials say it is complicating efforts to unwind the bottlenecks at the ports of Los Angeles and Long Beach.” Some 40% of imported cargo containers that enter the United States do so through those sister ports.

Supply chain experts in the promo products industry and beyond have opined that the disruption will likely continue through at least the first half of 2022 – a point Jim Snabe, chairman of German conglomerate Siemens and Danish shipping firm Maersk, reasserted in a Nov. 30 interview with CNBC.

Snabe said port congestion, resulting in part due to a shortage of truckers needed to transport goods out of port to their domestic destinations, is a primary culprit.

“You have higher demand and lower capacity, not because we don’t have enough (shipping) vessels, but because they’re not sailing due to congestion,” Snabe said. “We have to balance that out. We think this will happen somewhere mid-next year, but maybe not before.”

The next big variable, of course, is omicron.

It remains to be seen if the variant is more transmissible, causes more severe illness, and can beat protection offered by vaccines. Concern is high that the virus could drive wider-spread outbreaks, exacerbating labor shortages due to workers being out sick and potentially compelling governmental authorities to impose economy-hurting societal shutdown measures to curb the spread. So far, such measures don’t appear forthcoming in the U.S., but could be in China, according to some analysts.

With omicron spreading, businesses and investors should prepare for further unpredictable closures of factories and ports in China and restrictions on mobility and services, Craig Botham, chief China economist at Pantheon Macroeconomics in London, told the Journal.