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Wednesday, October 13, 2021

Waiting to shop until Black Friday might be a terrible idea this year

It’s October. While that usually means pumpkin carving and stressing over last-minute Halloween costume ideas, you can add holiday shopping to your list this year.

The breakdown of the global supply chain, caused by the coronavirus pandemic and further exacerbated by the Delta variant, has created a massive backlog impacting consumer goods across the board. Big-ticket items like consumer electronics haven’t been spared, as anyone looking to purchase a new game console can tell you.

How can you ensure you get your mother-in-law that new tablet before the holidays at a decent price? Believe it or not, start shopping now. Or at the very least, get ready to buy the item you want the moment it goes on sale.

“If it’s consumer electronics, there is going to be a shortage,” Arizona State University W.P. Carey School of Business professor Hitendra Chaturvedi told Yahoo Finance.

“There is going to be a price increase. And people are buying much earlier, and the Black Friday deals that you see in retail stores and online are going to be very, very few and far between.”

Buy now, not tomorrow

The best way to avoid running into problems either online or in stores when it comes to buying consumer electronics in time for the holidays, experts say, is to start shopping yesterday. I’ve personally spoken to friends and family who have already begun buying gifts, something they’d never done so early before.

“Buy early, buy last week, buy last month,” Bill Eisele, senior research engineer at the Texas A&M Transportation Institute, told Yahoo Finance.

“Almost certainly the costs will go up, all the shipping and handling and transportation surcharges are certainly going to be included and all that cost is going to be passed on to the consumer,” Eisele said.

Container ships wait off the coast of the congested Ports of Los Angeles and Long Beach in Long Beach, California, U.S., October 1, 2021. REUTERS/ Alan Devall

Costs for computers, peripherals, and smart home assistants rose as much as 2.5% year-over-year in May, according to Federal Reserve data. That has since jumped 8.5% as of September.

According to Chaturvedi and his students’ research, the price of a basic HP laptop increased 6% from July through September. A printer? Try 8% to 10%. And if the products you’re looking for haven’t increased in price, they’re likely sold out. Just look at Sony’s (SONY) PlayStation 5 or Microsoft’s (MSFT) Xbox Series X, both of which have been incredibly difficult to buy since they launched last November.

Meanwhile, graphics cards made by the likes of Nvidia (NVDA) and AMD (AMD) have been in short supply due to both the chip shortage and crypto miners who are buying cards as soon as they become available to power mining rigs and take advantage of skyrocketing cryptocurrency prices (BTC-USD). And what little cards are available have increased in price dramatically.

Nvidia’s RTX 3070 TI card, for instance, normally sells for $599, but on Amazon (AMZN) the same card is going for as much as $1,100 to $1,200.

“This hasn’t stopped yet,” Chaturvedi added. “I think the price could go a little bit higher, and you’re going to see shortages online. And the big reason is chips.”

The supply chain is broken

If you’ve been following the latest business news, you know that the global supply chain has ground to a snail’s pace. Normally, the system runs with little margin for error, with manufacturers keeping as little raw material on hand as possible to keep costs low.

But as factories shut down at the start of the pandemic in early 2020, consumers stuck in their homes caused a run on everything from laptops to smartphones. Automakers, expecting a steep drop in car sales, pared their chip orders, but were stung when consumer demand outpaced availability.

The ramp-up of automotive manufacturing and the massive demand for consumer electronics pushed chip makers beyond their limits. And it’s not as though chip makers can just build a new fabrication plant, or fab, and start pumping out new chips.

Plants take years to build, and need to be constructed in specific regions with little to no seismic activity to prevent errors in chip production. Heck, manufacturing a chip on its own can take as long as three months depending on its complexity.

U.S. President Joe Biden delivers holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in the State Dining Room at the White House in Washington, U.S., February 24, 2021. REUTERS/Jonathan Ernst     TPX IMAGES OF THE DAY

U.S. President Joe Biden delivers holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in the State Dining Room at the White House in Washington, U.S., February 24, 2021. REUTERS/Jonathan Ernst

All of that is to say that the chip shortage and its impact on the pricing and availability of goods isn’t going to ease up anytime soon.

“We do think there’ll be a pretty good sized impact on the holiday shopping season for tech products,” explained Peter Hanbury, a semiconductor supply chain expert at Bain & Company.

“There’ll be other challenges like the shipping challenges, shortages in other types of materials. We do think at least when it comes to tech products, the semiconductor shortage specifically will be one of the primary drivers of the challenges coming up in the upcoming holiday season,” he added.

The mighty Apple itself is facing difficulties with the chip shortage, with Bloomberg reporting the company is set to cut its 2021 iPhone 13 production by as much as 10 million units.

Even if by some miracle the semiconductor industry produces as many chips as its customers need, the rest of the supply chain will still be in utter disarray. Ports like those in Los Angeles and Long Beach in California, running low on the workers needed to deal with the huge influx of arriving goods, have a backlog of container ships anchored off shore.

And even if those workers managed to blast through the huge number of ships waiting to unload their goods, a lack of truckers is making it difficult to transport those products from the ports to stores and eventually to customers.

Some big-name electronics makers may be able to ship their goods via air freight, thereby avoiding the slowdown at the ports. But they’d also be hurt by the trucker shortages.

“Across the globe, the supply chains are really stressed for raw materials, capacity, containers,” Eisele explained.

“And then you’ve got the issues of labor and productivity at the ports, and then you’ve stretched capacity with trucks and delivery. All of that really sums up to the perfect storm of what we’re seeing.”

When are we getting out of this?

With so much slowdown in the global supply chain, when can consumers expect prices and product availability to return to some semblance of normalcy? Not for some time, unfortunately.

“What’s going to happen is that right now we are … literally firefighting, you’re trying to get orders as quickly as possible,” Chaturvedi said. “So this will continue until about January, February and then after that, what will happen is that the retailers will try to put as much stock in their inventory as possible.”

That, however, might further exacerbate the shipping slowdowns we’re seeing.

At the earliest, Chaturvedi says the crunch could ease up by the 2022 holiday shopping season. In the worst case scenario? We could be facing issues well into the summer of 2023.

For this holiday season, the answer is easy. Stop Googling Halloween costume ideas for your dachshund and start checking off items on that holiday shopping list.

By Daniel Howley, tech editor at Yahoo Finance.

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