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Large Scale effects of Covid-19 on Costco and other major corporations

Aleksei D. Krasnozhon

ENGL 10803

Dr. Stacey Said

October 10, 2021

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Large Scale effects of Covid-19 on Costco and other major corporations

The shelves might be empty, again. Last year major retail stores were experiencing a

shortage of essential merchandise including water, hand soap, cleaning products, etc. because of

the complications caused by the Covid-19 virus. A year and a half after the pandemic began,

stores might be experiencing deficits once again, but for different reasons. The global pandemic

has affected the economy in various ways, and it has caused a disruption within the supply-

demand chain. Many major companies are experiencing a shortage in their inventory. Therefore,

a significant amount of supermarket chains, convenience stores, and grocery stores are

involuntarily implementing restrictions on their customers. One of the major companies facing a

possible inventory shortage of household products is Costco. Shipping delays and shortages of

employees are causing Costco to have product deficits and apply buying limits on certain items. 

The shortage of merchandise itself was a problem for Costco last year, but future possible

shortages of the merchandise would be caused by the shipping delays and shortage of seaport

employees. According to Costco’s Chief Financial officer, Costco has, “...got plenty of

merchandise but there’s two- or three-week delays on getting it delivered because there’s a limit

on short-term changes to trucking and delivery needs of the suppliers, so it really is all over the

board” (Repko, 2021). The primary way of delivering the merchandise is by the sea with the use

of cargo ships. Cargo ships full of products have been sitting outside the docking stations near

Los Angeles, and seaports have been backed up since the pandemic began (Thomas, 2021). To

put it in perspective, the port of Los Angeles and Port of Long Beach combined are responsible

for 40% of containers that come into the United States (Los Angeles County Economic

Development Corporation, 2020). The upcoming consumer demand for holiday items will put a

further strain on the port's loading/unloading operations (Fertel, 2021). Aside from the large
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consumer demands, ports are having difficulties unloading the ships due to the national labor

shortage. The public hypothesis of the national labor shortage and higher unemployment rates

has put the blame on the federal unemployment benefits. While there is limited research on the

matter, one of the studies done in April 2021 by Peter Ganong, Fiona Greig, Pascal Noel, Daniel

M. Sullivan and Joseph Vavra suggests that the public hypothesis is wrong. Micro and Macro

Disincentive Effects of Expanded Unemployment Benefits document states that, “We conclude

that unemployment supplements are not the key driver of the job-finding rate through April 2021

and that U.S. policy was therefore successful in insuring income losses from unemployment with

minimal impacts on employment”(Ganong et al., 2021). While the cause of the national labor

shortage remains unclear, the causes of shipping delays for Costco are the surging demand for

the merchandise by the consumers combined with a shortage of the employees in the ports. The

pandemic and shutdowns redirected the spending of the consumers which caused the surging

demand for goods. This surging demand for goods, in turn, caused the unusual volume of cargo

coming in (Fertel, 2021). The shortage of labor slows down the rate at which ships can be

unloaded, and as a result there are further delays. Therefore, COVID-19 is the root problem of

delays and possible shortages for Costco and other major retail companies. 

The shipping delays affect Costco as well as other companies and customers in the

following ways: rising shipping costs for the companies, shopping limits, limited availability and

inflation for the consumers. Rising shipping costs for the companies are a serious concern for the

major retailers. The average price to ship a container from Asia to Europe or the United States is

four times higher compared to last year (Page, 2021). The inflation of shipping costs present

companies with a set of challenges. Do they increase the cost of goods for the consumers, or do

they place purchase limitations on certain items? According to Costco's official website, some of
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its “warehouses may have temporary item limits on select items” (Costco, 2021). While the

company does not specify which stores enforced purchasing limits and on what products, it is

evident that the rising shipping costs are directly influencing consumers. However, the retailer is

upfront about its increasing prices.  For example, Richard Galanti, Costco’s Financial Chief

Officer, during his conference call with CNBC, mentioned that the increase in shipping costs and

other services (such as labor) is being passed onto the consumers in the form of increasing prices

(Cox, 2021). Overall, the shipping complications will increase Costco’s prices between 3.5% and

4.5%, which is significant (Cox, 2021). With the holiday season approaching and the seaports

already backed up, many companies are struggling to place seasonal products on the shelves in

time for the upcoming holidays such as Halloween, Thanksgiving and Christmas (Whitten &

Repko, 2021). During the height of the pandemic last year, retailers were placing buying

restrictions on merchandise. This year the retailers have the merchandise sitting in the harbor.

Items such as hand soap, paper towels and other essentials can be sold throughout the year, but

the seasonal items specific to holidays can only be sold during the holiday season. It will be

compelling to see what companies, including Costco, will do with the seasonal merchandise if it

does not arrive in stores in time for the holidays. Will we see pumpkin carving kits, abnormal

amounts of candy and Christmas trees in the clearance section this summer, or will the

merchandise be kept in warehouses until the following year? 

Costco is not the only major company experiencing merchandise issues and employing

shortages. According to my own research, companies do see an ending to shipping delays, and

have seen improvement on labor shortages. During my interview with the store manager of

Johnston and Murphy, Terry Roberston stated that the company is expecting to resolve shipping

issues by the end of November. He also stated, “The inventory shortages and delays do not scare
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the customers because many are willing to wait for the product to arrive.” Robertson said that the

“employee shortage is a bigger issue at hand, but I have seen an increase in applications

compared to this summer.” Costco, Johnston and Murphy and other companies are working

through shipping complications and national labor shortages, and consumers must continue to

accept the reality of inflation and shopping limits until these issues are resolved.
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References

Costco. (2021, August 28). Covid updates | Costco. Costco Covid Updates. Retrieved October

10, 2021, from https://www.costco.com/covid-updates.html.

Cox, J. (2021, September 25). Costco, Nike and Fedex are warning there's more inflation set to

hit consumers as holidays approach. CNBC. Retrieved October 10, 2021, from

https://www.cnbc.com/2021/09/24/costco-nike-and-fedex-are-warning-theres-more-

inflation-set-to-hit-consumers-as-holidays-approach.html. 

Fertel, I. (2021, October 2). No, back-up of cargo ships off Southern California coast not due to

'manufactured supply-chain halt'. CapRadio.org. Retrieved October 10, 2021, from

https://www.capradio.org/articles/2021/10/02/no-back-up-of-cargo-ships-off-southern-

california-coast-not-due-to-manufactured-supply-chain-halt/.

Ganong, P., Greig, F., Noel, P., Sullivan, D. M., & Vavra, J. (2021). The impact of the Federal

Pandemic Unemployment Compensation on job search and vacancy creation. Journal of

Public Economics.

Longley, A., Bosley, C., & Hipwell, D. (2021, June 13). Surge in shipping costs could cause

price hikes for goods. Time. Retrieved October 10, 2021, from

https://time.com/6073233/shipping-costs-surge-price-hike-goods/. 

Los Angeles County Economic Development Corporation. (2020, June 8). Exports and goods

movement. Los Angeles County Economic Development Corporation. Retrieved October

10, 2021, from https://laedc.org/wtc/chooselacounty/infrastructure-goods-movement/. 

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Page, P. (2021, July 5). Container shipping prices skyrocket as rush to move goods picks up. The

Wall Street Journal. Retrieved October 10, 2021, from

https://www.wsj.com/articles/container-ship-prices-skyrocket-as-rush-to-move-goods-

picks-up-11625482800. 

Repko, M. (2021, September 23). Costco brings back purchase limits on toilet paper, cleaning

supplies and more. CNBC. Retrieved October 10, 2021, from

https://www.cnbc.com/2021/09/23/costco-brings-back-purchase-limits-on-toilet-paper-

and-more.html. 

Thomas, D. (2021, September 21). Record backlog of cargo ships at California Ports. BBC

News. Retrieved October 10, 2021, from https://www.bbc.com/news/business-

58643717. 

Whitten, S., & Repko, M. (2021, October 7). Toymakers warn delays in stocking retail shelves

could create a 4-month holiday hangover. CNBC. Retrieved October 10, 2021, from

https://www.cnbc.com/2021/10/06/how-toy-companies-are-grappling-with-shipping-

delays-this-holiday.html.