Supply Chain Strains – What’s Happening?
Freight shipping industries have entered their busiest month of the year in preparation for the holiday season, and national attention has turned to a series of interlocking supply chain problems set in motion by the pandemic in 2020. Ports are overwhelmed, once reliable goods are unavailable, and some orders are taking months to arrive. What’s happening?
In short, consumer spending in the United States has rocketed to record highs due to a strong economic recovery. In doing so, it exposed weaknesses in the global capacity to move record levels of goods, caused by both long-term trends and the dislocations of the pandemic.
2020 Was Wild
In the early months of 2020, the initial onset of the pandemic led shipping firms and many manufacturers to conclude that a deep global recession had arrived. Companies canceled orders and prepared for survival, recalling the lean days following the economic collapse of 2007. However, demand was surging again by the Fall as factories poured out items related to the pandemic such as facemasks, surgical gowns. Among the broader public, the pandemic led to a shift in consumption choices away from services and toward goods. Fewer restaurant dinners and more home remodeling projects, fewer aerobics classes, and more home gym equipment. Retailers not only placed large orders to accommodate the demand but also to replace the inventory they had allowed to become depleted when they expected a sustained recession.
Demand had surged while production was shut down. As production came back, a large number of back-orders were filled, but the supply chain lacked the workers, transportation, and warehouse capacity to handle the surge. The sharp drop in economic activity in the Spring was balanced by an equally sharp surge in the Fall, compressing a normal year’s worth of activity into a few frantic months.
Standardized steel shipping containers are the workhorses of global trade, carrying 54 percent of the world’s goods. Amid the sharp upswing in cargo moving from Asia to Europe and North America in the Fall of 2020, the world’s supply of shipping containers was dislocated, stranding surplus empty containers at their destinations and creating a bottleneck simply for want of something within which to additional ship goods. Containers unable to be loaded in one place are unable to be unloaded somewhere else, and vice versa. Containers that carried masks to Africa and South America remained there, while shippers focused on keeping on the major routes connecting Europe, Asia, and North America open. Empty containers piled up in Australia, New Zealand, Europe, and the United States – 80,000 in the port of Savannah alone, while South and East Asian countries suffered chronic shortages.
East Asian Obstacles
Western Pacific nations have continued to struggle, not only from the shipping container shortage but due to power shortages and because vaccine distribution has been significantly slower and public health measures more extreme in reaction to the Delta variant surge than they have in the United States. Vietnam, the second-largest source for clothes and footwear exported to the United States, entered a countrywide lockdown in September. Factories continued operations with skeleton staff forced to live on-premises. Indonesia and Malaysia underwent similar experiences. The global recovery has led to an energy shortage as oil, natural gas and coal have become more expensive, a problem that has particularly impacted Chinese manufacturers.
Hopes that the system could be corrected by mid-summer 2021 were dashed as a sharp upward adjustment in demand for consumer goods due to the strong economic recovery in the United States placed overwhelming pressure on the system. Spending in the United States rose sharply and unexpectedly at the end of the Summer. Shipping reached its busiest season in September and October in preparation for the holiday season. Both at ports and throughout the country, an ongoing labor shortage of dockhands, truckers and train operators has been exacerbated by the waves of increased sick days and quarantines.
At Los Angeles and Long Beach, which together form the largest port complex in the United States, cargo is flowing at levels up to 30 percent higher than in 2020 and the highest volume September in the last 114 years. In spite of the stunning volume being processed, transoceanic container ships, the largest of which carry the equivalent of a 44-mile long freight train, have been idling at anchor in San Pedro bay waiting to unload their cargo for weeks at a time. At one point in September, 25 ships were waiting to unload, at another in October the number hovered in the low 60s.
Few U.S. seaports outside of Los Angeles and Long Beach have the large gantry cranes needed to move massive transoceanic shipping containers and many including Los Angeles and Long Beach lack the road and rail capacity to deal with the levels of cargo attempting to funnel through them. More than 180,000 truck drivers move containers in and out of the port and container yards at the Southern California ports, but more are needed and a lack of coordination makes efficiency elusive. Rail car shortages have made it difficult to get cargo off the docks in Seattle, and at the nation’s third-largest port in Savannah, empty containers loaded on rail chassis have led to a shortage of available chassis to properly unload the containers on the ships anchored and waiting to dock.
Where to Now?
At present nearly 13 percent of the world’s cargo shipping capacity is delayed, and it’s taking almost twice as long for goods to travel from Asia to the United States. By some estimates up to a quarter of the goods delayed on container ships may not make it to retailers’ shelves in time for Black Friday.
While it’s possible that import volumes may stabilize after Thanksgiving, allowing the ports room to run down their backlog of ships waiting to dock, many do not expect the snarls in the supply chain to be resolved before 2022. In the short term, large retailers like Target, Walmart, Costco, Dollar Tree, and Home Depot have begun to charter their own vessels and firms are diverting vessels of all kinds to increase shipping capacity and bypass overloaded ports. The port of Los Angeles has extended its hours overnight and almost doubled its hours of operation, following an agreement with the International Longshore and Warehouse Union for extended work hours.
Some large companies have agreed to move more products at night to ease congestion and under a new operating plan rather than cargo owners picking up their cargo when they are ready, the ports are identifying cargo owners and having them make commitments to pick up their containers. They are also getting commitments from container shipping companies to have the same number of exports and empty containers returned so that trucking firms have quick round-trip turnaround times at the port.
Much of the supply chain disruption happens in the middle mile, but the diversion of LTL capacity to handle an overloaded supply chain has left end-mile deliveries as a neglected priority. White-Glove services offer an engaged level of service, use added care, and go beyond what is offered by other LTL carriers. Rather than optimizing for volume, their operations are optimized around customer experience, with a focus on how it positively or negatively impacts customer perception of the brand of the product they are delivering.
ExpressIT is a White-Glove LTL service that offers real-time shipping, providing the ease of tracking, proactive communication, and flexible delivery experience required by a growing segment of e-commerce customers, and the brands that value them.