The Supply Chain Pandemic Continues: What Has Changed and What to Expect for the Holiday Season
My October 29 post described the condition of the global supply chain, particularly the backup and its impact on the holiday shopping season, but also the United States and global economic recovery. Click here to read it.
On Tuesday, November 9, President Biden spoke to the chief executives of major retailers and shipping companies about actions the U.S. government and industry could take to alleviate the supply chain back-up in shipping ports around the country. In response, the heads of Walmart, Target, UPS, and FedEx described for the president the actions they are taking to speed up the shipping process through the system to ensure that store shelves will be “well-stocked before the holiday season.”
Supply Chain Pandemic
While that talk was going on, ships continued to arrive, anchoring off the coasts of major shipping ports around the country. For months, the shipping industry, ports, shipyards, truckers, and warehouses have experienced backlogs, impeding their ability to get products to retailers. “On Monday, a near-record 77 container ships were anchored off the ports of Los Angeles and Long Beach while waiting for dockside space to become available.” Washington Post, David Lynch (11-09- 2021). Containers arriving in Savanah, Georgia, have been sitting on the dock more than twice as long as the port’s goal, now an average of eight-and-a-half days. Savanah now has more than 30,000 containers of imported products sitting on docks, which according to the Georgia Port Authority website is 50% more than the port’s operating goal. Washington Post.
This supply chain pandemic, bolstered by a significant increase in the volume of goods being purchased by Americans (some estimates cite a 30% increase in imported goods), continues to stress the Fed. The Labor Department’s October producer price index, which measures wholesale prices, was 8.6% higher than a year ago. Jeff Cox, CNBC (11-09-2021). The backup in the supply chain accounted for 60% of that increase. Mahir Rasheed, Oxford Economics.
The Infrastructure Bill and the Supply Chain Backlog
But the bipartisan infrastructure bill that Congress approved last week brings good news in the form of $17 billion in ports funding. And according to senior administration officials, briefing the press on the condition of anonymity, the Biden administration plans to award an additional $243 million in new port and marine infrastructure grants. Biden administration officials also announced plans to prioritize ports of entry for $3.4 billion of modernizing work and to have the U.S. Army Corps of Engineers identify additional targets for $4 billion of additional spending “to repair outdated infrastructure and to deepen harbors for target cargo ships.” The White House.
So what can be done to ameliorate the supply chain backlog and what appears to be a fragile U.S. logistics system? As noted in my prior post, critical equipment like shipping containers, trailer chassis, and storage space are in short supply; and probably most important, there are just not enough crane operators and drivers available to move all those containers.
The hit-list noted by experts in the field includes the following:
(i) unclog the ports and free up shipping equipment – charge additional fees for containers that are not unloaded within a specified number of days or reroute ships to less busy ports;
(ii) acquire additional chassis to load and move the containers – while experts note that as a solution, it seems to be a long term one, particularly given the current trade dispute between and American manufacturers and the China International Marine Containers (“CIMC”); right now there exists a tariff on chassis produced in China due to American manufacturers claiming that the CIMC, the world’s largest chassis manufacturer, is dumping chassis in the U.S. market below-market rates. Truckers and the Port of Los Angeles are urging President Biden to rescind the tax and exclude chassis from tariffs;
(iii) identify additional warehouse space – that may not be a readily available solution given the already limited warehouse space in the vicinities of the ports. Warehouse space within 100 miles of the Port of Los Angeles is at 0.7% availability. Rebecca Heilweil – recode (11-05-2021). Warehouse labor also contributes to the problem – just not enough laborers are willing to work for the levels of pay and benefits offered, let alone taking the risk of catching Covid-19;
(iv) Ms. Heilweil also suggested making it easier to become a licensed truck driver, noting that according to the American Trucking Association, “right now, the country may be short as many as 80,000 drivers”; and
(v) finally, the federal government can take action that would include extending the limit on the number of hours truckers can drive in a day.
What is next?
At the end of the day, the shutdown of the economy — particularly the global economy — because of Covid-19 is not something that can be immediately cured. “All parts of the supply chain, most of which are built on “lean” principles (no slack, little redundancy, from truck drivers to inventory in a warehouse) were not prepared for this increase. While consumer demand can increase in a matter of months, it takes more time to increase port capacity, build warehouses, hire employees, etc., to meet that demand.” Tony Pelli, Practice Director of Security & Resilience, BSI. To accomplish all of that will take a team effort of government, the shipping industry, ports and warehouses, labor, truckers, and retailers working together to get the supply chain back on track. Many experts don’t expect those results until at least the end of the second or third quarter 2022.