The Port of Los Angeles on Oct. 17, 2021. With the havoc at ports showing no signs of abating and prices for a vast array of goods still rising, the world is absorbing a troubling realization: time alone will not solve the Great Supply Chain Disruption. (Erin Schaff/The New York Times)
ith the havoc at ports showing no signs of abating and prices for a vast array of goods still rising, the world is absorbing a troubling realization: Time alone will not solve the Great Supply Chain Disruption.
It will require investment, technology and a refashioning of the incentives at play across global business. It will take more ships, additional warehouses and an influx of truck drivers, none of which can be conjured quickly or cheaply. Many months, and perhaps years, are likely to transpire before the chaos subsides.
“It’s unlikely to happen in 2022,” said Phil Levy, chief economist at Flexport, a freight forwarding company based in San Francisco. “My crystal ball gets murky further out.”
For those who keep tabs on the global supply chain
, the very concept of a return to normalcy has given way to a begrudging acceptance that a new normal may be unfolding.
Cheap and reliable shipping may no longer be taken as a given, forcing manufacturers to move production closer to customers. After decades of reliance on lean warehouses and online systems that monitor inventory and summon goods as needed — a boon to shareholders — manufacturers may revert to a more prudent focus on extra capacity.
The deepening understanding that the supply chain crisis has staying power poses a daunting challenge to policymakers
Mayhem at factories, ports and shipping yards, combined with the market dominance of major companies, is a key driver for rising prices. Spooked by the highest rates of inflation in decades, the Federal Reserve has resolved to tighten credit, while the Bank of England and other central banks have already lifted interest rates, sowing alarm in stock markets
from New York to Tokyo.
Public anger over rising consumer prices — especially for food and fuel — helps explain why Democrats may be in danger of losing control of Congress.
Record beef prices, along with rising costs for pork and poultry, have prompted the Biden
administration to pursue the prospect of antitrust enforcement against the four companies that dominate the U.S. meat supply.
But whatever the politicians and central bankers unleash in the name of taming inflation, businesses continue to struggle to manufacture and distribute their products.
Whirlpool recently warned that customers who purchased its washing machines, refrigerators and other household appliances would continue to experience delays as the company contended with supply chain problems.
Even as Tesla
last week announced record profits amid overwhelming demand for its electric cars, the company said that sales would be hurt by difficulties in the supply chain — not least due to continued shortages of computer chips.
The chip shortage has limited the production of cars worldwide, while stymying makers of medical devices and a vast range of electronic gadgets. U.S. Commerce Secretary Gina Raimondo recently described persistent chip shortages as an “alarming” threat to American
The International Monetary Fund
last week cited supply chain woes among other factors as it downgraded its forecast for global economic growth for 2022 to 4.4% from 4.9%.
The breadth and persistence of supply chain troubles in part result from how the coronavirus pandemic has accelerated trends that have been unfolding for decades, especially the growth of e-commerce
Whereas major brands traditionally ship goods from factories around the world to central warehouses that supply retail outlets, e-commerce
demands a far more complicated endeavor: Retailers must deliver individual orders to homes and businesses.
As warehouses have been swamped by goods, major retailers have added capacity at a breakneck pace. Amazon spent more than $164 million to construct new warehouse space last year, while Lowe’s, the home improvement retailer, spent more than $17 million, according to Reonomy, a commercial real estate data provider.
Warehouses are stuffed to the rafters in the places with the most demand — those near the largest metropolitan areas.
As of late last year, warehouses in the Inland Empire region of Southern California had vacancy rates of less than 1%, according to CBRE Group, a commercial real estate
services and investment company. Those in northern New Jersey had vacancy rates of only 2.4%.
“The basic physics of land scarcity matters quite a bit,” said Chris Caton, managing director of global strategy and analytics at Prologis, a real estate investment trust focused on warehouses. “If you look at Southern California, you look at the greater New York
-New Jersey area, there’s just no more land in the most sought-after locations.”
The tightness in warehouses helps explain why U.S. ports remain seized by dysfunction, especially the busiest one, the complex of terminals at Los Angeles and Long Beach. With limited room to stash goods offloaded from inbound vessels, containers have piled up on docks uncollected. That has prompted port overseers to force ships to float offshore for days and even weeks before they can unload.
Over the last three months, container ships unloading goods have remained at U.S. ports for seven days on average, an increase of 4% compared with all of 2021, and 21% higher than at the start of the pandemic, according to FourKites, a supply chain consultancy based in Chicago.
As ports work through the backlog, they are contending with structural problems — aging and overtaxed infrastructure, a shortage of chassis used to haul containers with trucks, and not enough drivers, even as trucking companies increase pay.
Shipping companies are hobbled by outmoded technology
that has limited their ability to anticipate and plan around problems.
“Those systemic problems in the supply chains, this has been building for years,” said Steve Dowse, senior vice president and general manager for international solutions at FourKites. “The pandemic has really just highlighted the fragility of our supply chains.”
Even as companies confront the supply chain upheaval, the costs and complexity of solving their troubles may dissuade executives from taking effective action.
In a recent survey of more than 3,000 CEOs conducted by consulting firm Alix Partners, fewer than half said they were taking longer-term action to alleviate supply chain challenges, while a majority said they were relying on short-term measures. Regardless of their approach, more than three-fourths of CEOs were skeptical that their plans would prove effective.
The supply chain problems have endured despite much talk that they would prove a largely momentary phenomenon resulting from the pandemic
In the initial months of the spread of COVID-19 — as markets plunged and American businesses laid off workers — manufacturers slashed orders for a vast array of goods on the assumption that health fears, lockdowns and diminished paychecks would limit demand for their wares.
Using the same logic, computer chip manufacturers cut production. Global shipping companies reduced service.
That calculus proved disastrously wrong.
The pandemic did not eliminate spending so much as shift it around. People stopped going to restaurants, sporting events and amusement parks, while directing their dollars to outfitting their homes for life under lockdown
. They added treadmills to their basements, desk chairs to their bedroom offices and video game consoles to their living rooms.
Many of these goods were made in China. And the surge of demand swamped the availability of shipping containers at ports in Asia, delaying transport.
As ships arrived at ports from Los Angeles to Savannah, Georgia, they carried more cargo than dockworkers and truck drivers could handle. Stacks of uncollected containers towered like monuments to globalization
Shipping companies have expanded their fleets, but the impact has been canceled out by the number of vessels marooned off ports.
“A ship that’s queued up is not a ship that’s moving stuff back and forth across the ocean,” Levy, the Flexport chief economist, said. “It’s a floating warehouse.”
Many economists assumed that after a few months, Americans would exhaust their demand for products, allowing the supply chain to catch up. As vaccines
reached the bloodstream and the pandemic loosened its grip on many parts of the world, it was thought that consumers would stop buying stand mixers and return to restaurants.
This shift has yet to happen meaningfully — a seeming testament to the economic impact of COVID-19 variants like delta and omicron
, which have led many to return to social isolation.
The biggest uncertainty centers on what happens next.
Once a household spends several thousand dollars to outfit an exercise room in the basement, its occupants may not return to their old gym after the pandemic ends. Rather than shell out for a gym membership, they may opt to invest in additional gear at home, adding more weights or an elliptical.
As white-collar professionals begin a third year in their home offices, attending video conferences in sweatpants, how many will jump at the chance to again don business attire? And what does that mean for retailers that sell such clothing?
These are merely some of the variables at play as businesses try to divine the future. The dearth of solid information
may dissuade investments — in trucking, in shipping, in warehouses, in technology — that might ease the supply chain upheaval.
“All of these head-scratching puzzles, these are really difficult,” Levy said. “Everybody is wary of getting caught out.”
©2019 New York Times News Service