Round-the-clock work at some of the United States' ports addresses one link of the global supply chain, says Mike Steenhoek, executive director of the Soy Transportation Coalition. (Photo: Iowa Soybean Association)
Covid-19 kinks supply chain
October 20, 2021 | Bethany Baratta
Joined by leaders from the Port of Los Angeles, the Port of Long Beach, and the International Longshore and Warehouse Union, President Joe Biden announced efforts to address the stress confronting the global supply chain.
The Oct. 13 announcement of operating 24 hours a day, seven days a week was made to help address the stress confronting the global supply chain. The ports represented during the official announcement accommodate 40% of the shipping containers imported into the United States.
The round-the-clock efforts mean moving cargo off ships and onto trucks and railcars to reach their destinations quicker.
This is just one piece of the supply chain, says Mike Steenhoek, executive director of the Soy Transportation Coalition. But he’s hopeful these efforts will help to alleviate some of the pressure on the global supply chain.
“We applaud any effort by the president and any of our national leaders to help address our supply chain challenges,” Steenhoek says. “We are certainly hopeful that the announced measure and others in the future will help mitigate some of the pressure.”
How we got here
When the pandemic hit in the spring of 2020, global manufacturing was significantly curtailed. Stimulus funding from the federal government—particularly in the United States—increased consumer spending, but that spending was disproportionately directed toward goods and away from services (vacations, movies, etc.), according to Steenhoek.
This has imposed unprecedented pressure on manufacturing and the supply chains that service it.
“When manufacturing came back online last year, it was confronted with this surge of demand,” he said. “Manufacturing and the supply chain have been catching up ever since.”
This has been exacerbated by the normal surge of freight during the back-to-school season in the summer and in advance of the holiday shopping season, he says.
Increased demand pressure
The biggest challenge confronting the U.S. supply chain is a shortage of labor; every mode of transportation is struggling to fill their labor needs and round-the-clock port operations will require additional labor, Steenhoek says.
In the meantime, consumers continue to buy goods, which require transportation and reliance on the links in the supply chain. Companies have been negatively impacted by not being able to meet the needs of their customers due to supply chain shortages. As a result, these companies are purchasing inventory and components not just to meet current demand but also anticipated demand. Companies want to increase their inventory on hand to maintain operations, increasing demand for moving freight throughout the global supply chain.
Because of the pressure to move increased freight with a given capacity, there has been increasing pressure on bringing in shipping containers full of consumer goods or component parts from China to the United States, unload them and return them to China where they will be reloaded for repeat journey.
Therefore, there is an increased unwillingness for ocean vessel companies—the owners of the shipping containers—to allow them to deviate from this route to be loaded with agriculture or other production for export from the United States.
Consider this: the current spot rate to ship a container from China to the West Coast of the U.S. is $16,004. The rate to ship a container from the West Coast back to China is $1,020.
“If an ocean vessel company can be compensated almost 16 times for the front haul journey (China to the West Coast) vs. the back haul journey (West Coast to China), there will be a strong economic incentive to limit the amount of time a container is allowed to be transported to a distant location to be loaded with agricultural or other products that will pay less for the return journey,” Steenhoek says. “This lack of availability is causing significant stress for those U.S. agricultural exporters who utilize containers.”
Against this overall backdrop of a global supply chain stretched to its limits, a Covid-19 outbreak at a U.S. or international port has further limited fluidity. Other weather events like Hurricane Ida have added insult to injury in the United States’ ability to move agricultural and other freight.
While the images of dozens of ocean vessels in queue waiting for a berth at a port are compelling and succinct visuals, the challenges are very much manifest in each link of our supply chain—trucking, rail, barge, distribution centers, container availability, etc., says Steenhoek, who has been at the helm of the Soy Transportation Coalition since it was started in 2007.
“If each link of the chain is overly subscribed, mitigating stress on one link will simply pass that additional stress onto another link already under considerable stress,” he says.
These challenges aren’t limited to the United States, Steenhoek says. Over the past 18 months, some of the most congested port regions have been overseas, particularly in China.
“As nimble as the supply chain endeavors to be, it requires considerable time to respond to such a surge in demand,” Steenhoek says. He notes ocean vessels are expensive and take a long time to construct; ports have a limited number of cranes and storage facilities; freight railroads are capital intensive.