Supply Chain Disruptions on Center Stage
October 19, 2021
By Mike Steenhoek, Executive Director of the Soy Transportation Coalition
Many saw the remarks last week by President Biden regarding the efforts to address the stress confronting the global supply chain (https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/10/13/remarks-by-president-biden-on-supply-chain-bottlenecks/). The President was joined by leaders from the Port of Los Angeles, the Port of Long Beach, and the International Longshore and Warehouse Union (ILWU) – the union representing port workers along the West Coast. Combined, the Ports of Los Angeles and Long Beach constitute the largest port complex serving the United States. In short, the three leaders announced the movement toward operating 24 hours a day, seven days a week in order to help address the stress confronting the global supply chain.
We applaud any effort by the President and any of our national leaders to help address our supply chain challenges. We are certainly hopeful that the measures announced yesterday and others in the future will help mitigate some of the pressure.
Given how there is so much attention on the global supply chain, the following thoughts and comments may be of interest.
The overwhelming cause for the stress confronting our global supply chain is the surge in consumer spending away from services into goods. 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.). 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. 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.
The stress confronting the global supply chain is not just limited to one mode of transportation. The images of dozens of ocean vessels in queue waiting for a berth at a port are compelling and succinct visuals, but our challenges are very much manifest in each link of our supply chain – trucking, rail, barge, distribution centers, container availability, etc. 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.
These challenges are not limited to the United States. Over the past year and a half, 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. Ocean vessels are very expensive and take a long time to construct. Ports have a limited number of cranes and storage facilities. Freight railroads are very capital intensive.
That being said, arguably the biggest challenge confronting our supply chain in the United States is a shortage of labor. Every mode of transportation is struggling to fill their labor needs. Trucking, barge, freight rail, and others are competing with other industries for labor. There has been a persistent shortage of truck drivers for a number of years, but it has become enhanced due to the pandemic. Trucking, which requires considerable time away from home, is not an appealing occupation for many workers. This challenge also confronts the barge industry. The journey from the Upper Mississippi River to export terminals near New Orleans can easily take two weeks. A barge worker making that return journey will therefore work 28 days followed by 2-3 weeks off. Some workers are attracted to this type of schedule, but many do not. Therefore, increased hours of operation at port facilities and elsewhere may be beneficial, but that requires having a sufficient number of workers to operate them. That remains a challenge.
When shopping at the grocery store, many of us have experienced the frustration of our favorite items not being in stock. After multiple attempts to find and purchase the favorite item, one may finally be delighted to find the item back in stock. When that occurs, what do we do? We don’t simply purchase one item. We purchase several. This phenomenon is also on display in many industries, including retail and manufacturing. 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. They do not want to be caught flat-footed again. Companies want to increase their inventory on hand in order to maintain operations. This is adding additional 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 in order to be loaded with agricultural or other products for export from the United States. 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 in order to be loaded with agricultural or other products that will pay less for the return journey. This lack of availability is causing significant stress for those U.S. agricultural exporters who utilize containers.
Against this overall backdrop of an overly subscribed global supply chain, a COVID outbreak at a U.S. or international port has further limited fluidity. Other weather events like Hurricane Ida have added insult to injury in our ability to move agricultural and other freight.