The Supply Chain Crisis Explained

John Suder
Nov 23, 2021

A year ago your average consumer was not familiar or concerned with the term “supply chain”. Now as the holiday season approaches, we are facing empty shelves and rising costs, and the word supply chain is on every consumer's lips.

What Exactly is the Supply Chain

A supply chain is a connected system made up of organizations, information and resources designed to source out, manufacture or procure goods from suppliers to a destination – typically the end consumer. Supply chains span the entire process of any manufactured good, from distribution to sale. An efficient supply chain will seamlessly integrate all these functions and if managed properly will result in a lower cost for the manufacturers. Those cost savings are generally passed on to the customer. But when the supply chain is disrupted, costs quickly rise and goods become harder to get. One delay or misstep in the chain can result in days or weeks of lost revenue for distributors and retailers.

What Happened to the Supply Chain?

40 percent of all consumer goods coming through the docks in L.A. and Long Beach, California. There's been two years of bad weather, that pesky pandemic and a recent canal blockage that have contributed to this crisis. The pandemic crushed worldwide economies as manufacturing around the world and especially China, ground to a halt. As factories shuttered in China, locked down Americans switched to eCommerce to get their goods.

Analysts also point to Just-In-Time manufacturing – a strategy that encourages manufacturers to maintain a bare minimum of stock in their own factories to save space and costs, which is healthy for a manufacturers bottom line - until they can't get the parts and goods needed to do business.

There's plenty of finger-pointing: the suppliers are blaming the shippers, the shippers are blaming the ports and the carriers. But the problem at hand remains: too many goods coming in and not enough leaving the docks.

According to Bloomberg, 77% of the world’s ports are experiencing abnormally long turnaround times. Scores of ships still remain anchored off the coast of U.S. and Chinese ports, waiting for space to dock. These delays have sent freight costs to record highs, as of August 2020 rising over 300% year over year. This has caused many exporters with low profit margins to hold off on shipments. Shipping costs have dropped in September and October, but that still doesn't solve the logjam of ships at sea and the containers sitting idle at ports. Pilots are handling twice the amount of vessels coming to port. It used to take 2 days to unload a ship; it now takes 9 - if they can find room for the containers.

Trucks used to pull right in, grab a load and head out. Currently, empty trucks are arriving and being sent away because there’s no room for the empty containers. Now a container can sit on the docks for 8 weeks before they are transported out. There's also a shortage of truckers and trucks. The trucks that transport containers are called a chassis. Without a chassis you cannot move a container out of the dock. There's a shortage of these chassis because many of them are being used to store...empty containers instead of shipping goods. Trucks returning with empty containers are being turned away because there's no place to store those containers.

How Does It Affect My Business or Household?

Companies are pulling back ad spending so they're not advertising things they can't stock. Small retailers, already suffering from the lingering financial effects of the pandemic are disproportionately being squeezed out by the bigger retailers. Many businesses have their containers shitting in limbo, buried in a stack waiting to be transported. Goods are being held hostage by rail yards and being charged for storage fees, even if it's not the container owners fault the goods are just sitting there. Some retailers are charging 'supply chain surcharges’ to offset the explosive cost of obtaining their goods. Consumers this holiday season can expect to pay more for just about every consumer good within the supply chain.

How Can It Be Fixed?

There is no easy fix for this enormous problem. It's like trying to turn that giant ship in the middle of a canal. For one, President Biden says ports should be open 24/7. But they're already open 19 hours a day and still, nothing is moving.

It all comes down to poor planning. The current facilities are not designed to handle the number of goods passing through. Redevelopment is difficult to impossible, mainly due to the fact that the ports are owned by local municipalities and their budgets. That means the country's entire supply chain is being managed on a local level by the Port Authorities.

There’s also the ongoing labor shortage. Keeping warehouses open 24/7 won’t do much good if you can't find the manpower.

With port space at a premium, other port cities like Oakland and Jacksonville have volunteered to take more cargo. Trucking is another huge factor of this messy puzzle: there’s not enough chassis and not enough drivers. The country may be short as many as 80,000 drivers, according to the American Trucking Association. Improving pay, incentives, and working conditions for skilled drivers could help the equation.

There is good news on the horizon: China container ports are showing a decline in waiting ships. L.A. - Long Beach still has a queue of 75 ships sitting at the port, but the number of import containers at the Port of Los Angeles has dropped by 25% since last month, this is due in part to a proposed fee to charge carriers $100 per day for each container sitting on the docks for at least three days. As of this writing, the fee has been delayed until at least November 29, 2021.

Photo by Guillaume Bolduc on Unsplash

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