Fresh coronavirus outbreaks are forcing factory shutdowns in countries such as Vietnam and Bangladesh, aggravating supply chain disruptions that could leave some U.S. retailers with empty shelves as consumers begin their back-to-school shopping.
Supply headaches stretching from Asian factory towns to the American Midwest are intensifying as the economic recovery tries to outrun the highly infectious delta variant. Aftershocks from earlier limits on a major Chinese port following a rash of covid-19 cases are expected later this month to worsen backlogs at U.S. West Coast facilities.
Chronic shipping delays also are feeding inflation, just as consumers prepare to stock up for the coming school year. Spot shortages of clothing and footwear could appear within weeks, and popular toys may be scarce during the holiday season. Even as the U.S. economy is slated to enjoy its fastest growth since 1984, supply lines now are expected to remain snarled through the first half of next year or longer, according to corporate executives.
“Whatever the new normal is, it will happen a lot later than people assume,” Marc Bitzer, chief executive of Whirlpool, told analysts Thursday. “Everybody hopes for [the] new normal to be next quarter. It’s not going to be.”
The pandemic has exposed fragile global supply chains across multiple continents. No sooner did the recent reopening of southern China’s Yantian port solve one problem than the closure of Bangladeshi factories until Aug. 5 created another.
White House economists say interruptions in the supply of semiconductors and home building materials are contributing to the highest inflation in 13 years. The president earlier this month signed an executive order designed to increase competition and lower prices in the shipping and freight rail markets, but any impact will be felt only in the long run.
Corporations such as Levi Strauss, Harley-Davidson and Unilever are among those rewiring their supply lines or raising prices to offset higher input costs.
But the Biden administration has parried industry calls to help companies financially by eliminating import tariffs on Chinese products or to use the National Guard to physically clear the cargo jam.
“There are things that could be done if they took it seriously as a crisis,” said Rick Woldenberg, chief executive of Learning Resources, a maker of educational toys.
The interruption of Chinese manufacturing at the pandemic’s outset toppled the first of several dominoes leading to today’s global supply chain pileup. While Chinese factories quickly returned to normal operations, an unexpected increase in American demand for goods during the work-from-home era discombobulated traditional trade patterns.
As a result, ocean-spanning supply chains, the distinguishing characteristic of the age of globalization, are failing at multiple points.
The massive cargo carriers that arrive off the coast of Southern California, some bearing more than 15,000 metal shipping containers, often must wait at anchor for days before disgorging their cargo.
Once on land, containers frequently idle in temporary storage while awaiting space on an outbound truck or train, incurring additional costs.
Inland rail yards have emerged as the latest pain point for companies trying to move goods internationally. Trains full of clothing, computers, furniture and appliances have been streaming for months into Midwestern hubs.
When the system works as designed, containers are lifted from arriving trains and placed directly onto a wheeled chassis, which is then hauled away by a local driver. The chassis is quickly unloaded by the final customer and returned to the rail yard.
But this year’s flood of cargo has overwhelmed the system, leaving the yards without enough chassis. So containers have piled up by the thousands.
Rather than a single movement from train to truck, containers now are lifted off, placed in storage and then moved a second or even third time before eventually exiting the yard, according to Lawrence Gross, a transportation consultant in Durango, Colo.
“Once you fall behind, it’s really hard to dig your way out,” Gross said. “The system has gotten out of whack.”
Union Pacific, the nation’s largest publicly traded railroad, halted all eastbound traffic from the ports of Los Angeles, Long Beach, Oakland and Tacoma, starting July 19, for at least one week. BNSF Railway, which boasts one of North America’s largest freight rail network, said it was reducing the flow of containers from Los Angeles and Long Beach for two weeks in what it called “a somewhat unprecedented” move.
Both railroads have made more room for containers that are awaiting pickup. Union Pacific reopened a terminal in Rochelle, Ill., that it closed two years ago. BNSF paved over two tracks to create space at a 638-acre facility in Chicago it calls the nation’s largest inland port.
Rail executives acted after seaport congestion and equipment shortages reached alarming levels. At the Port of Long Beach in California, cargo was sitting on the docks for up to 12 days, waiting for a rail car to arrive, according to Mario Cordero, the port’s executive director. That compared with a pre-pandemic norm of 3.5 days.
The idea behind the Union Pacific and BNSF actions is that a temporary pause will clear their backlogs, just in time for the annual shipping season peak. But in the short term, the actions effectively shoved the problem back onto the western ports.
About 40 of the three-mile-long trains that would typically travel from Long Beach to Chicago were canceled last week, meaning that perhaps 25,000 containers that should have already left for the Windy City are still stuck in California, Cordero said.
“It's likely these issues will persist through the end of the year as the capacity to move boxes from our ramp to the final destination fall short of demand,” Lance Fritz, Union Pacific CEO, told an earnings call last week.
Progress can’t come soon enough for frustrated customers like Learning Resources’ Woldenberg. A Union Pacific representative called him Thursday with the good news that four of his containers were ready to be collected.
“We got four of 70. So we’re down to 66,” Woldenberg said. “That is an armada of containers, a huge number of containers. They’re aging like fine wine. They’ll be antiques by the time we get them.”
Delays rippling from Chinese ports to ocean carriers to American ports, truckers and railroads are upending companies’ plans.
Learning Resources, which designs its products in the Chicago area and manufactures them mostly in China, is accustomed to a steady flow of 20 to 30 containers each week.
When 70 arrive, Woldenberg won’t have room to unpack the boxes of toys, games and puzzles inside, repack them on wooden pallets and move them into inventory. He already has raised some retail prices by up to 30 percent to cover the increase in his freight costs.
“Our freight forwarders are telling us to plan for this lasting for a really long time. That would be devastating to companies like ours that depend on manufacturing overseas,” he said.
Dysfunctional shipping could soon affect consumers. Apparel imports in June fell almost 5 percent even as clothing stores reported a more than 17 percent gain in sales, “raising the prospect of shortages during the ongoing back-to-school shopping season,” S&P Global’s Panjiva unit said last week.
At least two of Nike’s Vietnamese suppliers halted production following covid outbreaks, threatening the company’s ability to maintain adequate footwear inventory, Panjiva said. Similar flare-ups are occurring in Bangladesh, Cambodia and Indonesia, said Steve Lamar, CEO of the American Apparel and Footwear Association.
“Nobody can get anything,” he said. “Do your Christmas shopping now.”
The next several weeks, when back-to-school shipments blend into holiday cargoes, could be critical.
Apparel- and footwear-makers suffering steep freight costs say the White House could help by lifting tariffs on Chinese products. The levies were imposed by President Donald Trump in 2018 and cost importers billions of dollars each month.
Privately held United Legwear & Apparel, which makes shirts, underwear, bags and hats for brands such as Puma, Champion and Skechers, is among those seeking relief.
Christopher Volpe, the company’s chief operating and financial officer, said he is paying $24,000 to ship containers from Asia that cost roughly $2,000 before the pandemic. Volpe wants the U.S. government to target what he calls “price-gouging” in the logistics market and to eliminate the China tariffs, which the administration is reviewing as part of a broader rethink of policy toward Beijing.
“There’s really no relief,” Volpe said. “I see it getting worse with the new strain of covid in the developing nations we produce in. It’s going to have a huge inflation impact on consumer goods, especially in apparel.”
The past several months have tested global supply lines and found them wanting.
In February, brutally cold weather in Texas curtailed production of petrochemicals, including resins needed for many industrial plastics. The next month, a giant container ship got stuck in the Suez Canal, blocking one of the world’s main commercial arteries for six days. Epic California wildfires, meanwhile, recently knocked a vital Union Pacific rail bridge out of action.
Retailers only have enough goods on hand for a bit more than one month of sales, near the lowest level of inventory since 1992, according to the U.S. Census Bureau. So imports are likely to remain at high levels for the rest of the year, meaning more strain for beleaguered supply lines.
“The network is at full capacity or over capacity,” said Zvi Schreiber, CEO of Freightos. “So if there’s any shock, there’s a very long recovery period.”