Biden’s fixes are limited. The Great Supply Chain Disruption has been more than a year in the making (last October the first three container ships idled off the Los Angeles-Long Beach port complex), and the supply chain mess will almost certainly continue deep into 2022.
The president’s alarm is justified. Supply chain woes are snarling the U.S. economy and stoking inflation. Factories are temporarily shutting down, manufacturers delaying deliveries, agricultural exporters losing overseas markets, retailers struggling with empty shelves and consumers worrying whether orders will arrive by Christmas.
The Biden administration brokered a deal to have the Los Angeles-Long Beach port complex — the nation’s largest — operate around the clock, rather than its usual 16-hour days, and obtained agreements from some major importers to pick up containers in the middle of the night.
That’s a move in the right direction, but it’s a small step: The initial agreement with shippers covers less than 5 percent of the containers moving through the complex.
The causes of this maelstrom are deeper-seated than any 90-day cure can address. During the pandemic, locked-down consumers, unable to go to stores, switched to e-commerce. Four to six years of anticipated e-commerce growth has been compressed into one year. All those personal computers, toys, power tools and Pelotons are typically shipped via container, mainly from Asia. Shipments into the United States surged.
Instead of being delivered to stores, the imported goods went to distribution centers, for direct delivery to homes. Except that there was nowhere near enough distribution center capacity, and a nationwide labor shortage has reduced the pool of warehouse workers and truck drivers.
The result? Containers taking much longer to unload and move off the port facilities, and newly arrived ships waiting a week or much longer to unload. Importers often have no choice but to leave containers either piling up at the port or in the parking lot of a warehouse with no workers available to unload them and nowhere to put them. That compounds the disruption: Too many containers — the building blocks of global trade — are out of circulation.
The supply-chain workforce has itself been disrupted by the pandemic, owing to covid-19 itself or withdrawal from the labor market. Covid-related shutdowns of ports in China and Vietnam have further strained supply chains.
All of this has drained capacity and flexibility from a global system based on more than 20 million containers. Freight rates have shot up: A container formerly could be shipped from Asia to North America for $1,500, but rates have reached as high as $30,000 in recent weeks. The expense is inevitably passed on to retailers and then to consumers.
The White House chided U.S. ports, saying they “have failed to realize the full possibility offered by operation on nights and weekends.” Ports in China — the origin of almost 42 percent of all containers coming to the United States — do operate 24/7. Productivity is a challenge. It takes three times as long to unload a container in U.S. West Coast ports as it does in China, according to IHS Markit port data.
But it isn’t so easy for U.S. ports to operate around-the-clock because the entire system of ports, trucks and warehouses needs to move in lockstep to keep the containers moving.
Distribution centers would need to be open 24/7 to receive trucks, but the centers typically are not. Expanding port hours accomplishes little if the truckers can’t drop off containers at distributions centers that are not open at night.
The continuing disruption is generating various legislative proposals, but they can’t address the sources of the imbalance. Lasting solutions instead must come from two elusive things: “more” and “less.”
More as in more workers — not a simple fix, because a shortfall in workers is bedeviling the entire U.S. economy.
Less as in an easing of consumer demand. That would relieve pressure on the entire system and help return it to balance. The pandemic-fueled spike in buying goods may be past its peak, as people get out of the house and spend more on services. Yet if the easing reflects a slowing economy (and a response to rising inflation), that would be a high price to pay for ending the disruption. Adding to the pressures: Manufacturers still need to rebuild depleted inventories, and retailers need to refill empty shelves.
The president may want to sprint, but it’s going to end up a marathon.