By Jim Weinberg of Clarksons.com
With literally hundreds of thousands of containers tied up in the major export and import terminals, it is obvious someone’s Christmas stocking is going empty this year.
With shipment delays for everything from clothing to computer games, small appliances to auto’s and pet blankets to bathroom fixtures, it can all be explained away with “it’s the Supply Chain Stupid….”.
Two short years ago, the words Supply Chain were rarely uttered outside the board room of major manufacturers the world over. Today it is the answer for everything when the excuses “Trump” or “Global Warming” no longer suffice.
In reality of course, the supply chain is nothing more than the movement of raw materials from the origin to the manufacturer, and then the movement of finished goods from the manufacturer to the consumer.
Why is it so much of an issue now?
Manufacturing centers of China, and Southeast Asia production were seriously curtailed by the COVID virus of 2020, cutting production by as much as 60 percent in many areas over the course of the year.
The market was initially saturated by supply that was already produced, when demand fell. This was short lived however as soon ‘stay at home’ families found they had the time and resources to buy and do projects around the house etc., causing the goods market to reverse itself with finished product being ‘short’ in supply.
This short position worsened with the onset of the ‘pent-up demand’ of people who were back in a buying mood and attempting to secure the goods they had ‘put off’ purchasing during the pandemic.
We found ourselves in a unique situation, rare in the world of commerce; supply and demand more or less in balance, but at such an elevated level that the means of moving the finished product to the consumers comes under such pressure that in some flows it simply cannot handle the volumes…. the Supply Chain breaks down.
To handle the move from China to the USA (the flow which gets the most attention), container vessels were taken off the trade lanes where the pressure was less and went where the pressure (and accompanying revenues) were highest.
In the meantime, withdrawing these vessels from the other markets where they had been employed, caused shipping rates to widely increase and creating ‘Supply Chain” issues where there had been none.
The increased vessel capacity on the major markets moved a lot of finished products to the importing ports, however, did nothing but exasperate the situation at those ports. This is partially due to antiquated rules in the ports run by unions who were unable to staff the ports sufficiently as a result of labor being affected by covid and the new ‘unemployment benefit’ rules. Combined with the union rules governing the port operation hours the backlog began to grow uncontrolled and resulted in congestion issues that dramatically affected the ports to move boxes out efficiently.
The next “link” in the chain is of course the over road trucking. With the increase in demand, and the pressure on the availability of truck drivers due to covid restrictions, the number of boxes that could be moved out in any particular time frame came under further pressure, made worse by the truckers needing an inordinate amount of time to get a box cleared out. With the normal efficiencies of the port gone, and the system under so much pressure, truckers wait for hours, sometimes multiple days, to simply get a box released.
Ok, so now the container finally arrives at Walmart, with any number of items from toys to kitchenware etc., and they finally go on the shelf, maybe in time for Christmas. Just like last year, and the year before….except of course, we have to take in to account the increased cost of shipping in the raw materials, the cost of paying more for a smaller work force to produce the product, the cost of waiting at the terminal to be shipped, the increase cost of the ocean freight to the port of importation, the demurrage incurred by the container vessels waiting days (sometimes weeks) to discharge, and of course the increase in cost of trucking it across the country, in fuel as well a paying for the limited number of truck drivers available.
Yes, you got it, the Supply Chain is broken, or at least not working very efficiently, and yes, Santa Claus will be paying for it!!