The Supply Chain Issues: Solved Yet?
COVID, I hope, is now behind us, and as we come out of the pandemic it seems we get into a comfort zone and have the perception that the issues we had faced, particularly in the supply chain, are over. Over 15 years ago we began to see things such as driver shortages and the impact of bigger vessels on ports and in rail and trucking. The United States Department of Transportation (US DOT) predicted that by 2035, we would see 50,000 trucks a day on some key congested routes. The pandemic saw the near collapse of the supply chain with a lot of focus on ports, particularly on the West Coast. The facts, however, show that it was not just about ports. The supply chain backups were caused by a number of factors which included:
Port volume increases due to consumer demand
COVID impacts on staffs
Space issues at terminals
Buildup of excessive empties
Truck driver shortages
Gate and warehouse open periods
Tail congestion-interchanges and yard congestion
Spine and well car shortages
Lack of warehousing
Delivery driver shortages
Need for SIT (storage in transit)
Consumer demand changes related to pre and post pandemic periods
Not all the volume was related to out-the-door product demand. Shippers and retailers went from “just in time” to “just in case” storage to meet anticipated demand. As the post-COVID period emerged, demand slacked off, volumes in the entire supply chain diminished, and it seemed at this point the crisis was over. Well, I don’t think so.
The National Retail Federation (NRF) is showing a slacking off of imports into U.S. ports. This isn't because of lack of demand, but mostly because warehouses are well stocked and retail goods are all ready to move out of domestic storage.
No doubt the debt incurred during the pandemic, some of the highest in our history, has slowed purchases as consumers pay off credit cards. This has had an impact on the container trade. Port congestion has dropped off because volume has dropped off.
Ports are focused on chassis replacements to get rid of old units left over from the ownership transition from the ocean carriers to leasing companies, as well as getting empties out of their terminals. The worldwide container index has stabilized at just under $1,800 average worldwide.
There are early signs of trade rebound, mostly in Asia and not necessarily in North America and Europe — but this is mostly because Chinese container throughput is picking up in that region. The volume of new export orders from purchasing managers is rising very slowly because inflation in North America is still an issue.
Currently, 4% of world container fleet is idle, and carriers are undertaking repairs and maintenance on anchored ships, with a large share of vessels anchored off China. There is an expected slow activation of vessels in 2023, but most experts think we will not see a normalization of trade until late 2023 or 2024.
One positive note, however, is that the reliability of vessel schedules has increased from 29% to 57%. Many of the ship routes have switched to East Coast ports with vessel transits increasing in the Suez Canal and decreasing in the Panama Canal. Many new builds will be coming online soon with many of them under 16,000 TEU’s to serve markets that can handle vessels that are smaller and more flexible with the existing infrastructure.
All that being said, what has eased the issues with the supply chain revolves around the volume drop off and not necessarily the various issues that became apparent during the pandemic. We still have a significant worker shortage and a need for properly trained skilled personnel in every segment of the industry. Unemployment may be low, but we are not seeing many persons laid off from the tech sector wanting to become truck drivers or longshoremen. Even with the Administration’s creation of committees to address the issues, I am not hearing, except in small segments of the supply chain, that issues have been solved in an overarching manner. We may have a reprieve but not quite a solution, and I will once again bang the drum for a comprehensive national policy regarding logistics, the supply chain, and all modes of transportation, which currently still remains unaddressed.
So for now, we can take a breath and hope we have the foresight to prepare for the next pandemic or world crisis that will no doubt once again highlight the weaknesses of a system that still needs to be fixed. Maybe the folks running for office in Congress or at the executive level will make something other than social issues part of their platforms. Imagine a moderator asking a candidate “What would you do to fix the supply chain?” and see if they think it's other than a question about something you wear...