Do you remember being told inflationary pressures were transitory? You were told the same thing about the supply chain issues, and that our Secretary of Transportation, Mayor Pete, would fix everything once he returned from paternity leave. Much like inflation, the supply chain disaster is not transitory, and will likely be with us through 2023, when a pending global recession and stagflation will allow it to recover.
There are four major drivers of the supply chain problems the global economy is facing: challenges in Asia, ocean freight and port issues, over-the-road trucking issues, and labor.
Challenges in Asia.
Asia is a mess, given natural disasters and China’s response to COVID during the run-up to the Beijing Olympics.
Flooding in Malaysia in December has that nation’s manufacturing industry at a near standstill. As a result, exports have slowed and the chipmaking equipment supplier “BE Semiconductor (BESI) lowered its fourth quarter revenue outlook due to flooding affecting its main production facility in Malaysia.”
The Chinese Communist Party, in pursuit of its pre-Olympic “Zero COVID” policy locked down several cities in China. “Already, companies including memory-chip maker Samsung Electronics Co., German Automaker Volkswagen AG and a textiles company that supplies Nike Inc. and Adidas AG are suffering production hitches,” per the Wall Street Journal.
To compound matters, Chinese ports are at a near standstill, as COVID testing requirements create bottlenecks. According to CNBC, “current restrictions – like mandatory quarantines and testing – continue to slow down transport and cause delays…Products are piling up while ships are banned entry. Between negative PCR-test requirements and last-minute re-routing, 2022 is starting off like 2021 ended – chaos.”
Chaos at the Ports.
Speaking of ports, the situation is getting worse, not better. For the week ending Sunday, January 30 the TPEB (Transpacific-East Bound – China to US) index was at 110 days, meaning it now takes 110 days, nearly one-third of a year for a shipment to leave China and get offloaded and ready to go to the customer.
The Wall Street Journal reports: “port congestion is spreading across the country, threatening to extend shipping delays and drive-up costs for importers seeking to get around the bottlenecks at Southern California’s big gateway complex.”
For example, the port of Charleston, South Carolina has a back-up of more than 15 ships which will take six weeks to clear.
The west coast is no better:
“Dozens of vessels have waited weeks or months to unload cargo at the ports of Los Angeles and Long Beach…The backlog rose to 100 ships in late November (2021) and reached a record 106 vessels on New Year’s Day…”
In an interesting move, California is requiring ships waiting to offload in Long Beach or Los Angeles to wait further offshore, to reduce the optics of a hundred ships just a mile off the coast (under the guise of environmental concerns), per Ryan Peterson, the CEO of Flexport.
To make matters worse, according to Peterson, on July 1, 2022, the contract for the International Longshoreman Warehouse Union expires, which could lead to work slowdowns or even a strike, if recent history repeats itself. Peterson continues to highlight that in 2023, ships coming to US ports will have to reduce their carbon emissions. The only way to do this is to reduce speed, further increasing the time it takes for goods to reach our shelves.
We have all seen the videos of the Canadian truckers protest against mandates; and I would venture to say that most of the people reading this article support the protest, as do I. But it does have consequences. More than 150 truckloads of Canadian beef bound for the United States are held up at the border due to the strike. This will drive the price of beef up in the United States. In addition, the lack of Canadian trucks entering the United States will soon drive the per mile rate in the US trucking industry up. It is simple economics.
What is also concerning, from a supply chain perspective, is that U.S. truckers are looking to follow the lead of their Canadian counterparts and conduct a protest of their own. American truckers have formed a Facebook group that “as of Sunday (January 30) has more than 67,000 members,” according to NBC’s KARK website. Their plan is to drive from Los Angeles to Washington, D.C.
While no date has been set, a movement of this magnitude would grind the U.S. trucking industry to a halt. This is especially true given, as we have previously reported, there is already a shortage of approximately 80,000 truck drivers in the United States, per the American Trucking Association.
The labor situation is tricky and deserves some analysis.
Per the Bureau of Labor Statistics, there were 10.9 million job openings in the United States on the last business day of December 2021. However, CNBC reported that “private payrolls fell by 301,000 for January versus the estimate for a 200,000, according to payrolls processing firm ADP.” The lazy explanation is to blame the Omicron variant of COVID for this, but none of my clients have fired anyone for having COVID. They simply sent the person home until he or she could show negative test. I believe we simply see more and more people choosing to leave the workforce either due to COVID testing requirements that private companies are placing on individuals, or because many people have a “mattress” full of money, given the stimulus and many people not having to pay rent or their mortgage for over a year.
Regardless of the cause, the lack of workers is hitting all aspects of the supply chain. From the truck drivers we mentioned above, to the factory worker, to the grocery store clerk who stocks shelves, there are simply not enough people willing to work and the result is a congested supply chain.
What can be done? There is no simple answer. But common sense dictates a few things we should do.
First, we need to continue to repatriate our supply chain to the USMCA region, eliminating both the severe weather seen in Asia, and the potential impact of a conflict between China and Taiwan.
Second, we need to open our ports to non-union workers and truck drivers, even if only for a short time, to relieve the congestion. I know that this is not a popular opinion, but it is practical. While we are at it, let’s remove the restrictions on emissions on trucks entering the ports of Long Beach and Los Angeles, even if just for a short time. If Governor Newsom can choose to not wear a mask at a football game, then we can have some extra emissions at the ports for a few months.
Third, let’s remove the COVID mandate from any worker, especially truck drivers crossing the border. If we do not feel the need to test people entering our country illegally, we certainly can go for a few months with truck drivers not being tested. By the way, remember in 2020 when they were touted as heroes? What happened?
Last, let’s get people back to work. No more stimulus, no more rent/mortgage waivers. Get a job!
To quote General Omar Bradley, “amateurs talk about strategy, professionals talk about logistics.”