While supply chain disruptions have been in the news, here’s an overview as to how we got here, what’s being done, and what the future holds.
It’s been two years since the coronavirus pandemic first disrupted global supply chains by closing factories and creating shipping headaches that are now delaying U.S. farm and other exports. The cost of shipping a container of goods has nearly tripled over the past year, and container availability remains difficult. This increase reflects dramatic shifts in consumption during the pandemic, as U.S. consumers have redirected money they once spent at restaurants and on local entertainment as well as travel to imported goods for home improvement, furniture, electronics, clothing and more. That abrupt and unprecedented spending shift upended long-standing trade patterns, causing bottlenecks from overseas factories, predominantly China, to U.S. agricultural exports especially from the West Coast.
As the pandemic lingered, these disruptions have had a profound effect that experts are predicting to continue well into 2022 and possibly into 2023. Combined with COVID-19-related changes in demand, the disruptions increased volatility in maritime and air freight rates across regions, driving up the costs of goods. We have all seen the consequences – not being able to get the specific items we want or replacement parts in a timely manner as well as increased costs for everything from toilet paper to food to lumber, to name a few.
This has also had a crippling effect on California’s agricultural exports. Losses during May through September of last year totaled an estimated $2.1 billion, a loss greater than that experienced during the 2018 U.S.-China trade war.[1]
Last month you read about the Ocean Shipping Reform Act of 2021 (H.R.4996) designed to put American consumers, farmers, ranchers, retailers, truckers, manufacturers, and small businesses first. The bill passed the House with strong bipartisan support and is now before the Senate. While this is a great step forward, positive impacts will not be felt during this crop season or maybe the next.
More immediate measures have been taken, and more are to come. In order to ease the bottlenecks experienced at the Ports of Los Angeles and Long Beach, in early November, President Biden announced a deal to operate the Port of Los Angeles around the clock to break a massive backlog of cargo. While the Port agreed to operate 24/7, officials have disclosed that they are dealing with a shortage of truck drivers and accessible warehouse space as well as nighttime warehouse workers. But long before the pandemic hit, the World Bank ranked California ports near the bottom in terms of global performance according to its Container Port Performance Index. Out of 351 total ports, the latest figures rank Los Angeles at 337, Long Beach at 341, and Oakland at 334—far behind most ports in developing countries and those on the East Coast. The lost farm exports mirror the fact that California ports are among the least efficient in the world.
And most recently, the USDA partnered with the Port of Oakland to increase capacity and improve service for shippers of U.S.-grown agricultural commodities. Beginning in early March, the Port of Oakland will provide a new 25-acre “pop-up” site to make it easier for agricultural companies to fill empty shipping containers with commodities that are causing congestion at the ports. But this is not just a port issue. The various independent businesses and governmental agencies involved in the supply chain make solutions very complex.
What’s the Whole Supply Chain Issue?
According to testimony provided by Eugene D. Seroka, Executive Director, Port of Los Angeles, it all began in 2019 when the U.S. brought in an increased number of imports ahead of new higher tariffs.[2] Then, beginning in early 2020, the COVID-19 pandemic upended the globe with all major economies shutting down starting with China in January followed by the U.S. and Europe in March. At the start of the pandemic, the contraction of U.S. merchandise trade in the first half of 2020, coupled with a slowdown in manufacturing in China, led container shipping firms to cancel scheduled sailings and consolidate shipping routes to focus service on major ports. This limited number of ships sailing and airlines flying led to disrupted maritime shipping and air freight services, leading to canceled sailings and flights, port delays, and container shortages.
By mid-2020, increased economic activity and sharply rising consumer demand led to a rapid recovery in merchandise trade which in turn caused capacity shortages in the containerized maritime freight sector. For example, U.S. imports from Asia were nearly 30% higher in December 2020 than in December 2019 and the number of shipping containers in circulation during the second half of 2020 was insufficient to meet the higher-than-anticipated consumer demand for imports. The unexpected recovery in demand stunned the distribution system and created an imbalance of containers around the globe with some having too many and others experiencing a shortage. The container imbalance was further compounded by an increase in the turnaround times for containers (the time it takes a container to complete a trip and be ready for reloading) due to rising ship bottlenecks at ports, particularly in the high-volume trade lanes between northern Asia and the U.S. West Coast. And many countries had labor shortages due to COVID mandates which slowed down the ability to move goods not only from ports, but within a country. As a result, overseas manufacturers paid premiums to return containers as quickly as possible and repositioning of empty containers increased dramatically – for example, from the U.S. back to Asia increased by 40%.[3]
But What Other Factors Are Causing Supply Chain Issues?
Major shipping lines are for-profit companies that are not U.S.-based companies, and profits have soared.
There is a shortage of truckers to move products to and from the ports. In the U.S., the American Trucking Associations estimated that in 2021 the truck driver shortage would hit a historic high of just over 80,000 drivers. This figure is the difference between the number of drivers currently in the market and the optimal number of drivers based on freight demand.[4]
Truckers in Southern California are struggling to move containers from port terminals and rail yards because of a shortage of the chassis that carry the boxes from one location to another.[5]
China’s strict zero-COVID policy has also wreaked havoc with major ports shutting down for days, and even weeks, causing additional supply chain challenges.[6]
While this is not a complete list of all the facets of the supply chain issues, it’s meant to bring perspective to the additional challenges our industry is facing. During last crop season, and now the current one, handlers have been navigating a constantly changing environment spending countless hours renegotiating contracts, rebooking shipments and looking for ways to store orders as they anxiously wait to hear positive news from shipping lines. During November, more than one-third of the containers transiting the world’s 20 largest ports failed to ship when scheduled, according to Ocean Insights, a data provider.
So, what are the solutions?
In next month’s issue we will share insights and initiatives from experts in the field as well as governmental agencies on how to tackle this global issue.
1 Freightos Baltic Index
2 California State Assemblymember Robert Rivas, Agriculture Committee Chair, Joint Informational Hearing, February 2, 2022
3 Eugene D. Seroka, Executive Director Port of Los Angeles, Joint Informational Hearing, February 2, 2022
4 Eugene D. Seroka, Executive Director Port of Los Angeles, Joint Informational Hearing, February 2, 2022
5 American Trucking Associations, Inc., Driver Shortage Update 2021, October 25, 2021
7 https://fortune.com/2022/01/13/china-omicron-covid-zero-port-shutdown-lockdown-supply-chain/
