You’ve probably seen a lot of news lately about supply chain issues. Shelves aren’t full or don’t stay full for long. Prices are up. The most eye-popping visuals telling this story might be the container ships anchored near the ports of Los Angeles and Long Beach, waiting to deliver their cargo.
Of course, the most common question is “Why?” There aren’t easy answers because supply chains are complicated. To clear things up, we talked to Aaron Brott, Senior Director of Key Client and Trade Developments at North Carolina Ports (an HMH client). Aaron has previously lent his logistical expertise to HMHagency.com, and we always enjoy his insight.
Current supply chain issues have many causes, but Brott noted that the COVID-19 pandemic, and all its ripple effects, can take the lion’s share of the credit.
“The pandemic has highlighted some of the flaws in the supply chain today, whether it be infrastructure investment, wage investment, sourcing, etc.,” said Brott. “COVID-19 is still rampant in sourcing countries. Until it is under control where there’s variability in production and demand, we’ll continue to have these challenges.”
“When the pandemic hit, the entire world came to a screeching halt. As countries and companies started to reopen, there was an increased demand for goods, especially in a consumption-based country like the U.S.,” said Brott.
“It was a ‘pig-in-a-python’ moment,” he continued. “The capacity wasn’t yet there, as carriers had removed capacity due to less demand. Businesses had laid off workers from a warehouse and trucking perspective. To restart that whole ecosystem has been a challenge.”
And it isn’t just a supply/demand issue. As you’ve probably heard, there are labor difficulties as well.
“On the warehouse and trucking side of things, some of those folks said, ‘You know, maybe this isn’t the job for me.’ We’ve seen that in a number of different industries, from retail to restaurants. People are re-evaluating their lives from a job perspective,” Brott said.
Back to those ships waiting to get into busy ports. It’s a problem, but one that has shown some signs of abating, partly for seasonal reasons.
“Some of the inbound ships even into Los Angeles are starting to decrease,” Brott said. “The typical busy season is June into September or October – Christmas inventory is typically in by this time of year. In mid-December through January there’s usually another surge, as businesses want to get their summer inventory in before the Chinese New Year in February.”
We also asked Brott about the possibility of diverting ships from large, busy ports to nearby competitors with more capacity. For instance, why can’t a ship waiting near Los Angeles go to Oakland instead? The answer is more complicated than it might seem for Beneficial Cargo Owners (BCOs) – the companies that own the cargo.
“Over the last 20 years, BCOs have developed deep supply chains around major import gateways,” said Brott. “Because of those ecosystems – including things like trucking networks and regional distribution centers (RDCs) – their cargo has to go to those ports. They can’t really divert because, cost-effectively, there’s no connectivity back to those ports. It can be cost-prohibitive for cargo to come to the Port of Wilmington, and then have to go back to Savannah. It’s very difficult to just flip a switch and make that kind of change.”
“It’s similar to when someone says they’re going to ‘near source,’” Brott continued. “Let’s say you’ve spent 20 years developing your supply chain in China. All the technology you invested in, all the intellectual knowledge they have … how long did it take to set that up? If you want to relocate that, you need to make sure the intellectual knowledge is available. That can take years to develop.”
In a nutshell: While diverting a container ship from Los Angeles to Oakland isn’t easy, getting the cargo from Oakland to its destinations is far more difficult.
So, what’s next for supply chain issues? When do things get back to normal, and how do we define normal moving forward? Brott thinks that by this time in 2022 – assuming that the COVID pandemic situation is better – stability should return.
One permanent change we could see is added inventory.
“Inventory used to be a bad word,” Brott said. “It was bad to have on a balance sheet. The pandemic has made some companies rethink that. For larger retailers and grocery stores, there might be some strains for a while. But for most of them, inventory is in, or maybe sitting off the West Coast. With e-commerce having taken off exponentially this year, they seem to have higher inventory levels, too.”