This is the question I am asked on a daily basis. The problem is very complex, so I usually joke with a surprising response: “They always had problems, but nobody really cared. Turns out, unless the person works in freight, they are very dissatisfied with that answer. After all, freight and commodities seemed to appear automatically before, but they don’t.
Anyone who has been around supply chains knows that there have always been problems and challenges. Weather, business cycles, capacity, price fluctuations, strikes, war, terrorism, policy changes, etc. – have been with us since the beginning of trade and these problems (and others) have always been part of the management of the flow of goods. But 2021 is something much bigger. Why is that?
The simple answer is that there is a sudden and massive increase in demand that far exceeds the capacity of the market. The existing global supply chain infrastructure simply cannot handle the volume of products flowing through the economy. The root cause can be traced to the government’s extraordinary stimulus measures which boosted demand.
As money flowed in from the government, it found its way into the hands of consumers and the businesses who spent it. The money transfer coincided with a shift in consumer demand from purchasing services to purchasing physical products. This caused the United States to scour trillions of dollars in inventory as domestic and global production came to a halt.
Simply put, production was halted as the US economy sank into demand. When production came back on line, the manufacturing sector responded by filling an unprecedented backlog of orders.
China has stepped up manufacturing and products have started to flow again. And the volumes were much larger than before. Each container ship was put to work to move cargo across the oceans. However, the ports were built to handle a certain volume and each port has a finite number of cranes and space to store containers. When the ports were inundated with cargo, they simply did not have the capacity to handle it. A lack of manpower, trucks, warehouse capacity and rail infrastructure began to create significant supply chain problems to handle the influx of goods.
Ships are piling up offshore in ever-increasing numbers and this takes that capacity offline as ports try to manage it.
And that’s not just a problem in the United States. This problem also exists in China. In fact, as of this writing, coastal cities in China have four times as many ships offshore as Pacific ports in the United States.
The oceans are also only part of the story. To get freight to American consumers, it has to go through a complex system – moving from the port to other modes of transportation. This can include dozens of touchpoints in the domestic freight network, all of which are vulnerable to their own bottlenecks.
Once a cargo reaches the US docks, it can move from truck to rail to truck to distribution center then to truck and dozens of sorting facilities before you receive it. Most of the capacity constraints in the domestic market were related to work, i.e. not enough workers in distribution centers or drivers in trucks. Trucking companies and warehouse operators have tried to respond by raising wages, but find that does not solve their employment problems.
Trucking presents the most difficult work situation of all; it is simply a job of last resort for many people. When construction, retailing, food services, the odd-job economy, and warehousing all compete with the trucking industry for labor, it is often the trucking industry that loses.
After all, the lifestyle of a truck driver is unique and difficult. Having to stay away from home for three weeks at a time is a major drag for many.
Driving trucks is hard work and often the only recourse available to carriers to attract more drivers is more money. But with alternative jobs offering similar pay packages – but not requiring someone to stay away from home for weeks at a time, trucking companies are finding that potential new drivers are failing to hit the market. in necessary number.
The challenges don’t end there. Warehouses and distribution centers have their own labor issues as well as space constraints.
In the industrial sector, supply chain issues causing chaos to retailers are also preventing domestic manufacturers from completing production of their finished products. The most obvious is in the automotive industry. This has the additional effect of restricting the capacity of the trucks. Even if labor supply was not a major factor in the trucking industry, carriers could not get their hands on new trucks to handle the freight supply. Simply put, there aren’t enough trucks and trailers on the road to meet all the demand.
Will supply chain problems end soon? Very unlikely.
Even as we solve the current demand on the oceans, in ports, in distribution centers and in the trucking industry, we haven’t started discussing what happens when the government increases additional domestic spending. While most supply chain professionals would agree that investing in infrastructure is the right thing to do, the concern is that it will continue to worsen the imbalances between supply and demand throughout the transition. Supply Chain.
As domestic manufacturing ramps up to handle the construction of new roads, bridges and other physical construction projects, this will lead to a massive freight assault on the market. It will also remove labor from the trucking industry, further exacerbating the driver shortage. Construction jobs will become more valuable as contractors try to manage the wave of new projects. In turn, this will lead to higher wages and increase economic growth.
For carriers, the good news is that it looks like we still have a long way to go before the market catches up with demand. This could last a few years and break the typical three-year boom and bust cycle. For shippers and supply chain professionals who pay for capacity, when the job has never been so difficult, the rewards have never been higher. Supply chain management is no longer a back office function, largely ignored and taken for granted. Going forward, the survival of the business will require a highly functional supply chain managed by professionals with the experience and instinct to respond.
Source: Freight Waves