This is the question I am asked on a daily basis. The problem is very complex, so I usually joke with a surprising answer, “They always had problems, but no one was really paying attention.” Turns out, unless the person works in freight, they are very dissatisfied with this answer. After all, freight and commodities just seemed to pop up automatically before, but that’s no longer the case.
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. Corn 2021 is something much bigger. Why is that?
The simple answer is that there is a sudden and massive surge in demand which 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 the money came from the government, it ended up in 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 The United States will go through trillions of dollars in inventory while national and world production has been halted.
Simply stated, production was halted as the US economy entered demand overdrive. 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, the China’s coastal cities 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 has the most difficult work situation of all; it is simply a job of last resort for many people. When construction, retail, foodservice, odd-job economics, 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 a truck 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 said, there there are not enough trucks and trailers on the road to meet all the demand.
Will supply chain problems end soon? Very unlikely.
Even though we solve the current demand on the oceans, in ports, in distribution centers and in the trucking industry, we have not 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 worry is that it will continue to worsen imbalances between supply and demand along the supply chain.
As domestic manufacturing ramps up to handle the construction of new roads, bridges and other physical construction projects, this will put a massive cargo assault on the market. It will also be withdrawing labor from the trucking industry, which goes even more worsen 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. Go forward, business survival will require a highly functional supply chain managed by professionals with the experience and the instinct to react.