Inside Snarled Supply Chains: Why You Can’t Get Stuff

By Shlomo Maital  

   Chances are, you’ve experienced problems and delays in buying stuff.  And you may have heard talk of “supply chain disruptions”.   Clogged ports, shortages of truck drivers, lack of chips for car makers, ‘just in time’, and more. 

    What exactly is going on?  Can I cut through the tangle?  Here is my effort, based on Jordan Weissmann’s reporting on SLATE.[1]  986 words. 

     Can you save me time, and say in 61 words what the problem is?

      Sure. We are buying enormous amounts of stuff online, instead of in stores.  Every package has to be shipped.  The remarkable global system of huge container ships was not built to handle this much stuff.  Stores used to buy huge containers of stuff.  Today, each shirt, smartphone, game console comes in its own box.  It has to be delivered.  Ergo:  Snafu.

    And underlying this:   Countries and Central Banks shoveled money into the system, during the COVID recession.  Unlike during other recessions, people had money – and spent it, much of it online,  in ways that overloaded the global supply chain, and basically, like a 55-ton Abrams tank driving over a small wooden bridge, it broke.   

      From Weissmann:  “We’ve spent decades optimizing supply chains to carry a very specific amount of cargo during very specific times of the year across very specific modes of transportation,” says Nathan Strang, an expert on ocean trade logistics at the supply chain tech and consulting firm Flexport.  “As soon as we exceeded the design capacity of those systems, it broke.”

      What specifically broke?

      Everything.   Panic hoarding caused shortages.  China’s zero-tolerance policy toward COVID-19 closed huge ports for weeks.  Huge Vietnamese plants were shut down due to COVID.  Shipping prices have coard (have you noticed) – cost per container from China to N. Europe rose from $2,000 in August 2020 to about $14,000 in October 2021.  Result:  Shippers are shipping empty containers back to China, rapidly, (doesn’t pay for them to wait for cargo heading TO China)…. leaving US agricultural exportes in the lurch.   Car makers used ‘just-in-time’ meaning, they did not stock parts beyond immediate needs.  They ran out – and now halt or delay production, because lacking just one key part (e.g. chips) halts everything.  Apple is expected to cut iPhone production by 10 million because it simply can’t get enough chips.

      Will Biden’s plan to keep Port of Los Angeles running 24/7 help?

       Maybe a bit.  But it won’t help the shortage of truck drivers to transport the containers from the Port  (Britain’s shortage of drivers, following Brexit and the Johnson policy of welcoming driver shortages to create jobs for Brits, has caused serious gasoline shortages). 

     Weissmann summarizes:  “When you look closely at all of the small fractures that have contributed to the world’s supply chain crackup, it really can begin to look maddeningly complex. As the Atlantic’s Derek Thompson put it, global commerce is currently being choked by “a veritable hydra of bottlenecks.” (Hydra was the many-headed serpent in Greek mythology).

        What’s with the choked Port of LA?

       The docks in L.A. process 40 percent of the shipping containers that arrive in the United States.  Now, huge numbers of container ships line up outside the Port (50 or more!) because the flow of goods has overwhelmed its unloading capacity.  

        What role has the pandemic played?

        Simple.  Under lockdown, people shifted to buying goods rather than services – services need a venue and socializing. The system couldn’t adjust fast enough to this massive shift.

       Weissmann:  “… the problems in the U.S. largely flow from one key factor: We are simply buying an enormous amount of things. When the pandemic began, and Americans found themselves unable to go out, households suddenly shifted their spending to goods from services.  …By August, inflation-adjusted spending on goods was up 14.5 percent compared with pre-pandemic, while services were still down more than 2 percent.”

    Why are we so worried now, about the global supply chain?

     Christmas. 

      Weissmann:   “ … global supply chains are only designed to operate at peak capacity for a few months of year, usually in the lead-up to the [Christmas] holidays. Ports and warehouses can then work through any backlogs during slower seasons. “The problem is you’ve essentially had peak season since the onset of the pandemic,” Phil Levy, Flexport’s chief economist, told me. As a result, there hasn’t been a chance to play catchup after things get clogged, and so delays have simply stacked up.”

      Why is this a case of ‘embarrassment of riches’?

       Jason Furman, former Obama advisor:  “The only reason we’re having supply chain problems is because people can afford to buy things and are buying things, which is much better than the alternative…. It’s more severe in the United States, but it is happening to various degrees everywhere. This is the first recession where in the U.S. and most other advanced economies, people’s incomes were protected. So there’s actually booming spending on durables and retail in all of the OECD countries.”

    Weissmann:  “The irony of our supply chain woes is that shoppers can’t find what they want while they’re buying more stuff than ever. In that sense, we’re victims of our own success.”

      Will the supply chain snafu be resolved soon?

      No chance.    Maybe if we had a “global supply chain czar” to manage the whole global system, there might be progress.  But there are so many disruptions, in so many places, that when each country and each Port takes action to fix local problems, you simply pass the problem on to the next disruption.   Port of LA may work 24/7 and unload those 50 ships – but where are the trucks to transport the containers? 

[1] https://slate.com/business/2021/10/supply-chain-shortages-retail-united-states-explained.html