I am seeing more and more first-hand examples of supply chain issues affecting aspects of everyday life.
I have a friend who took his guitar to a guitar tech for some work. He has been waiting weeks to have his instrument returned. The guitar can’t be finished because the guitar pickups, which amplify the instrument, are delayed in arriving from Japan.
Another friend complained to me after he went to the store to buy a popular brand of potato chips for a recipe. When he got to the store, this brand could not be found. He asked a manager if they had any in the back. He was told that the store didn’t have the chips because of problems in the supply chain.
Here at the U.S.-Mexico border, growth is booming as more companies attempt to hedge their risk by either building more production space in North America or by leasing extra space so that they can carry more inventory, all in an attempt to not be so vulnerable to delays in the supply chain.
The irony is that I personally know industrial real estate developers who are raring to construct more speculative space to lease so that they can take advantage of the hot market. However, they are being frustrated by the uncertainty of when items such as PVC pipe, steel and other construction components can be delivered. Apart from the delays, shortages have caused prices to rise, making construction more expensive than it was only a few months ago.
Supply chain disruptions, especially those associated with Asia, have to do with several factors. First is the fact that the pandemic has caused pent-up demand for consumer products. At the same time, it also has caused delays in production, and in many cases, a shortage of workers to unload containers. A shortage of truck drivers is causing empty containers to be stored in yards until a truck can come and get them so that they can be returned to their ship. Container ships have grown to enormous proportions and they simply take longer to unload. The largest ships can now transport what is the equivalent of more than 24,000 20-foot containers.
According to Sea-Intelligence, in September, two out of three container ships were behind schedule, with the average delay slightly more than a week. Container lines are desperately diverting their ships to smaller ports to try to save time. However, this sometimes results in longer trucking distances, adding to the logistics costs.
I have a friend who works for a major logistics company in Los Angeles. He told me that the shipping companies tend to go to the ports of Long Beach and Los Angeles because of their infrastructure. Ships are now not only anchored in front of these ports waiting to be unloaded, they also are starting to line up on the coastline to the north. My friend lives off of the Pacific Coast Highway and is personally viewing this phenomenon. He says that the situation is not significantly improving, and his company is advising its clients to avoid Long Beach and Los Angeles. Some companies have started shipping to Seattle as an alternative, but many have scrapped this strategy because of the amount of congestion at that port.
While larger companies such as Walmart and Home Depot have commandeered their own container ships in order to try to control the delivery of products, smaller companies are finding themselves at the mercy of the crisis. Companies are booking their logistics on container ships months in advance to not be at the mercy of delays. In many cases, the cost of shipping a container from Asia to the U.S. has increased tenfold.
These cost increases are passed on to the consumer and we are seeing prices rise on a variety of products. The Federal Reserve refers to this inflation as “transitional” and temporarily associated with the pandemic. However, many economists believe that higher prices are not automatically going to go away once the vestiges of the pandemic are behind us. To the average consumer, the nomenclature or argument is irrelevant. Prices are higher right now and are taking a chunk out of people’s pocketbooks.
All the reports I have read on supply chain delays are predicting that disruptions will probably continue until next summer, but a longer-term view is warranted. As demand for products continues to increase, the capacity of U.S. seaports needs to be expanded. Trade with regions such as Asia and Europe is not going away any time soon. More commercial truck drivers need to be trained and put into action. More longshoremen need to be working on the docks. Finally, even though it will add to costs, companies need to establish multiple production and warehousing options to mitigate supply chain disruptions. Now is the time to put a plan together involving these elements, so that the supply chain can be better managed.