Shipping Delays
and the State of the Supply Chain
by Allan Harari

ast October, The New Yorker published a cartoon depicting a favorite Muppet, Cookie Monster, in conversation with a bespectacled buddy. The caption read “What me want to know is: What are the implications of the supply chain crisis for cookie?” Humorous and striking at the same time, this cartoon shows that the term “supply chain” had become part of the common vernacular.

Whether you distribute imported product or not, the source of most international and domestic supply chain issues from production to final delivery is at the ports. Just think of that “butterfly that flaps its wings in the Amazon (and causes a series of catastrophic changes elsewhere)” story and apply the principle to “a container gets loaded in China or Rotterdam or Santos or Los Angeles.” The process is complex and a seemingly minor event in one part of the system can cause untold problems elsewhere.

How did we get here?
Prior to the pandemic, the global logistics industry developed a highly efficient global delivery system that reduced the cost of goods and inspired business models such as on-time delivery. The U.S. delivery/distribution system could be quantified in digits of precision. Only the people operating within that system could see how “precision” camouflaged a house of cards subject to the fancies of the aforementioned butterfly.

What we got instead of a flutter was a perfect storm made up of a global pandemic, supply/demand surges, trade imbalances, questionable business decisions and government support payments coming together in a capitalist economy whose participants seized every opportunity they could; the bigger supply chain picture be damned! Just as it seemed there may be some light at the end of the tunnel, Russia invaded Ukraine, starting a war that raised petroleum prices and disrupted deliveries of essential agricultural products.

While business school academics debate and eventually identify the trigger, IAPD members face irate customers and logistic suppliers that can only come up with a variety of “I don’t know” emojis and barely reassuring replies, such as “I’m on it.”

Signs of the backlog were first visible at the anchorage off the Los Angeles, CA, USA port almost two years ago. By the end of 2020, anyone with a view of L.A. harbor and beyond could see what looked like a D-Day invasion of container ships. As waiting times grew to more than two weeks, ship owners looked for other ports of entry, stressing capacity at the major East Coast ports and then overloading minor coastal and inland ports.

Los Angeles/Long Beach ports are gateways for containers transferred to truck and rail for deliveries as far east as Mississippi River and Texas destinations. The L.A. port boasts a huge handling capacity and a deep draft. One large container ship sailing in from Asia can carry 24,000 boxes, equal to a freight train 44 miles long. Once off the ship and in the container yard, the box waits for a truck or rail car to pick it up for the “last mile” of its delivery. Here is the pinch point: Other ships cannot discharge until there is room in the container yard. So, they wait.

Shipment boats
The scenario was repeated from San Diego to Tacoma, from Miami to New York. The Gulf ports that did not have the capacity or draft to handle the larger ships suffered a deficit of vessels that had been diverted to other more profitable routes.

As the discharge delays increased last year, ship owners, who enacted a variety of policies designed to cover market uncertainties, only exacerbated problems with the supply chain. Maybe they thought they could reduce volumes by increasing fees and prices but failed to do so because of a consumer market sequestered at home with more time to shop.

On the supply side, forced sick leave at Asian factories and ports impacted the supply of goods and redefined the meaning of “back ordered.” The zero COVID policy enforced by the Chinese government forced (or allowed) the port authorities at two of the world’s largest container ports, Ningbo and Yangshan (Shanghai), to shut down for weeks at a time, at separate times, resulting in systemic vessel and container shortages. As those assets bunched up on one side of the Pacific or the other, freight rates skyrocketed. Bookings were confirmed, then cancelled, then rebooked only if shippers agreed to “premiums” at the “point of sale” that did not guarantee anything.

Minor exporters on both sides suffered as their containers that, departing from local ports typically transferred to larger vessels, got bumped from overbooked and delayed mother vessels. Sound familiar? Anyone flying on a smaller plane from a regional airport to connect to a larger plane at a larger airport has heard it before.

As the consequences of port delays ripple through the economy, it’s important to appreciate the scope of this disturbance and the pressure that consumer market demand put on the financial and logistic ecosystem of a handicapped supply chain; this cannot be over emphasized. Remember that one large container ship arriving in LA to discharge 24,000 boxes? At one point, there were 72 ships of varying large sizes waiting to berth in L.A. alone.

Container ship
Sittin’ by the dock of the bay
The situation at the ports has eased quite a bit, but it’s still not time to exhale. Roughly 20 percent of the world’s 9,000 active container ships are currently parked outside congested ports (Windward Analytics). Freight rates are coming down slightly, but those pandemic profits are special (the five largest container-shipping companies profits increased US$41bb over last year according to Accountable USA) and shipping companies are maneuvering to keep rates from dropping below the current plateau with blank sailings, empty returns and other tactics. Only declining demand is keeping them in check.

Industry may have lost almost 50,000+ truckers for pandemic-related reasons, but as the economy picks up, 100,000 new trucker licenses have issued so far. Is that good news? The Wall Street Journal reports that despite high demand for new, heavy-duty trucks, the trucking industry is suffering a long back log of orders due to trouble getting new parts because of (guess what…). As a result, older trucks are being driven 200,000-300,000 miles more, which means more time in the shop and off the market while mechanics are frustrated by delays getting spare parts because of (guess what…).

Next up? Keep an eye on “friend-shoring” — the latest effort to revamp/update/improve the global supply chain.

Until the situation stabilizes — and it will — IAPD members should take a deep look into all aspects of their supply chain and its impact on customer relations and sales. Regardless of whether you distribute a component or a finished product produced offshore or domestically, at some point the goods are part of a supply chain. Decent margins are still possible for those willing to keep slightly higher inventory levels and spend extra time to proactively manage customers’ lead time expectations.

Great customer communication remains your greatest asset, so staying on top of your suppliers for regular updates is more important now than before. But what if, even they, cannot give you the latest data?

Technology has made it possible for smaller and mid-level forwarders to access data on vessel and container positions. Container ID numbers are often digitized, thereby making it as easy to get position updates as tracking the estimated time of arrival of a FedEx package. It’s a good time to review your forwarder relationships; evaluate their customer service and the attention they give your account.

Even if you are a small distributor, reach out to local forwarders or trucking agents to see if they can manage the last mile from the U.S. port of entry to your warehouse. Different ports follow different procedures and levy different fees; offshore forwarders may not give you as good an inland quote as a competent local operator.

Any predictions are, at best, precarious. At the time of writing, there was a hint of stability on the supply chain horizon and then China’s zero-tolerance approach to COVID management suddenly forced about 344 mm people (25 percent of their population) into some form of lockdown, sending yet another a supply chain tsunami around the world.

Pessimists say this is our new normal. Optimists say it can’t get worse. I say, let’s ponder the question over a cookie…

Allan Harari is director North America for Margacipta Wirasentosa PT. For more information, contact Harari at (201) 871-3610, fax (212) 899-5403, acrylics@atsglobal.net or www.margacipta.com.