There has been much speculation as to why there are container ships building up off of our coasts. I have come across conspiracy theories pointing to the Deep State having their plan executed to perfection, causing shortages for consumers by intentionally slowing or even stopping the unloading of container ships and the subsequent inland transportation needed to get them to their final destinations. There’s been national talking heads accusing the democrats of intentionally creating product shortages in order to create more chaos among the people in an effort to further their political ambitions.
I covered both of these topics in episode 87 of Living With Liberty podcast, but given the time constraints, I was not able to get too far down the rabbit hole of how we have arrived to this point of product shortages, as it involves a deeper discussion into supply chain theory and practice, as well as a bit of a history lesson as to what issues had been present prior to covid in order to adequately present the overall picture of why there are ships building up off of our coasts, as well as persistent shortages in stores and elsewhere.
While policies put in place by various states and countries have compounded the issues we have been seeing for the last 18 months plus, I am confident in telling you it was the shortsightedness of those policies and the arrogance of those in charge thinking they had the answer to “defeating coronavirus” that were contributing factors, not sole causes of the shortages and ship backups. Unless the bureaucrats in charge have a secret supply chain we don’t know about, they are facing the same shortages and supply issues as the rest of us, so in my opinion, it is a bit absurd to think there is some conspiracy about how this is all planned to make the people suffer more. The decision makers, elected and appointed, play in the same economy as we do and I’d be hard pressed to think they would intentionally do something that would cause themselves grief as well. What I see is a general lack of understanding of supply chains and how they operate by the political class, as well as the impact shortsighted knee jerk policy can have on them.
I don’t like to throw around my credentials, but for our discussion here it is important I cover them so there is understanding of my perspective. I have bachelors and master’s degrees in Supply Chain Management, I hold a certification in Supply Chain Management, and I have worked in various roles at different points in the supply chain for the last 18 years in multiple companies and industries. I live, eat, and breathe this stuff every day.
Now that the boring stuff is out of the way, we can turn our attention to the issues at hand. There is not any one specific cause for the supply shortages we see today, and in actuality many of the causes of the supply disruptions have been festering for years. Anyone telling you different is either not knowledgeable about supply chain or is gas lighting you to elicit an emotional response in an attempt to politicize the issue. Dan Bongino did the latter twice during his podcasts the week of 9/27, once on his Tuesday 9/28 show and then again on his 10/1 podcast. I respect Bongino’s work and find him to be well researched and correct on a lot of issues, but on this one, he’s doing the exact thing he accuses mainstream media of constantly doing. He’s gas lighting trying to politicize the shortages. Democrats aren’t intentionally hindering the unloading of container vessels. Covid itself is not a root cause of the issues we have experienced in supply. Covid was just the last drop of water that broke the dam on the struggles that we have seen within the global supply chains for years. It pushed things over their tipping point. The fact is, the pandemic and subsequent short sighted policies of shutting economies down enabled things that were already bubbling beneath the surface to become full blown issues with far reaching consequences.
Let’s start with the growing container ship armada off of our coasts. One reason container ships are piling up outside of America’s ports is capacity. It’s a lack of capacity to unload the container ships, a lack of available equipment to put the containers on for transport to their final destination, a lack of capacity in transportation inland (trucking), and a lack of capacity at the warehouses to turn the containers around quickly in order to keep the equipment circulating throughout the system. The whole system for distribution is over loaded. Let’s start with the capacity to load and unload container ships. This is best illustrated by the differences in port capacity between the U.S. and China. Port capacity is measured in Twenty Foot Equivalent Units or TEU’s. Port output is measured in how many 20 foot containers they are able to handle daily. The chart below shows the difference in how many containers the Chinese ports can handle versus the amount of containers the typical ports of call in the United States can handle on a daily basis.
|Chinese Port||Daily TEU’s||U.S. Port||Daily TEU’s|
Stating the obvious, not all exports from China go to the United States. However, this chart shows that the Chinese ports can far outpace American ports in terms of the amount of container traffic they can move on a daily basis. Coupled with record productivity from Chinese factories, the recipe is there for more containers to sail to U.S. ports faster than they can be unloaded, creating a backlog of ships off the coast.
The second piece of this equation is the lack of equipment to put the containers on for transport to their final destination once offloaded at the port. The chassis the containers ride on are held at the port, and at the destination rail yards the containers travel to from the ports. A couple of things happen with the chassis that will get supply out of balance, and we are seeing both play out currently. One, the sheer volume of containers coming in for delivery will consume the available chassis at the yard, causing containers to have to be stacked and await a chassis to become available for delivery. This in turn can cause the rail lines to temporarily suspend service, as the Union Pacific did in July
until congestion in the rail yards eases. The rail yards only have so much space, and when containers get stacked, delays can and often do increase. If a container or two are removed from one stack, in times of extreme yard congestion, they will be replaced immediately with more containers, further delaying the ones on the bottom. I had a number of containers 20-30 days late coming in from Europe this past summer that were delayed because they were on the bottom of the stack in the yard and were perpetually stacked on top of before they could be moved. The second part of the chassis imbalance is the capacity at the warehouse. Warehouses only have so many doors to put containers into for unloading, and there are only so many workers dedicated to unloading inbound freight (warehouses have dedicated crews to shipping as well as receiving, both operations happen simultaneously). Warehouses have been maxing out their dedicated doors to handle both the incoming and outgoing freight, and they still are unable to keep up with the demand for shipments. As an example, one of the warehouses within the distribution network where I work is currently working 4 weeks out on their dock appointments. Put another way, if I wanted to ship something into or out of that warehouse, it would not ship for a month.
Also factoring into the warehouse logjam and why chassis are in short supply is how containers are loaded. Depending how a container is loaded, and resources available to unload, it could take a day or more to empty one. To conserve space, many times pallets or slip sheets (a piece of heavier gauge cardboard) are not used for a container shipment. In these instances, workers must manually unload individual boxes and palletize them at the warehouse, which is labor and time intensive, and can take upwards of a day, sometimes more, to accomplish. To contrast that, if the shipments come on slips sheets or pallets, unloading can be accomplished in a matter of hours, helping to turn the containers and chassis around much faster. The shipments coming in on pallets are also dependent on having enough labor to keep both inbound and outbound shipments moving. In times of labor shortages, warehouses will dedicate what workers they have to working outbound shipments, as those are what make the company money, leaving the inbound with a skeleton or even no crewing at times. This leads to containers and chassis sitting idle at warehouses a lot longer than they otherwise would, creating capacity constraints in the delivery of import containers. Labor shortages in warehousing have been an on-going issue pre-covid, it’s not a new issue. The explosion of e-commerce has necessitated more and more warehouse workers, constraining the labor supply available to work shipments, and has led to longer dwell times of containers, which in turn has led to the capacity crunch we see in equipment. The last piece of what I’ll discuss from a transportation standpoint is the shortage of drivers. This aspect may be the one that you have heard of. It may even have been presented as a new phenomenon that was pandemic induced, but it isn’t. I worked in transportation for a large multinational 10 years ago, and we were discussing and experiencing driver shortages with our carriers then. Trucking is an industry where the workforce is aging rapidly, the average age of a driver is 47. It’s an industry with high turnover, averaging 87 percent.
Many owner/operators and small trucking firms wash out due to the sheer cost of operating a truck or a fleet of trucks, from the maintenance to the fuel. The pandemic wiped out one of the largest national fleets, Celadon Trucking, removing that capacity of 2,100 trucks and 6,000 trailers from the marketplace. Truckers work long hours, and in the case of over the road drivers, are away from home for potentially weeks at a time, making it an undesirable career in some people’s view. With the continued growth of e-commerce and the delivery requirements to get packages to people’s homes in a day or less in some cases, potential truck driving candidates are being hired by the likes of Fed Ex, UPS, and Amazon for their last mile fleets, further depleting the pool of drivers available to hire to move freight with over the road carriers. Trucking is an industry that gets little to no mention as a viable career path in this day and age of pushing college on every student coming out of high school. Trucking shortages were happening well before the pandemic, they just were not being felt as acutely, and were not being pointed to as an issue outside of a supplier explaining to a customer why their load wasn’t delivered on time. The reason why the shortage of drivers wasn’t being felt as acutely is there was inventory available in the supply chain to cover for short term delays in product delivery. That is no longer the case.
Inventory is meant to cover supply chain disruptions short term (days/weeks), but the longer term issues (months/now years) that have become prevalent with coronavirus drained all inventories in the supply chain down to the store shelves. When the coronavirus first was acknowledged by China, it was just before their Lunar New Year in 2020. Companies plan for the roughly 2 week shutdown of Chinese factories and allow for some time for the subsequent ramp back up to full production every year by bringing in extra inventory in the preceding months to buffer their stocks to account for this downtime. When I had to plan for how much extra inventory to bring in to cover for Chinese New Year, I figured on 4-6 weeks of inventory coverage to account for the holiday. But, in 2020, covid was acknowledged as existing just prior to Lunar New Year, and the Chinese government ordered the factories down for an additional 4 to 6 weeks post New Year. The usual 2 week shutdown turned into a 6-8 week shutdown. During this time the Chinese factories were down, consumption did not stop here in the U.S. or anywhere else in the world. Manufacturing kept consuming their raw imports sourced from China, end consumers kept buying finished goods that are imported from China, and the buffer stocks that companies bring in ahead of Lunar New Year were soon depleted, with no replenishment behind them because of the extended downtime of the Chinese factories. By the time Chinese factories had opened back up and started producing, the coronavirus had made its way to the U.S., and the shortsighted policies of lockdowns and economic shutdowns were underway, shutting down our production capabilities in some cases. Once again, consumption did not stop just because production of finished goods had. Inventories depleted all the way to the shelf due to a combination of panic buying, necessity buying to manage the virtual work and school that was put in place and production shut downs.
As an example of how covid exacerbated an already existing issue in manufacturing supply, heading into the covid shutdowns, electronics components were already in short supply. As an example, in my previous job, pre-covid, we were buying 6 months out for circuit boards. Then the shutdowns came and students were sent home and put in a virtual learning environment. This lead to a rush on computers, which were a competitor to the components we needed for our circuit boards as well as a rush on the chips the auto manufacturers use. This further constrained already tight supply, and did so very rapidly. The result of this was an increase in lead times to a year in some cases on electronics components. The chip shortage has led to the auto makers idling lines because they have no chips to manufacture vehicles with, as well as shortages on various electronic devices.
This depletion of entire supply chains of inventory meant it all needed to be replaced, finished good back to raw inputs. Factory capacity isn’t scaled to replenish the entire supply chain from the shelf back to the retailer’s warehouse and then back to the manufacturer’s warehouse for their entire product offerings. A few items where the entire supply chain is empty can be handled with a relatively limited time out of stock, but the reason we are seeing the persistent shortages now is there are entire lines of supply (finished good at the store shelf back through the raw inputs the manufacturers use) that need to be replenished for entire product offerings. Compounding this is the fact that there is pent up demand from consumers because of the persistent empty shelves. Once a product becomes available at the shelf, the consumer purchases all they can, emptying the shelf and necessitating that all production from the next run essentially will head to the shelf again, meaning no other points in the supply chain get stocked. If that product isn’t run soon enough after the shelf empties, the cycle keeps repeating as there is a constant state of pent up demand. It becomes a seemingly endless cycle of out of stocks.
If you made it this far, congratulations! You are on your way to becoming a Supply Chain expert. In all seriousness, I truly hope that you found this informative and that it helps you bust the conspiracy narratives about what is going on with the container ships idling off our coasts and why there are persistent shortages in the marketplace. Occam’s razor is always good to apply in any instance where conspiracy theories start to swirl, the simplest and easiest explanation is the best explanation. That applies here to why we have had container ships parking in ever larger numbers off of our coasts, and why there have been persistent shortages in the marketplace. There have been many issues affecting supply chains for years, the pandemic exacerbated and in some cases even accelerated the effects of what has been simmering below the surface in our lines of supply.
Funny how there is no mention of Texas, LA and FL, VA and NY shipping ports which are huge. I do agree with a lot of content in this article, but not everything comes from China.
Great article. If one drills deeper into the root cause of each of the described factors such as driver availability, the extent of political tinkering raises it’s ugly head. For example government mandates relative to new driver qualifications, limited driving hours, and transportation equipment standards play a huge role in the shortages mentioned. The normal balance of supply and demand struggles when government unnecessarily adds complexity and cost to the process. It restricts supply and doesn’t impact demand.
Is my thinking to simplistic?
You are right on in your assessment. The more the government regulates, the less efficient and more costly things become. Some regulation is necessary in terms of having common standards, etc., but there is a point where it does become a hinderance to the free flow of goods. It certainly is at play in what we are experiencing now.
Make more stuff in the USA
Don’t forget the unionized labor factor. They only know one speed. They pride themselves on working as slow as it takes to keep the same pay that they were getting while working faster. They do not get any reward for initiative, so they take none. They do not get any reward for working faster, so they don’t. It’s a failed system but that’s a topic for another day…just know that it’s going to play a huge part in how long this mess takes to straighten out.
i work for the state of Indiana and what i have noticed is that collage graduates who have never worked a day in there life’s are being put in to places of leadership and don’t know anything about what goes on when it come to the work end of the job. they lock there self’s in an office and hide behind a computer and send out email to change things that wont cant and haven’t ever worked and when there is a problem with the decision they make they email the HR department to fire someone when it fails to work. i know Americans can do anything with the right kind of leadership look at spacex. if you want to fix the problem make everyone hired , even from collage start at the bottom of the job food chain and work first then lead.
A very informative article. Well done!
A very good article that shows the complexity and sensitivity of the supply chain to disruption. Maybe I need to dig deeper into the situation here in Europe. In my perception, the problems so far are primarily due to raw materials. We were also affected by the cold snap in Texas. But once the goods are on the ship in the USA or China, it runs normally. There was a brief outcry when the Suez Canal was closed. But that had no real effect. But getting goods in sea containers from the USA is very difficult. The truck routes to the east are probably less well served because there are endless containers waiting in the ports in the west. But not sure and does not have so may details as you in your article
We can make that stuff in the USA ! No ships needed
Yes, actually we buy from Arizona. But difficult to get the parts to Europe. In January we decided finaly to ship 30 paletts via Truck to Virginia to get a place on a vessel.
You have described the problem very well. Now, what do you recommend as a solution?
Things being done now like 24/7 operation at the ports and utilizing off peak hours are a good start. Lowering the age limit of eligibility for long haul drivers is another step that should be taken to help expand the candidates in the driving pool. The solution long term is investment in infrastructure. Our ports aren’t equipped to handle the ever bigger ships calling them. Automating ports is another good investment that would help in moving goods. Near shoring and re-shoring production would also help cut lead times down, allowing for shorter replenishment cycles and more responsiveness to consumer demands.
The best solution would be to invest in domestic manufacturing. 90% of our economic problems would be solved right there. With the help of the Bushs, Clintons and many other betrayers of the public interest, Wall Street sold out main street in the 80’s and never looked back. Its long past time to correct that mistake.
The author of this article explains all the little things that contribute to supply chain woes and tells us that these problems have been present and growing for many years (and not necessarily the Democrats fault), and likely that is true for some of the issues, to a point, but there’s one important truth the author of this article failed to address, and that is that in the history of import/export in the U.S., there has never been a supply chain crisis so immense and detrimental to our economy as seeing the miles and miles of backed up cargo ships off the coast of LA, waiting to get to port to be offloaded. If all these little problems have existed for so many years, why have we never seen these effects before (there’s never been an instance of hundreds of cargo ships anchored out in the Pacific, unable to be offloaded)? In truth, look no further than the Democrat Party for the mishandling of the Corona virus, and you’ll have your culprit for this supply chain crisis we are experiencing today. If the rightful POTUS, President Trump, was in the WH, we would not be experiencing these supply chain issues to this degree.
Interesting article. One of the main issues seems to be the pile up of shipping containers but why do we have that? If you look at the stats on the LA port website they handled a record 9.4 million TEU’s in 2018. This year so far in 2021 the port is at 9 million TEU’s mid-November. So it seems as if they aren’t actually handling that much more TEU’s than they did in 2018? But the interesting numbers to me seem to be the number of full exported containers the port sent out. In 2015 loaded exports were 1.6 million, in 2018 the loaded exports were 1.9 million TEU’s, 2020 shows 1.5 million. Mid-November 2021 the LA Port shows it has only exported 1 million TEU’s. So if we aren’t reloading the containers with goods we are selling then wouldn’t it make sense that there are empty containers sitting around in the LA Port supply chain? The question is why don’t we have or why aren’t we putting goods to sell and fill those containers to ship oversees? We can’t sell what we don’t make or produce? Check my numbers on the LA port website as I don’t have the credentials you do. Maybe I don’t understand the data but those numbers caught my eye. Maybe I don’t know their lingo of what a loaded export is? Interesting job you have. Fascinating and complex system. I appreciate you sharing your insight. I just get sick of hearing Jen Psaki say that we are buying too much and laugh because we can’t get our treadmill on time.
There are indeed empty containers sitting around the port of LA. The port is now focusing on getting those containers moved back to the shipping lines. There are sweeper ships that go around picking up empty containers and return them into circulation. As for containers be refilled, there’s such an imbalance in trade that we do not have enough product to refill them for export. Some are refilled, but many more sail back empty.