The Real Reasons Behind the Container Ship Backlog and Product Shortages

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
Shanghai	119,000	Los Angeles	25,200
Ningbo	78,680	Long Beach	22,190
Shenzhen	72,740	Seattle/Tacoma	9,040
Guangzhou	63,530	Oakland	6,575
Qingdao	60,270
Hong Kong	54,990

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.