Prior to the onset of COVID it would have been unusual to see a cargo ship at anchor outside the ports of Los Angeles and Long Beach – from time to time you might spot one. But last week the two ports had 65 cargo ships waiting to dock and unload, with an average wait time of almost 9 days. The port of New York/New Jersey reported 24 ships stuck at sea waiting to dock. And according to data provided by the ports, some ships may wait to dock for as long as three weeks.
Cargo ships enduring one of the worst U.S. port bottlenecks in more than a decade faced down another obstacle as they waited to offload near the ports of Los Angeles and Long Beach Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images
In part because of these delays, it now takes products shipping from China more than one month longer to arrive in the United States, according to the freight brokerage firm Freightos.
The problems are not confined to ocean shipping. U.S. and Canadian railroads are also suffering from gridlock, with Union Pacific stopping shipment of containers from time to time in an effort to clear the logjam of boxes overwhelming its system.
Of course, all of this has driven the price of global shipping through the roof. According to one industry veteran the cost of transporting goods from Asia to the U.S. has risen from less than $2,000 two years ago to as much as $25,000 today. Here at Encore Hartco we have not escaped that pain – a $5,600 freight estimate at the time we ordered a container of galvanized C-Rings became a $19,000 reality one month later – and the rings remain on the dock in China, because we simply cannot “tack on” almost $10 in freight cost to the final price of a box of rings to our customers.
What has happened? It is easy to blame the COVID pandemic. But more specifically, what did the pandemic do that has stretched the global logistics system to its limits? Several factors come to mind:
- Monthly inbound traffic at LA and Long Beach is running almost 25% ahead of typical monthly volume in the five years preceding the pandemic, according to port data. This will subside at some point as pent-up demand from the last 18 months dissipates but is simply overwhelming port infrastructure.
- The well-publicized U.S. labor shortage is pervasive in the supply chain. Prior to COVID it was estimated that the U.S. was short more than 60,000 truck drivers, with that number expected to grow to 100,000 by 2023, according to the American Trucking Association. Almost 60% of long-haul truck drivers are over the age of 45, and many simply did not come back to the grueling work of over-the-road hauling after the pandemic. Many transportation workers idled by COVID found employment elsewhere in industries that were not shut down by the pandemic.
- The pandemic turned “usual” business patterns on their head. Global businesses have adopted and fine-tuned “Just in Time” supply systems for more than a generation. Simplistically, many of these programs have been developed by applying massive computing power and advanced technology to predict supply and demand patterns by analyzing reams of historical data. The COVID pandemic disrupted demand patterns across most industries — throwing off the algorithms used by suppliers to plan production and shipments. Simply put, we did not have the right production and transportation assets in the right places at the right times to meet the “new” demand patterns created by an economy shut down and then rebounding from the pandemic.
Most “experts” believe these disruptions will dissipate later this year or early in 2023. The Federal Reserve Bank insists that the inflationary pressures we are experiencing are “transitory” and will abate later next year. We are not so sure. The labor shortage is an ongoing issue that is not easily resolved — there appears to be a serious mismatch between the skills employers need and those of Americans looking for work. Some productive assets (mines, steel mills, machinery, transport equipment) have been taken out of commission and may not come back or will require capital investment to bring back online. U.S. steel production is just getting back to levels last seen in late 2019. Meanwhile, China is reducing production of steel and aluminum in an effort to reduce air pollution and ensure “blue skies” before it hosts the Winter Olympics in Beijing next February. Guinea, the world’s third largest producer of bauxite (the world’s main source of aluminum) is reeling from a political coup that has disrupted mining operations and driven aluminum prices to their highest level in 13 years.
Encore Hartco is taking a cautious approach. Our philosophy is to do everything possible to make product for our customers and service their fastening needs. Examples of the ways in which we are keeping our products “in stock” without overly exposing ourselves to wild swings in material prices, transportation costs and lead times include:
- Discouraging customer stockpiling by limiting unusually large orders in a single delivery. We may divide one very large order into several smaller shipments made over a few weeks in order to ensure that all our customers get what they need to keep their businesses open and operating.
- Communicating in a transparent way which costs we’re increasing and why. Encore Hartco products have always been of the highest quality and competitively priced, but due to the current supply chain issues we have been forced to add a surcharge to cover the increased cost of raw materials and shipping fees. When the supply chain and shipping increases go back to normal, the surcharges will disappear.
- Maximizing materials shipments in as few containers as possible, and exploring how on-shore materials suppliers and delivery service providers, whose services may be more expensive, can serve our customers’ needs more efficiently in some cases.
The bottom line is that there’s no way to just sail around the worker shortages and supply chain disruptions created by the pandemic. At Encore Hartco, however, we are confident that with patience, good planning and making adjustments to meet the moment, we’ll all weather this perfect storm together.