The global supply chain is in the midst of “a perfect storm,” according to one local expert, with delays in the movement of goods causing headaches for both importers and exporters and, ultimately, consumers.
“We continue to have unprecedented levels of goods moving, particularly in the trans-Pacific routes but also the rest of the world, and the system continues to experience just unprecedented levels of congestion and issues and problems,” Jack Hedge, executive director of the Utah Inland Port Authority, said recently. “And those are rippling through our entire economy.”
The impacts of more delays and increased costs are hitting food, clothing, auto parts, furniture and building materials, among others.
“It literally is everything that we consume as a society is caught in this grinding-down of the global supply chain, the global logistics network,” Hedge said during a recent port authority board meeting.
During an earlier webinar organized by World Trade Center Utah and the Salt Lake Chamber, Hedge joined other officials in discussing the global shipping crisis. Participants said the global supply and logistics system was running at a high rate even before the COVID-19 pandemic, with that heavy volume causing congestion at West Coast ports.
“Once we had the pandemic, the supply chain got shattered for manufacturers, for importers and for exporters,” Hedge said. “It exacerbated those problems.”
Suppliers did not want to be caught without inventory if additional international tariffs were implemented, and companies’ “just-in-time” supply philosophy complicated a system “that was already running at that edge,” he said.
“It just melted the system down, and frankly there’s no end in sight,” Hedge said. “There’s a limited capacity to make more equipment. There’s a limited capacity to get more trucks and rail cars and chassis and containers and ship-to-shore cranes and vessels, and there is a driver shortage and there is a rail worker shortage and there is even a shortage of longshore workers. It is literally everything that could go wrong has gone wrong.”
Other webinar speakers said consolidation within the shipping industry has left only a few carrier alliances that can control the market. At the same time, trade tensions and tariffs became more prominent.
“There’s a myriad of factors at play here,” said Jeffrey Steed, executive vice president and chief legal counsel for Malouf, a Cache Valley-based manufacturer of comfort products. “Yes, there were unforeseen variables in this case, largely COVID. There were variables that were quite frankly beyond the scope of our crystal ball, if you will, like certain large ocean carriers continuing to consolidate … but there were things that quite frankly we could and should have foreseen for some time now.”
Forbes early this month reported that disruptions throughout the container market, shipping routes, ports, air cargo, trucking lines, railways and warehouses had created shortages of key manufacturing components, order backlogs, delivery delays and a spike in transportation costs and consumer prices.
U.S. importers have experienced delays in receiving raw materials, parts, equipment and consumer goods, while exporters have had trouble accessing containers and getting bookings on shipping vessels.
Malouf is one of the top 50 importers in U.S. and is confronted with uncertainty, Steed said.
“We’re doing great. We continue to grow very rapidly and expand our business operations and we’re having success in doing so,” he said. “But it is frustrating because the answer is, it’s just blatantly uncertain. And the costs? The costs obviously are increasing, and what does that do? That ultimately affects the cost to the U.S. consumer, which is extremely unfortunate.”
Steed said mattress prices already have risen more than 40 percent over the past six months. The American Mattress Alliance suspects that over the next two years, U.S. mattress prices could rise another 300 percent, he said.
A Gallup poll in July indicated that 60 of U.S. adults say they had been unable to get a product they wanted in the previous two months because of shortages, while 57 percent experienced significant delays in receiving a product they ordered. Seven in 10 Americans overall have had at least one of those issues, while 46 percent had both.
As for prices, 83 percent saw “significant” increases, according to that same poll.
A local TV station in Michigan recently reported that supply chain issues has led some retailers there to impose purchase limits on certain items, including toilet paper, peanut butter, pasta, jam and sauces.
Troy Keller, trade policy advisor at World Trade Center Utah, said both importers and exporters are in a fight for space on cargo ships.
“Our Utah companies, most manufacturers here, are small and mid-sized manufacturers — too big to use FedEx and too small to have leverage like some of the larger shippers,” he said. “So they are in this no-man’s land where they’ve just got to scramble … as they try to find space on a cargo ship, but there’s just intense competition for that.”
Keller said Utah, being an inland state, can get goods from the coastal ports quickly once they hit the shore, but they nonetheless are facing shipment delays. “Companies are … making do, but it’s tough and it’s not good long term,” he said.
So, what are businesses to do? Speakers said foremost is to find trusted partners on which to rely and shore up contractual relationships with them. Another option is to collaborate so that their collective voices are heard. Yet another is for companies to consider near-shoring — using suppliers in Canada and Mexico rather than, say, China.
Hedge believes that new service offerings for routing cargo could emerge. Steed said he believes that data and analytics technology, improved infrastructure, and collaboration and communication will be crucial to fixing the existing problems.
As it is, Hedge said he has been working this summer with West Coast ports, railways and trucking companies to develop solutions to alleviate some congestion. Temporary service offerings might help, and some likely will become permanent, including new rail service into Utah; new steamship services coming into other ports; and the formation of a “shippers association,” allowing Intermountain shippers to “combine their contracts, [put] their volumes together and get more slots available on vessels, better pricing out of the shippers, better delivery terms and things like that.”
However, he cautioned, even with government, industry and others tackling the problem, “it is going to take time to recover from this storm.”
“There is a silver lining,” Keller concluded. “Crises like this lead to innovation, and I have no doubt that’s going to happen. But it’s not going to happen next month. We’re talking years versus months.”