Navigating the Current Logistics Market and Operational Challenges

COVID-19’s impact on the supply chain has opened everyone’s eyes to the importance of smoothly running global commerce and logistics. 

AWS Publications | June 16, 2022 | Tech and Industries
Welding Digest ►  Navigating the Current Logistics Market and Operational Challenges

COVID-19’s impact on the supply chain has opened everyone’s eyes to the importance of smoothly running global commerce and logistics. 

If you did not know about logistics prior to the pandemic, you certainly did when everyday items were not available in your local grocery store. Since the start of the pandemic’s supply chain disruption, companies have started to analyze their supply chains and navigate the environment with more care and attention. This article explores various sides of the subject.

 

From Vessels to Inland Transportation and Much More

At the height of the pandemic, there were more than 100 vessels waiting off California to come into port for discharging their containers (Ref. 1). Ports were clogged with an unprecedented volume of containers needing to be moved both inbound and outbound.

The U.S. supply chain was disrupted and all inland modes of transportation, like truck and rail, were affected as well. Lead times for inland container transport capacity in the United States grew to three to four weeks for moves in some areas (based on my knowledge); transport was entirely unavailable in other areas. 

The crisis saw the average ocean transit times from Asia to the United States grow from 43 to 80 days in December 2021 (Ref. 2). In the supply chain to the United States, Goldman Sachs estimated in October 2021 that $24 billion worth of goods were sitting on ships off the ports of Long Beach and Los Angeles (Ref. 3). Both raw materials and finished goods made up the mix of products that were impacted by the long lead times, shortages, and increased costs. In the area of cost increases, the median cost of shipping a 40-ft ocean container from China to the U.S. West Coast surpassed $20,000 (Ref. 4), a 700% increase over the cost from one year earlier. Inland transport costing has grown to record levels as well with the sector’s contracted capacity.

 

COVID-19 and Port Space Restrictions

So how did the industry get to this point of supply chain disruption?

The first factor was, of course, COVID-19, a pandemic that severely disrupted local and global commerce. As people started to quarantine, business slowed dramatically in spring 2020 for a period of a few months. The market then saw large growth in spending fueled by stimulus checks, and this started the surge of retail sales from a nearly stopped state of business. Also, many supply chains have been run in a just-in-time inventory manner, which worked for many years and kept costs low regarding held surplus inventory. Retail sales came back in an accelerated manner, and this quickly revealed the precarious state of the supply chain regarding inventory of raw materials and finished goods.

In addition to equipment, the movement of goods also requires personnel. Workforce size trends in supply chain and transportation have not been going in the right direction for many years. Those of us working in supply chain and logistics have been talking about a talent gap for many years. In 2020, the federal government reported that 25% of workers in overall transportation were 55 and over (Ref. 5). The trucking industry was higher than that with 29% at 55 years old or older. The common gap talked about in U.S. trucking is a shortage of 80,000 drivers, and this could surpass 160,000 in 2030 (Ref. 6). Experts in trucking say that almost 1 million drivers need to be recruited in the next ten years to replace retiring drivers (Ref. 6).

Another area contributing to disruption is related to port space. It became evident when commerce roared back that many ports did not have the space for the increased numbers of inbound and outbound containers. This clogged up the system and caused delays to the overall supply chain in the United States. In addition to space issues, there were not enough chassis to carry the containers into and out of ports. This lack of container movement caused the backup of ships off the coast of California. The infrastructure could not adequately manage the increased inbound and outbound flow of goods. The container transport industry has also seen a large increase in the size of container ships over the last 15 years, with the largest vessels going from 11,000 twenty-foot equivalent unit (TEU) capacity to 23,000+ TEUs. This has been a challenge for the overall supply chain infrastructure to keep up with, especially as retail spending and subsequent growth in imports accelerated in the second half of 2020 and continued at a high pace.

 

Looking Ahead

I have described where we are in the current state of supply chain disruption and, at least to some extent, how we arrived at this point. So, what comes next?

The outlook of many professionals in supply chain management is that the disruption is not going away any time soon. According to the fall 2021 Oxford Economics Global Risk Survey (Ref. 7), “Supply-chain disruption poses the greatest risk to global economic recovery, according to our latest survey of risk perceptions. Businesses see persistent disruption as a greater threat to recovery than coronavirus developments. Only 1-in-5 of those affected by disruption think the worst of the crisis is behind us.” The last two years have shown the importance of supply chain resilience, which requires companies to have agility and visibility within their operations.

The pandemic supply chain disruption has caused companies to consider moving manufacturing closer to their markets with onshoring and nearshoring and with some making use of the new United States-Mexico-Canada Agreement. Container ports are looking at expanding infrastructure where possible, and transportation providers are investing in new equipment, such as trucks and container chassis. From a personnel standpoint, many companies are now acting by getting involved with various supply chain and workforce development initiatives around the country. The pandemic has shown that now is the time for action.

 

References

1. Chambers, S. December 14, 2021. 101 ships spread across 1,000 miles waiting for berth space at LA and Long Beach. Splash 24/7. Retrieved April 4, 2022, from splash247.com/101-ships-spreadacross-1000-miles-waiting-for-berth-space-at-la-and-long-beach.

2. Freightos Ltd. Transit time calculator for sea, air & port to port shipping. freightos.com/freight-resources/transit-time-calculator

3. Egan, M. October 25, 2021. Markets now. CNN Business. Retrieved April 4, 2022, from cnn.com/2021/10/25/business/supply-chain-ports-inflation/index.html.

4. Federgruen, A. October 29, 2021. Getting serious about solving the supply chain crisis. The Hill. Retrieved April 4, 2022, from thehill.com/opinion/white-house/578908-getting-serious-about-solving-the-supply-chain-crisis.

5. U.S. Department of Transportation Bureau of Transportation Statistics. Employment in transportation: Employment in transportation and related industries. Aging of workers in the transportation and warehousing sector (percent of workers age 55 and over, 2020, chart). data.bts.gov/stories/s/Transportation-Economic-Trends-Transportation-Empl/caxh-t8jd/#:~:text=Roughly%20one%2Dquarter%20of%20all,over%20the%20age%20of%2055

6. Sasso, M. October 27, 2021. U.S. ports get tough with shipping lines as containers pile up. Bloomberg. Retrieved April 4, 2022, from bloomberg.com/news/newsletters/2021-10-27/supply-chain-latest-u-s-ports-get-tough-on-carriers-as-containers-sit.

7. Murray, B. December 9, 2021. Vanishing ships underscore supply woe: Crisis peak is a mirage. Bloomberg. Retrieved April 4, 2022, from bloomberg.com/news/articles/2021-12-10/vanishing-ships-underscore-supply-woe-crisis-peak-is-a-mirage.

 

This article was written by John Hark (regional director at Bertling Logistics Inc., Humble, Tex., and an adjunct professor at Texas A&M) for the American Welding Society. This article is based on a presentation at the AWS Supply Challenges for the Welding Industry virtual workshop on December 14, 2021.