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The supply chain crunch

Posted by Grace Townsley

October 5, 2021    |     4-minute read (727 words)

If your company relies on supply from overseas or relies on any of the thousands of other companies that do, you’re well aware of the supply chain bottlenecks impacting the country. Unfortunately, it doesn’t look like supply chain issues will be letting up any time soon.

What’s causing these bottlenecks?

One big issue slowing down delivery in the U.S. is that the two biggest ports, Los Angeles and Long Beach, don’t see transport activity overnight or on Saturdays and are closed Sundays. With limited hours in the week, traffic backs up in the dockyard. And even if the yard were open 24 hours a day, an extension Long Beach is planning to try soon, the next issue is having enough labor to move the containers to their destinations. 

The truck appointment system was developed to help improve congestion in busy ports during peak pickup and delivery times. The port’s terminal operators determine how many trucks can enter at a time to help ease the flow of traffic. But with the massive trucking labor shortage, up to 1 in 3 truck appointments aren’t being kept. The problem has a domino effect. 

Containers back up in the port, preventing arriving ships from having a place to drop off. The freight trains that move up to 30% of these containers to distribution ports across the U.S. aren’t receiving the trucks they need to get the containers off their freight yards to the end user. And thousands of empty containers are taking up valuable space at the shipping yard due to a lack of trucks to return the empties. 

Scarce warehouse space also factors into the supply chain bottlenecks. With warehouse space becoming increasingly expensive and hard to find, some container owners leave their containers at the shipping yard. It’s cheaper to pay storage fees at the yard than to rent the warehouse space needed to unload the containers. 

Supply is increasingly unpredictable

With compounding problems slowing the transportation of shipping containers, stores are struggling to receive the supply they need. 

Stores like Home Depot, Ikea, Nike and Costco are all facing seriously low inventories going into Q4. Even as they pay higher and higher shipping costs, reliability is decreasing. In response, some of these companies are passing higher prices along to their customers, while others are absorbing the higher costs into their margins. Some companies are simply discontinuing the items with the greatest shipping delays. 

Potential solutions to the supply chain shortages

Big companies with healthy cash reserves and strong demand have resorted to chartering their own ships to help guarantee the delivery of their goods. Walmart and Home Depot, for example, have signed deals to secure their own cargo ships for the months to come. As a result, Walmart reports they are confident their inventory will remain strong for the holiday season, offsetting the extra costs associated with chartering. While this option allows companies greater control over their goods, it doesn’t do much to help the trucking and train labor shortages contributing to the bottlenecks.

Air cargo is also an option for companies, though it is significantly more expensive than using cargo ships. The air freight market is extremely tight, with demand greatly exceeding the capacity of existing cargo aircraft. Under normal circumstances, a large portion of air freighted goods are sent in the belly of regular passenger flights. But with frequent flight cancelations and delays due to the ever-changing COVID situation, a large portion of the air freight market is unpredictable. 

A third possible solution to help ease supply chain shortages is simply ordering ahead of time. Many companies are extending their lead times, building in 2-3 times the lead time they typically need. And for good reason, Nike executives report they now wait about 80 days to receive cargo that used to arrive in only 40. Increasing lead times protects companies’ inventory levels and ensures they have adequate labor scheduled to transport the goods once they arrive in the US. 

Key takeaway

Supply chain shortages are likely to persist into 2022 as pent-up consumer demand returns to normal levels. But, if trucking companies are able to add the workers they need to help ease the flow of container deliveries, and if retailers continue ordering from their suppliers with longer lead times, these bottlenecks might just release.

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