By Angela Chiang, director, International Affairs, Auto Care Association
Companies of all different sizes and industries are experiencing significant supply chain disruptions as the COVID-19 pandemic continues to reveal supply chain vulnerabilities and have a staggering effect on the movement of goods worldwide. Each link in the supply chain is experiencing bottlenecks from access to raw material, components or finished goods; shipping and trucking congestion; and labor shortages.
At the start of 2020, we saw a steep decline in cargo as the impact of the pandemic in China and the U.S. took effect. As businesses reopened in the summer of 2020, the market saw a rapid shift as retailers worked to replenish inventory depleted during the pandemic.
With e-commerce leading the way, a surge in pandemic-driven consumer demand triggered a spike in imports and stress on the shipping system. Disruptions at each link in the supply chain is an added cost and strain on the global economy.
Container Shipping Rates at Record Highs
For importers, the challenge starts overseas at origin ports with manufacturers in Asia unable to book container space unless they are willing to pay a premium price, despite previously signed contract rates. Container shipping rates from China to the U.S. west coast have soared over 900% from pre-pandemic rates of $2,000 to current rates of $20,000 per 40 ft. container.
Upon arrival at the Port of Los Angeles and Long Beach, it idles in San Pedro Bay with over 70 plus other container ships at anchor or adrift waiting to unload (as of late September). Congestion at the Los Angeles-Long Beach port complex are at record levels, creating a critical bottleneck at the busiest gateways for imports into the U.S.
The next bottleneck is the congestion truckers face in waiting to pick up or drop off empty containers at over-capacity terminals. A process that should only take one truck to bring a container in and take a container out, is now requiring two trips. Delays at terminals have resulted in importers having to pay unnecessary and significant demurrage and detention charges.
At the same time, the trucking industry is facing a national shortage of drivers, an issue the industry has faced for many years that has been exacerbated by the pandemic. Trucking companies are having a difficult time bringing back drivers who left the industry during the pandemic.
Labor Shortage and Warehouse Capacity
In addition to record imports, the pandemic has severely affected the vital labor force needed to move and receive cargo. Workplace productivity was slowed during the pandemic due to infections, quarantine guidelines and safety procedures.
As the economy re-opened, businesses faced tremendous competition with other industries to attract capable workers and team members. Companies struggled with the level of commitment from new hires despite immense resources dedicated to finding, interviewing, training and on-boarding applicants.
Many distribution centers are facing a shortage of warehouse space as containers have increased, adding more costs to rent necessary additional space.
We’re in a paradoxical situation where demand is strong and rising, but availability of supply has been low and unpredictable. Unexpected consumer buying patterns during the pandemic have challenged the delicate and complex nature of global supply chains as businesses struggle to access supply, control inventory and forecast demand.
Businesses can no longer take for granted normal variances in cyclical ups and downs or the predictability of placing an order and receiving the shipment. While near term relief is not expected as we head into the holiday season, these past events have shown that disruptions within global interdependence networks are inevitable. Learning and evolving will better prepare supply chains for opportunities and challenges ahead of us.
In the meantime, the Auto Care Association and the Motor & Equipment Manufacturers Association (MEMA) have selected Steve Hughes to serve on the Federal Maritime Commission’s National Shipper Advisory Committee. The charter of the newly formed committee is to advise the Commission on policies relating to the competitiveness, reliability, integrity and fairness of the international ocean freight delivery system. The committee will be comprised of 12 representatives of entities who export cargo and 12 representatives of entities who import cargo.