Finance

Supply Chain Bottlenecks Strangling Corporate Efficiency

Whether it’s selling iPads or motor vehicles, almost any company that’s in the business of supplying consumers with stuff will face constraints in the current shipping environment.

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As much as tech and service industry businesses increasingly dominate the headlines (and our headspace), the United States economy remains stubbornly focused on tangible things.

Even today, the U.S. is still the second largest exporter of goods in the world. The largest purchaser of U.S. goods is Canada (our neighbors to the north snatched up 17.8 percent of exported American goods in 2019, worth $292.6 billion). The second largest purchaser of U.S. goods is Mexico (which imported $256.6 billion of U.S. goods in 2019).

Obviously, oceanic transport is not necessarily required to reach our two largest export markets, both of which are contiguous to the United States.

While the U.S. is a prolific exporter, it’s an even more prolific importer. The U.S. is the top importer of goods in the world, and most of those goods come from the world’s top exporter, China. China has been the largest exporter of goods since 2009. In 2019, China supplied the United States with $452 billion worth of goods, which accounted for 18 percent of America’s total imports.

Of course, suppliers in China and purchasers in the U.S inevitably face the challenge of moving goods across an ocean.

In 2020, with the global economy slowed in the face of an ongoing pandemic, this was not much of a problem. 

Certain goods were scarce — who could forget the great toilet paper drought of 2020? But goods shortages in 2020 were more a feature of irrational panic buying than of any logistical roadblocks.

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That has all changed. The red-hot 2021 economic recovery is causing a surge in demand, and there are only so many ships, ports, warehouses, and rail cars to go around.

May was the busiest month ever in the 114-year history of The Port of Los Angeles. The Port processed the equivalent of 1,012,048 standard size shipping containers in May, a record for a Western Hemisphere port and an increase of 74 percent compared with May of last year.

The Port of Los Angeles is the top seaport in North America by cargo value and container volume, and it seems very secure in that position.

Some vessels are being forced to wait in line as long as five days just to dock. Once cargo is unloaded from ships, it is now often taking 10 days, and sometimes longer, for it to be placed on train cars headed for its ultimate destination.

Shipping costs have soared amidst the backlogs. Many businesses are reporting final shipping costs being as much as 50 percent more than anticipated.

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The worst shipping bottlenecks have affected the West Coast, which makes sense, given that most goods from America’s largest source of imports first arrive there. Still, East Coast importers are not immune.

The price to send a refrigerated container from Italy to New Jersey, for example, has reportedly reached $10,000 — more than double what it cost pre-pandemic.

Often, businesses pass on higher shipping costs to their customers. Federal Reserve chair Jerome Powell, in testimony prepared for a congressional oversight hearing, blamed supply bottlenecks for contributing to higher-than-expected inflation figures in recent months.

The official line from the Fed remains, however, that cargo constraints and other factors causing short-term inflation won’t last long.

Whether it’s selling iPads or motor vehicles, almost any company that’s in the business of supplying consumers with stuff will face constraints in the current shipping environment.

If the Fed is to be believed though, the problem is only temporary. Until it abates, businesses, and the customers they serve, will have to get used to longer wait times and at least marginally higher prices for goods.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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