The column before the election is a non-political one, which is actually fair, since there is no time for a rebuttal of anything I might write. So I have chosen a topic that is affecting all of us: the stressed “supply chain.” Because my career was in the freight transportation industry, I am choosing to write this week’s column on that segment of the mammoth, complex and misunderstood “supply chain.” Here are just three causes for the stress:
Length of the global supply chain: A carton of towels made in Xi’an, China that ended up on a shelf at Walmart in Wallingford was moved no fewer than fifteen times by as many different companies in its journey of over 8,000 miles. That is the “chain” in supply chain. If every link works smoothly, the trip takes approximately 4-5 weeks. But the longer the chain, the odds on a breakdown grow. Right now, every link is operating over its capacity, and things have begun to break down. In the past, when those towels were made in North Carolina, there would have been as few as five links and a distance of only 800 miles. The length of the supply chain in a global economy is subject to way more problems than that of a domestic economy. It really is that simple.
Expansion of the supply chain: In the short run, every element of the transportation system is fixed. In other words, there is just so much capacity. Right now, every producer or consumer of products is competing for space on the limited number of trucks, containers, ships, rail cars, and warehouses. Each one of these pieces of transportation infrastructure takes months if not years to produce. Additionally, hiring and training people to operate the trucks, ships and trains takes many months. When you put someone behind the wheel of a tractor-trailer weighing up to 80,000 pounds, a ship weighing perhaps 500,000,000 pounds or a railroad train with possibly 250 containers, that person had better be a professional with as much training as possible.
There used to be slack in the transportation system, but that is long gone. Sophisticated asset management systems have eliminated having too much equipment. Too many trucks, trains and ships sitting idle is a recipe for bankruptcy for any transportation company. Every company is totally data driven and has to be to compete. Having equipment “just in case” is not a viable business strategy.
One other factor inhibiting expansion of the transportation chain is, ironically, that there’s just too much freight. Being at total capacity is fine as long as everything runs as it should. But once problems in one area develop, then the entire system backs up and freight gridlock is the result. At this time, every single link in the distribution chain is at capacity. Almost every public warehouse in America is full and therefore can’t accept all of the loads destined for them. So that backs up the trucking companies and railroads, so they have to sit with full containers.
Their yards fill up with containers, so the trains that arrive can’t unload their containers. That backs up the entire rail system and they run out of cars used to handle containers. That backs up the piers. There are 60-70 ships awaiting a berth at the Los Angeles/Long Beach Calif., container piers, and more ships arriving daily. The piers are so jammed up that there’s no place to put empty containers that must go back to Asia. Therefore there’s a shortage of empty containers in Asia to put more freight to send to the United States. It’s a nightmare scenario.
Just-in-time inventory management: With the advent of computers, trimming inventories became possible. Point-of-sale inventory management, pioneered by firms like Walmart, enabled companies to significantly reduce the amount of product they had on hand to deal with market fluctuations. This reduced the cost of almost everything because product sitting in warehouses is a dead cost passed on to the consumer, but this “lean” manufacturing and just-in-time inventory replenishment eliminated the flexibility that carrying large inventories allowed.
This inventory management system works wonders in a stable economy, but Covid shut down factories for months. Now the economy comes roaring back and the pent-up demand for products soars, but there is no cushion of inventory stock. Businesses run through what finished product they have, but cannot produce nearly enough to match the demand. The mismatch between supply and demand, which hefty inventories masked, is felt immediately. This is rippling through the world economy.
The answer? There really is none. This is the global economy. It will take months and months to work this out. We consumers have been convinced that we can have it all when we want it at the lowest possible price. For the time being, Covid is proving that we can’t.
Stephen Knight is a former Wallingford town councilor.