2021 was a year like no other, with “shortages of everything” (notably computer chips), transportation woes (especially for ocean container shipping), and labor challenges everywhere.
Supply Chain Digest Says...
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| US imports reach pre-pandemic levels by October 2020 and have continued to grow from there – while the consumption of services in the US still hasn’t recovered to pre-pandemic levels. |
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The numbers tell the story. Prior to the pandemic, it took about 71 days for a round trip ocean container move from China to the US West Coast, then movement by truck or rail of that container to Chicago or similar Midwest location, and the getting the now empty back to the West Coast and then shipped on to China.
Now that same round trip will take something more like 120 days. Meanwhile, the cost of shipping a container from China to say the port of Los Angeles has soared from around $1500 pre-pandemic to $15,000-$20,000 currently , a punishing rise, especially for companies importing lower cost goods.
That according to Phil Levy, chief economist for global logistics technology provider Flexport and previously a senior economist for President George W. Bush’s Council of Economic Advisers, in a recent interview in the Wall Street Journal.
Levy believes the pandemic is the root cause of these 2021 woes that seem likely to stretch well into 2022 and maybe longer. It started with COVID-19 related labor shortages at both factories and ports in China.
A prime example: the May 2021 closure of major Chinese port of Yantian, which process 33% more volume than does the Port of Los Angeles.
“Every time you shut down at one of those places, you’re interrupting the flow of containers” leading to backlogs,” Levi told the Journal, adding “How do you ever work them down? You can’t suddenly process twice or three times as many ships once a lockdown is lifted.”
Then the domino effect kicks in. The logistics delays hit parts needed by US manufacturers, resulting in shortages in finished goods and very long lead times.
And demand for imported products, both finished goods and parts and components, remains high, further stressing ports.
Ports are built to just barely be able to meet peak demand.
“The problem is that a system that can barely handle a normal peak season has seen “above peak demand for about an entire year and a half,” Levi notes.
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 And there was another oddity: the US recession that followed the start of the pandemic was not a normal one. Outside of a few sectors such as restaurants and travel, American incomes dropped little during the slowdown, and demand was bolstered by various Federal stimulus programs.
The result: the recession “didn’t have the effect that you often would’ve expected with a downturn, which is people don’t have money to spend. They did. And then their preference of what they spend it on tilted towards goods” versus services, Levi told the Journal.
US imports reach pre-pandemic levels by October 2020 and have continued to grow from there – while the consumption of services in the US still hasn’t recovered to pre-pandemic levels.
And that naturally enough has led to significant inflation, as rising demand confronts a challenged supply chain that cannot expand its output.
When will things return to normal in terms of demand patterns, especially in terms of goods versus services consumption? Maybe not for awhile.
“People are creatures of habit,” Levy observes, and the pandemic has led them to take on new habits. So far, at any rate, “we have not seen a reversion to the previous patterns.”
Levi adds that the current supply chain scenario simply has no parallel in history.
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