Online Exclusive: Supply chain bottlenecks not expected to end any time soon

CUYAHOGA FALLS, Ohio—It may be complicated, and it even may be confusing, but it all comes back to one simple truth: There's only so much room on ships, trucks, planes and trains.

And if you need some of that cargo space, you're going to have to fight for it.

"This chaotic market is not going away soon," Matt Angell, vice president of logistics operations for Jarrett Logistics Systems, said during a presentation given as part of the Healthcare Elastomers Conference, organized and hosted by Rubber & Plastics News.

Globally, businesses—regardless of end markets—have dealt with hiccups before. Supply chains were flexible and adept enough to manage supply shortages and bottlenecks. But they weren't prepared for COVID-19.

The pandemic, Angell said, was different because it impacted the entire world—every supplier, every manufacturer in every geographic region—at the exact same time. Global manufacturing and shipping didn't just slow, in many cases, it stopped.

And that's the root of the problems faced today.

"As production and demand for most items quickly began to drop in the second quarter of last year, the transportation industry quickly began to cut costs," Angell said. "Large transportation carriers quickly began furloughing up to 50 percent of their drivers, dock workers and office staff, reducing transportation capacity in the United States by nearly 40 percent by the end of April."

When goods began to move again, those same transportation services were not positioned to handle the surge in demand. What resulted was a domino effect of capacity strains. Domestically, rail/intermodal quickly reached capacity, so freight was shifted to the trucking industry, which quickly was overwhelmed, especially as rest stops and truck stops remained closed.

When companies were positioned to recall workers, they still found themselves short-staffed. Many workers chose not to immediately return either for safety reasons, childcare concerns or the value of the unemployment benefits.

To help address employment shortages many companies have offered wage increases. Major trucking companies, for example, raised base pay to $75,000 per year with top pay scales at more than $100,000 annually. Signing bonuses of up $10,000 also are becoming the norm.

Even now, the industry still is struggling to keep up.

International shipping channels remain clogged as dozens of ships remain anchored in ports, waiting to be unloaded. In Los Angeles and Long Beach, Calif., the number of ships at berth and anchored are at all-time highs, according to Angell, who noted the issue is not unique to California. Ports in Texas, New York, New Jersey and other Eastern ports remained log jammed.

Experts expect that these delays will continue for months to come, with a return to normal port activity finally coming by the end of 2022.

"A lack of capacity among all modes of transportation is unprecedented in our industry," Angell said. "We have seen large disruptions in a single mode before … (but) today is much different and much more impactful."

Closer to home

Angell believes it will be more than a year before the shipping industry regains any sense of pre-pandemic normalcy. And as that happens, another trend will emerge.

Proactive companies, understanding the weaknesses in their supply chains, are moving to bring manufacturing operations to the U.S., closer to customers. In doing so, they shorten the distance from the factory to the customer.

"(Onshoring) is taking place already, and those who are forward-thinking have been doing it already," Angell said. "One of the challenges is that it is not a fast thing to do. It takes time to do it, it takes a lot of capital. And when everyone is doing the same thing at the same time, you are all competing for the same facilities."

As companies set their sites on U.S.-based operations, they are likely to find homes in the Midwestern and Southern states.

"Those are low-cost areas to build, they are low labor-cost areas, they are areas that usually don't have a big union presence, and that is where everyone is going to focus," Angell said. "There is going to be inflation in real estate there and labor costs, unemployment is going to drop to very low levels in those areas."

And as those areas grow up and the manufacturing facilities are brought online, the need to move goods in and out of those municipalities will grow.

"It is going to disrupt the domestic supply chain when it happens," Angell said. "We are going to see new imbalances."

None of the supply chain problems will be solved overnight, even as companies make the investments to help circumvent similar capacity issues in the future.

For the health care market, specifically, Angell expects shipping and supply issues to continue at least through the end of 2021.

"The health care industry, more than anyone, is at an all-time low in the amount of inventory that everybody has," Angell said. "It is completely just-in-time inventory right now, and as they are working to build up that inventory, they are sourcing the same trucks that are moving everyone else's freight."

Meanwhile, government stimulus could, in some ways, continue to exacerbate the shipping capacity problems and logistical bottlenecks already experienced. As intended, consumers spend their stimulus money, and the goods they purchase vie for cargo space—the same cargo space that health care industry suppliers and manufacturers are pushing for.

And that brings the problem back to that one simple fact.

"It kind of goes back to everyone is fighting over the same amount of capacity," Angell said, "and the transportation sector's ability to increase capacity is, historically, very slow."