This week, the President of the United States correctly said that Americans do not understand the supply chain. Everyone in the country seems to be focused on the still growing number of ships stranded off the coast of California.
There is more to our supply chain problem than just how fast those ships can be unloaded, and most of the solutions being reported in the news are actually little more than noise. The real solutions to our problem are going to take far more time than what our politicians are promising. Yes, the supply chain problem will be fixed by Christmas, but it won’t be this year’s Christmas…And it might not be next year’s, either.
While this is not even close to a comprehensive list of the problems hindering the timely delivery of goods to our neighborhoods, these are a few glitches that I am not seeing reported in news.
Factories the world over now use the Just-In-Time manufacturing system to eliminate excess inventory. Usually attributed to Taiichi Ohno, the head of post-war Toyota, the real roots of this lean manufacturing system can be traced back to Henry Ford’s first production line. While this system definitely cuts costs and speeds up both innovation and market adaptation, it depends on reliable and predictable suppliers.
This all fell apart when the COVID pandemic shut down factories around the world, hitting particularly hard in industrialized Viet Nam. Factories that shipped parts to other factories stopped production for months, and caused a cascade of missed delivery dates around the world. The most critical part for most manufacturing is the worldwide shortage of computer chips. Since auto manufacturers, for example, had to scale back production of cars due to the shortage of chips, they have largely stopped buying the other parts necessary to produce new cars.
Shipping that backlog of parts is going to be a problem, too. While shipping rates prior to the pandemic had been steadily dropping due to a glut of large capacity container ships—suddenly those ships are spending significantly more time waiting at ports to be unloaded than they spend actually traveling to the ports. Ships that are waiting just offshore are not earning any money, dramatically cutting down the number of trips they can make a year. This expense, in turn, is dramatically raising all shipping costs, and means a growing number of manufactured goods waiting at distribution centers are waiting to be loaded on those ships that are idling at anchor, waiting weeks at a time to be unloaded. Of course, the warehousing of goods waiting to be shipped adds to the shipping costs.
Eventually, these rising costs will diminish demand and the backlog will clear. The only solution to this problem is time and clearing up this backlog is going to be as slow as a hippo passing through a python. (That analogy is brilliantly apropos.)
Part of the truck shortage can be attributed to shipping companies’ unwillingness to have trucks and drivers waiting long times for containers to be loaded. Drivers are not paid for this time, nor can trucking companies collect for the delivery time. The state of California makes it relatively difficult for non-union drivers to pick up loads at the ports, and if you couple this with the state’s passing environmental laws that make it harder for trucks manufactured before 2011 to be licensed, you begin to see why there might be a shortage of trucks. If you consider that California has both high income taxes and high fuel costs, as well as a statewide speed limit of 55 mph for trucks and a host of truck-only legislation…you begin to wonder why California has any operating rigs on the road at all.
The California regulations concerning old trucks and limiting owner/operator rigs are known as AB 5 and the 2008 Truck and Bus Regulation. The provisions of both bills have been vastly overstated on public media, usually claiming outright bans on old trucks and a total elimination of owner operated rigs. Neither is true, but the measures have discouraged both new drivers and the purchase of new rigs. Exactly how much this has added to the trucking problem is impossible to measure, however.
Trucking companies are reluctant to buy new diesel trucks because the state has already mandated that all trucks on the road must be electric by 2035. Unfortunately, new electric trucks are not yet commercially available.
Couldn’t the containers be warehoused until they could be shipped to their destinations? Theoretically, yes, but practically speaking, it is highly unlikely. Ignoring the price of real estate in Southern California, both environmental concerns and California’s high property taxes on inventory make building new warehouses unlikely. Considering existing warehouses, California currently has a vacancy rate of less than 2%. Hell, the International Space Station has more free space than that.
As one owner of a warehouse recently said, “I’m not going to build a new warehouse just because of this emergency. You don’t build a church because Easter is coming, you build a church to handle the attendance you get every Sunday.”
The most difficult problem to solve at these ports, however, is that they are old, inefficient, and out of date. Even compared to ports found in third world countries, the two busiest ports in California do not measure up. In a recent World Bank ranking of ports across the globe, Los Angeles came in 328 out of 352. As bad as that is, it still beat out Long Beach, which came in at 331. The two container ports came in just lower than ports in Tanzania, Kenya, and Turkey. Since you are probably wondering, the five most efficient and modern ports can be found in Yokohama, Saudi Arabia, Chiwan, Guangzhou, and the Koshiung Port in Taiwan.
Yokohama’s port, the most modern and efficient in the world, was destroyed by American bombing during World War II. What little remained was damaged by an earthquake. Since then, Japan has consistently modernized and automated the port. (I wonder if bombing Los Angeles would help? Probably not.)
In California, automation has consistently been delayed by strict environmental laws so that even compliant new facilities are delayed by years. Equally harmful have been the politically powerful unions that have successfully blocked several attempts at automation. As a result, most ports in the Middle East, North Africa, and Asia rank higher in efficiency than the two California ports. The only four American ports to rank in the top 100 are on the East Coast. No American port was in the top 50.
Well, that’s enough listing of the problems. There are possible solutions, but they will not be found by throwing more government money at longshoremen, by politicians promising to fix what they don’t understand, or by bureaucrats more concerned with whether a bridge can be racist than with how to improve aging infrastructure. Instead, I’ll make a prediction: If America does solve the supply chain distribution problem, we will do it by turning to an organization famous for handling impossible supply problems, an organization with dozens of experts in Boydian Philosophy. (If you don’t know, look it up.)…By almost any measure, the premier American experts in solving logistical problems.
If you want real solutions, call the experts: The United State Marines.
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