With the havoc at ports showing no signs of abating and prices for a vast array of goods still rising, the world is absorbing a troubling realization: Time alone will not solve the Great Supply Chain Disruption.
It will require investment, technology and a refashioning of the incentives at play across global business. It will take more ships, additional warehouses and an influx of truck drivers, none of which can be conjured quickly or cheaply. Many months, and perhaps years, are likely to transpire before the chaos subsides.
“It’s unlikely to happen in 2022,” said Phil Levy, chief economist at Flexport, a freight forwarding company in San Francisco. “My crystal ball gets murky further out.”
For those who keep tabs on the global supply chain, the concept of a return to normalcy has given way to a begrudging acceptance that a new normal may be unfolding. Cheap and reliable shipping may no longer be taken as a given, forcing manufacturers to move production closer to customers. After decades of reliance on lean warehouses and online systems that monitor inventory and summon goods as needed — a boon to shareholders — manufacturers may revert to a more prudent focus on extra capacity.
The deepening understanding that the supply chain crisis has staying power poses a daunting challenge to policymakers.
Mayhem at factories, ports and shipping yards, combined with the market dominance of major companies, is a key driver for rising prices. Spooked by the highest rates of inflation in decades, the Federal Reserve has resolved to tighten credit, while the Bank of England and other central banks have already lifted interest rates, sowing alarm in stock markets from New York to Tokyo.
Public anger over rising consumer prices — especially for food and fuel — helps explain why Democrats may be in danger of losing control of Congress.
Record beef prices, along with rising costs for pork and poultry, have prompted the Biden administration to pursue the prospect of antitrust enforcement against the four companies that dominate the U.S. meat supply.
But whatever the politicians and central bankers unleash in the name of taming inflation, businesses continue to struggle to manufacture and distribute their products.
The persistence of supply chain troubles in part result from how the coronavirus pandemic has accelerated trends that have been unfolding for decades, especially the growth of e-commerce.
Whereas major brands traditionally ship goods from factories around the world to central warehouses that supply retail outlets, e-commerce demands a far more complicated endeavor: Retailers must deliver orders to homes and businesses.
As warehouses have been swamped by goods, major retailers have added capacity at a breakneck pace. Amazon spent more than $164 million to construct new warehouse space last year, while Lowe’s, the home improvement retailer, spent more than $17 million, according to Reonomy, a commercial real estate data provider.
Warehouses are stuffed to the rafters in the places with the most demand — those near the largest metropolitan areas.
The tightness in warehouses helps explain why U.S. ports remain seized by dysfunction, especially the busiest one, the complex of terminals at Los Angeles and Long Beach. With limited room to stash goods from vessels, containers have piled up on docks. That has prompted port overseers to force ships to float offshore for days and even weeks before they can unload.