At first glance, it might appear that the pandemic-era supply chain chaos is almost over.
Titles bemoaning the lack of everything PlayStation and Caring for bears medical devices are no longer commonplace. Only six ships were waiting to dock at the ports of Los Angeles and Long Beach on Tuesday, a fraction of the 109 that were stranded outside San Pedro Bay in January. Meanwhile, the cost of shipping a 40-foot shipping container from Asia to the West Coast is now under $3,000, well below last year’s peak of more than $20,000.
Still, the structural problems that enabled many of the delays, price spikes and shortages of the past few years have not gone away. Shipping prices have not fully returned to pre-pandemic levels, truckers are still in short supply, and some in the logistics industry are already predicting trouble this coming holiday season. More broadly, the capitalist system responsible for the production and supply of goods around the world has not been ‘fixed’. In fact, it remains as vulnerable to interference as ever. Consumers are still witnessing widespread inflation, not only for energy and food, but also for products that often depend on Pacific shipping routes, including clothing and new vehicles, according to consumer price index summary released by the Bureau of Labor Statistics last week.
“If the supply chain is a patient coming into the emergency room, then he’s no longer bleeding to death,” said Daniel Maffei, chairman of the Federal Maritime Commission. “But there are still many problems with the supply chain. Some of it and maybe even the majority of it is pre-Covid.”
Other issues, including the energy crisis that arose amid Russia’s war in Ukraine, mean that even if supply costs continue to fall, those price drops won’t necessarily be passed on to ordinary people. And many products are still hard to find. The Covid-19 shutdown in China, which produces much of the goods shipped to the US, has slowed the production of products from clothing to contrast agents, a special dye needed for medical imaging. Packaging problems in a pharmaceutical plant It seems i have contributed to a national shortage of Adderall. Disruptions in the US supply of carbon dioxide have made it more difficult to produce some types of beerwhile low water levels have delayed shipment on the Mississippi River and raised the cost of shipping corn and soybeans.
These challenges underscore the complexity and vastness of the global economy’s supply chain. Although some refer to this system broadly as the supply chain, it actually consists of many interconnected and intertwined supply chains. A company can rely on hundreds of different supply chains, each dependent on many different products, components and companies, sometimes located around the world. Each supply chain has its strengths and vulnerabilities, and resolving bottlenecks in just one is not enough to eliminate shortages or lower overall prices for consumers.
Recode asked eight experts to assess the state of the supply chain. Some acknowledged ongoing efforts to make various industries more sustainable, but said many of those projects are years in the making or rely on machinery and products that are affected by the same manufacturing and supply issues that affect consumer goods. Companies are also not necessarily financially incentivized to change their long-term approach. Others defended the supply chain and said that while there were certainly delays, the system never “broke” at all.
“Supply chains are just adjusting, but they’ve been affected by a global pandemic,” said Chris Kaplis, executive director of MIT’s Center for Transportation and Logistics. “You saw all the warts and everything, but it kept working.”
Still, the vulnerabilities we saw during the pandemic could become a problem. While Covid-19 was certainly an unprecedented global event, there is no reason to believe that future disasters will not affect international trade again. Potential geopolitical conflict and the devastating impacts of climate change are already on the horizon. These interviews have been edited for clarity and length.
Does the supply chain make inflation less bad or worse?
Willie Shih, professor of management at Harvard Business School: Retailers have too much wrong inventory they are trying to unload. Demand is down, so shipping prices are down, but that doesn’t mean there aren’t still bottlenecks or increased costs, whether it’s labor costs or raw material costs.
Shipping historian Mark Levinson: For many years, [Federal Reserve] could rely on imports to help contain commodity price inflation. We had cheap stuff coming in large volumes from China, and that made it very difficult to raise prices in the US market. This is no longer the case. Globalization no longer restrains inflation in this way.
Elif Akcaly, professor of industrial and systems engineering at the University of Florida: These new figures are worrying for their implications for supply chains in the near future. High rates of inflation will not only increase the costs associated with handling and storing supply chain inventory, but will also increase the cost of borrowing money to acquire supply chain inventory in the first place. Therefore, the overall costs associated with acquiring, handling and storing inventory will increase.
Shipping costs are falling, but what is the overall health of the supply chain?
Daniel Maffei, chairman of the Federal Maritime Commission: The main part of the problem seems to be more internal. It’s like a sink, right? If the sink gets clogged, you say the sink is broken, but it’s not actually the thing that’s broken. You don’t throw away the sink. It’s the pipes!
Our supply chain problems are now deeper in the supply chain — further inland — and include things like equipment shortages and lack of ability to move equipment, more than they are related to ports. This is now causing congestion in some of our ports. We need more [empty containers] in the middle of America and we have too many sitting on our docks.
Sharae Moore, president of She Trucking, a nonprofit focused on diversity: The supply chain is in a state of transition. We are experiencing a supply chain turn to the 21st century of technology! We’ve noticed more companies testing autonomous vehicles and incorporating automation into their delivery systems. In the next five years, automation will dominate the industry. We also see a need for improvement in the area of shipping and receiving products to ensure they reach the consumer faster. There is an urgent need to educate and train new drivers to meet this high demand.
Fiona Lowbridge, Vice President of Customer Success at ALOM Technologies: Infrastructure is still struggling – ports, roads, bridges, airports and other physical elements. We also suffer from a lack of technological cooperation, more disjointed regulations and disruption. I am also concerned about the impact of climate change on supply chains — for example, our inability to transport cargo on barges due to low water levels in rivers.
Why hasn’t the supply chain returned to “normal” compared to pre-pandemic? What problems remain?
Chris Kaplis, executive director of MIT’s Center for Transportation and Logistics: Did you really not get everything you wanted during the pandemic? I would say that supply chains have never stopped working, even in the midst of the shutdown and lockdown. Sometimes it took a little longer. … So we complain about the lack of toilet paper, but were you really that low?
Akcali: Shipping is only one aspect of supply chain operations. If a supply chain is managed the way it was before the pandemic… then it simply means that the system is restored “as is”, with the vulnerabilities it had before the pandemic. It’s as if the pandemic never happened. It’s as if we learned nothing from our experience during the pandemic.
Moore: Compared to the start of the pandemic, both large and small carriers have struggled with increased fuel prices, reduced freight rates, high insurance premiums, lack of truck parking and increased equipment costs. Before the pandemic, we saw megacarriers go bankrupt and driver shortages. I would like to see increased opportunities for professional truck drivers and minorities to advance to higher management positions in the supply chain.
Nick Pinkston, founder and CEO of Volition, an industrial component marketplace: People are trying to make factories to make things here too. Right now I’m thinking of one particular guy who makes a sheet metal plant and buys all these engines to make the machines. They were five months late. They must either redesign their machine to accept different engines or wait five months. Either way is bad.
Shi: Some areas are improving and I think they will continue to improve rapidly. For example, the auto sector, where supplies and parts have been in short supply – particularly chips – is improving rapidly. There are some sectors where it will still take some time.
Is the supply chain more resilient today than it was at the start of the pandemic?
Levinson: It is difficult to generalize about supply chain reliability. Overall, yes, our supply chains are working much better than they were. But in many cases they do not work smoothly.
Pinkston: If the pandemic happened today, I think we’d actually be just a little bit better off. This started a bunch of initiatives that have yet to really come to fruition. It will take years to build that resilience, and it will always be a short-term gain not to do these things. … If you build that surplus and everyone owns more inventory, all prices go up all the time. We can’t just trust the companies because they will always underinvest in these things.
Akcali: The structural changes needed to build truly resilient supply chains — such as diversified supplier pools, increased emergency stocks for critical commodities, increased visibility into supplier operations, thoughtful supply and demand risk sharing across the supply chain supplies etc. — will not only take time, but also require attention to how business is done and a shift in focus from cost minimization to recovery time.
Low Bridge: It is becoming increasingly clear that some raw materials are only produced in certain countries or regions. I think we should all be concerned about the impact of this concentration. It makes us all vulnerable. I remain concerned about the physical infrastructure as it will take a long time to fix it. We need to be able to scale our infrastructure where it currently breaks down.
Any tips for users?
Chapel: You will find discounts everywhere. Go to TJ Maxx, go to Marshalls. Target takes millions of dollars right out of inventory because things are coming in that they can’t undo fast enough. I think Black Friday will be a non-event this year. It’s probably already started early because retailers are getting nervous because demand is falling. The same will happen to pickup trucks and cars that were canned because they didn’t have chips. The chips will come and then there will be a glut.
Go hug a driver or distribution center worker. People who work on the front lines are greatly undervalued and have never stopped working.