Inside The Supply-Chain Disruption

Inside the Supply-Chain Disruption

The pandemic impacted many aspects of our economy, including exposing and exacerbating a supply chain that was already vulnerable as a result of infrastructure issues and decades of very lean inventories held by companies in order to limit their costs. Once the pandemic-related lockdown hit in 2020, people spent more time at home purchasing products as they turned spare rooms into offices and basements into entertainment centers and took loungewear to a new level. Manufacturers in Asia, where many of the goods are produced, struggled to keep up with the demand. The result: a shortage of goods, order backlogs, delivery delays, a spike in transportation costs, changes in commercial insurance including builder’s risk terms and, ultimately, an increase in consumer prices with no end in sight despite some short-term measures to get the supply chain back on track.

In addition, a shortage of containers emerged and congestion developed at ports, which then impacted railroads and inland rail terminals and exasperated a trucking and chassis shortage already in place. Capacity issues and congestion at ports are largely due to trucking shortages. A shortage of drivers in the U.S. has caused much of the container volume to sit idly at capacity-constrained facilities.

Warehouse capacity is also an issue, as many containers are unloaded at distribution centers. If there isn’t any space to house goods, there are more delays.

Companies this year began to order more product and earlier in anticipation of the consumer holiday shopping spree, causing additional shortages and delays.

Addressing the Supply-Chain Crisis

In October, the administration unveiled short- and long-term measures to address the supply-chain crisis. One measure includes a program to run operations 24/7 at the California ports of Los Angeles and Long Beach, the nation’s busiest port complex. Additionally, the two California ports, which account for 40% of sea freight entering the United States, announced new fines on carriers in order to clear the intensifying logjam of cargo ships.

The administration is also allowing port authorities to redirect cost savings from existing federal projects to help address supply chain bottlenecks as part of a broader effort to speed up the movement of goods.

Long-term measures to make the supply chain more resilient are included in the administration’s infrastructure bill. The bill includes the creation of the Office of Multimodal Freight Infrastructure and Policy within the Department of Transportation. The new office, in addition to managing certain grant programs, will assist federal, state, and local governments in creating freight policies that encourage supply-chain efficiencies.

The legislation also would add about $100 billion in discretionary funding through a series of grant programs addressing supply chain efficiencies. One of those programs includes $2.5 billion in funding for cities to address port congestion and “improve movement of goods,” according to a briefing from the U.S. Senate Committee on Commerce, Science & Transportation. Moreover, $17 billion has been allocated to make improvements to waterways and ports.

The administration has also called for greater data-sharing between shipping lines, cargo owners, warehouses, and others throughout the supply chain.