How to Prevent the Next Supply Chain Crisis

"A little more than a year ago, supply-chain disruption hit an ignominious low: A record 109 container ships were stalled outside the U.S.'s largest port complex in Southern California, idling more than $20 billion in electronics, building materials, apparel and other goods.

Today congestion has all but disappeared at U.S. ports, supply chains have almost returned to normal, and freight costs have fallen back to prepandemic levels. But in the aftermath of this disorienting and costly experience, it is critical to ask: What led to such a severe backup and what can be done to prevent a recurrence?

The past year saw the worst delays the container shipping supply chain had ever experienced since its inception in the 1950s. Vessel wait times of up to seven weeks contributed to huge delays and frustrated consumers. The time it took goods to be shipped from a manufacturer in China to a U.S. port peaked at over three months, double the prepandemic time, according to the freight forwarder Flexport. Large importers such as Walmart, Costco and IKEA chartered their own ships in a desperate and unprecedented attempt to bypass gridlock at the ports.

The backups contributed to inflation and undermined the ability of ports to realize their huge economic value. The Georgia Port Authority, for example, is responsible for 9% of the state's gross domestic product, and other ports have similarly outsize economic importance.

One factor in the port backup was spending by homebound consumers on home improvements during Covid-19 lockdowns. Stimulus checks bolstered this surge. As a result, import-container volumes from Asia were 31% higher in the first half of 2022 than in the first half of 2019, according to S&P Global Market Intelligence. But this alone doesn't explain the backups.

Containers simply weren't moving fast enough through U.S. ports. As a result, the steel containers at the ports became more densely stacked, filling every free inch. The number of times containers were stacked and restacked spiked, slowing productivity. It thus took longer to lift containers on and off ships, forcing ships to remain at berth for an average of five days in May 2022, compared with only two days in May 2020, according to S&P Global Market Intelligence Port Performance data.

With only a limited number of berths, incoming ships and the cargo onboard had to wait offshore. Had containers been able to move more fluidly through the port to their destinations, the worst of the backups would have been avoided.

Given the supply-chain shakeups that result from tariff avoidance and restocking, future surges seem inevitable, so what steps should be taken to improve flow through the ports?

First, ports should be used during the slower nighttime hours. In October 2021, President Biden announced that the Port of Los Angeles would become a 24/7 operation. That effort failed because truckers and warehouse workers were reluctant to work at night, and warehouse operators were reluctant to incur the cost of overnight hours. A deal must be struck eventually; at night, only a trickle of containers move in and out of the ports, wasting precious throughput capacity.

Reducing the time containers sit at a port would also make a critical difference. Containers allowed to "dwell," to use the technical term, on port property for over a month without incurring storage fees contributed to the backups. The Federal Maritime Commission, the agency that oversees the shipping industry, is looking into contracting practices that allow containers to sit for weeks at ports at no cost to the importer. Importers need storage capacity because they often don't need the goods right when the ship arrives, but the port is the wrong place for their containers to sit.

Automated container handling is also essential to quicken the pace of cargo movement through port facilities. The technology is costly, and longshore labor unions are fiercely opposed. The International Longshore and Warehouse Union has held up contract negotiations for months over the issue. Lack of automation is one reason U.S. ports rank low in global productivity relative to ports in China and the Middle East. Ensuring quick container flow through ports must be an economic priority, regardless of union concerns.

The great supply disruption that resulted from the Covid lockdowns exposed weaknesses in the U.S. supply chain. Without correction, the system remains vulnerable to future supply disruptions that will harm the U.S. economy.

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Mr. Tirschwell is vice president of global intelligence and analytics at S&P Global Market Intelligence and chairman of the TPM shipping conference." [1]

1. How to Prevent the Next Supply Chain Crisis
Tirschwell, Peter.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 06 Feb 2023: A.17.