Is The Supply Chain Broken?

Peter Cole, owner of Australian ecommerce company Urban Plant Growers is still waiting for his shipment two months after it was due to arrive in Sydney.  Cole’s $1.6 million order of hydroponic kits and lights, packed into two 40-foot shipping containers aboard a ship that set sail from Shenzhen, China, is still floating somewhere in the Pacific Ocean.

It never used to be this way. Before the pandemic, Cole’s kit was manufactured, shipped, and ready to sell to his customers in a little over six weeks. Then everything broke down.

Cole isn’t alone. A perfect storm of global issues have combined to break the just-in-time supply chains that keep the world going. From the Ever Given getting stuck in the Suez Canal to Covid-19 changing the way we shop, the world is also contending with China’s rapid shift away from coal power. In response, a system that used to run relatively smoothly is now in tatters.

The Ever Given Container ship blocked the Suez Canal for six days in March this year

“Any one of the issues that led to this would have caused problems,” says Enda Breslin of ShipBob, a global fulfillment firm. “But all of them put together have caused these massive issues we’re hearing about right now.” The ramifications are enormous, from spiking prices for Christmas presents to a run on Black Friday bargains, empty supermarket shelves, nonexistent car sales, and a frantic grab for the shipping containers usually used to pack and send items around the globe.

Politicians have something to do with it?

The issues knocking the supply chain out of harmony are related to a number of things, however, enormous government interventions in response to the global pandemic is a big contributor. Marc Levinson—author of two books on shipping containers— says a good place to start is with politicians.

“We had governments all over the world stimulating consumption in the face of the pandemic,” he says. The UK, for example, set out a package of economic stimuluses in the summer of 2020 that was specifically designed to get people shopping on high streets. In the US, stimulus checks sent directly to citizens resulted in a 4.2 percent month-on-month increase in consumer spending in March 2021. We’ve also been encouraged to spend our money online, requiring a rapid retooling of the way that businesses work.

For decades, the retail industry’s reliance on shipping has had what Breslin calls “a beautiful stability”: Retail grew 2 percent every year; retailers would publish two catalogues of new products every 12 months, allowing stores to buy their stock in advance.

“There was no resilience built into the system,” says Breslin. “That complacency was borne out of years of success.”

Then everything changed. We began spending far more money online, and the way we live our lives changed. Everyone scrambled to buy a desk for their home office, then there was a run on patio furniture and toilet paper. All these items have to be made and shipped from somewhere: China, which just so happened to be ground zero of the pandemic, with the government determined to take a zero-sum approach to the virus. Cole expected skyrocketing sales over the Christmas period, but right now he doesn’t know if his goods will make it to Australia in time for the holiday shopping season.

Range of Factors Disrupting the Supply Chain

Cole’s experience hints at the range of factors currently buckling the global supply chain. First, the items were manufactured incorrectly, which Cole’s suppliers blamed on the rationing of power in China as the country attempts to lurch away from coal power; then Cole’s contacts in China couldn’t find a cargo ship to fulfill the order. Cole believed his two 40-foot shipping containers were going to be loaded onto a vessel near Shenzhen on November 13, but the items didn’t make it to sea until November 19. “Even after it left port, it’s meant to be an 11-day sailing between Shenzhen and Sydney, but they’ve added another three days,” says Cole. He isn’t certain that the items will end up onshore even then, and there’s no guarantee that the Australian side will be smooth, either. “Usually it’s a two-day turnaround to get stuff from the port to the warehouse, but I have absolutely no confidence,” he says.

The inability to trace orders accurately is an issue across the shipping supply chain, says Levinson, and it exacerbates the broader issues. “There’s no real-time traceability of most shipments moving through the freight system,” he says. “That’s why things are scattered to the four winds and things have gone missing.” That uncertainty has been compounded by severe supply chain disruptions over the past year, from last-minute closures of ports due to Covid outbreaks—as happened in Ningbo, the world’s third-busiest port, in August 2021—to the temporary blockage of the Suez Canal, through which 12 percent of all global trade passes, in March 2021. China has also demanded 20 of its largest cities and provinces reduce energy consumption for the rest of the year to try and meet environmental targets, causing factories and industry to work for only part of the day.

No real-time traceability

The result? A global slowdown in the supply chain that has thrown everything into chaos—and made shipping items across the globe more expensive than ever. “The economics of shipping are great for the ship lines,” says Levinson. “They’re making record profits.” While shipping rates have long been unbalanced, with higher costs to send a shipping container from Asia to Europe than Europe to Asia, costs across the board have soared.

Chartering Container Ships to Cope

At such high prices, many bigger businesses are avoiding the traditional shipping industry and going in alone, finding it more economical to do so. Costco has chartered three container ships that will work to deliver goods to the US and Canada from production facilities in Asia, as have Walmart, Ikea, and Home Depot.

Those that haven’t chartered their own vessels are feeling the impact. Half of lingerie retailer Victoria’s Secret’s products are stuck at sea. The rest are being flown in—but that now takes nine days rather than two, because the race to snap up supply flights is causing backlogs there too.

“People have lost sales because they didn’t have enough stock to sell, or have been sitting on too much stock,” says Breslin. “No CEO of a large retailer or brand is ever going to want to be in that position again.” The answer, he believes, is a wholesale reworking of how the supply chain operates—one he compares to the way the internet’s protocols were first drawn up in the late 1960s. “It was made to be nuclear strike-resistant,” he says. Similar slack needs to be built into the supply chains of the future, with standard operating procedures to nearshoring production so shorter supply chains don’t move markets as much as they have now.

No one thing broke the supply chain; no one thing can fix it

Just as no one thing broke the global supply chain, no one thing can fix it. Governments are playing their part. “We’re seeing them tighten economic policy,” says Levinson. “We’re seeing signs that interest rates are going to rise, and that’s going to take some of the fizz out of consumer spending.” But a drop in consumer demand won’t undo the fundamental changes the pandemic and climate crisis have brought. When the current shipping storm dies down, retailers rueing lost stock and wasted investment will push for changes: shorter shipping routes, more frequent stock updates, and potentially a push toward preorders, rather than just-in-time fulfillment. All that will be far too late for Cole, stuck with stock at sea and the prospect of a sky-high shipping bill for items unlikely to arrive in time for the holiday shopping season. “It’s hurt us a lot already,” he says. “But there’s not much we can do about it.”

Information sourced from here.

Some great additional information on these issues can be found here also.