We have all seen it in the news. Covid-19 outbreaks, labor shortages at the port as well as in trucking, and port delays coupled with high demand from consumers are causing major supply chain issues. Shipping containers are in short supply, or perhaps a better way to say it is that they are waiting to be unloaded or loaded resulting in a shortage. In the same fashion, the shipping vessels themselves are not doing any good if they are anchored off the port. I am sure that companies that manufacture shipping containers are manufacturing as many as they can and are driving a much better margin for themselves in the process. Shipping rates have gone up by a factor of 5-7 times compared to the same time last year. And to make matters worse, the total travel time (including the wait time at ports) is roughly 2 to 2.5 times what it used to be in the pre-pandemic days. And we are still in October. As we approach the peak demand period of Christmas, things could get worse.
In this blog, let us try to enlist some possible future impacts of this situation. Let us look at it from the perspectives of the different players in the supply chain.
Read More: What Is Happening to Our Supply Chains?
Very likely, the response from consumers to all these items in the news is going to be some concern and possibly mild panic that they will not get their Holiday shopping done in time. Already there are ads about October being the new December and suggestions to start the holiday shopping in October. Some will shop early; others will play it safe and buy more than what they need from different suppliers, and many others will do both. As always, this increase in purchases will lead to bull-whip effects through the supply chain making a bad situation worse. We could see too much inventory sitting on shelves after the holidays with deep discounts.
Another possibility is for consumers to specifically order products that are locally produced. I think a reliable timely delivery of the product will be acceptable even if the price is higher. However, I am just not sure how much an impact it will make given how much gets manufactured in Asia.
The companies who are supplying all these products for the holiday season are obviously seeing this situation unfold and are not going to sit idle. They are going to invest in ways to get the product to them sooner. According to reports such as this one from the Wall Street Journal, the bigger retailers such as Home Depot, Costco, Walmart, etc. are chartering smaller private carriers to carry the containers for them. This has two advantages. First, they get at least some of the cargo moving albeit at a higher cost. Second, these vessels are typically smaller, and can therefore go to smaller ports. This bypasses the problem of congested ports. If the situation gets direr, I am sure these big retailers will look at other more expensive options. One example would be repurposing a vessel not generally used to move containers and pressing it into service for shipping containers.
It is a different story for smaller retailers, however. They might not have the economic clout needed for private charters. I am sure they will see this as a must-solve issue. Perhaps, they will come up with creative ideas. We may see them forming consortiums to rent private charters for themselves. Although, I am sure that with increased competition, this option could become cost-prohibitive.
All the retailers will try and minimize passing on the increased costs to the consumer, but I suspect there will be some price increases.
One would think that this will be seen as a short-term money-making opportunity. And to some extent, it will be. However, the shipping companies would be wise to the long-term effect and look for ways to help and ease the pain. They may consider freezing rates for certain periods. They might look at pressing other vessels into service for shipping containers, even if temporarily. They might expedite repairs and where possible, move up the dates for moving vessels out of dry docks.
The trucking companies would be looking at increasing their workforce, especially drivers. Given the tight labor market, they might have no option but to offer higher pay and benefits.
Larger ports (such as Los Angeles) will look for ways to minimize congestion. Although not being from the industry, I do not know what options might exist. Certainly, they will try their hardest to ensure there are no labor shortages at the port.
Smaller ports should see this as an opportunity. They should try and attract both the shipping traffic as well as trucking companies such that the product can be quickly moved to the final destination. There are some reports that this situation will continue well into 2022, so this does not have to be a short-term thing.
When I got my vaccine for Covid, it seemed the entire site was run by the National Guard. I am not sure of all that is permissible, but perhaps the government can get involved in helping ease the labor shortage. For example, in the UK, there was some proposal to draft in the military as lorry (truck) drivers to combat the fuel crisis. The government could also help by giving financial aid to ports to increase capacity. The government being the government, perhaps there are a lot of other things they can do.
Many of the options listed above deal with increasing capacity. When this happens, inevitably we have too much capacity and then the prices can fall. It is quite possible that 2 years from now, we see too many containers, too much port capacity, etc., leading to an overall reduction in the cost of shipping.
In summary, this situation will require many different parties to up their game. And at least in 2021, Customers, Retailers, Shipping and Trucking Companies, Ports and possibly the government, will all have to take an active part in helping Santa deliver all those Christmas presents to the children around the globe.