Around a fortnight ago an agitated head of supply chain for one of the world’s largest BCOs rang Splash. The executive – responsible for shipping more than 60,000 feu on the transpacific – was adamant that the narrative with this year’s supply chain chaos was all wrong.
The elephant in the room with the box buildup across US coastlines is not what is generally being reported, the supply chain chief claimed. The real cause of the problems has been massive over-ordering by panicked shippers.
“If there were real shortages as many would have you believe how come every warehouse in the US is full to the rafters? Panicked overbuying, questionable forward sales predictions and weak, none too transparent procurement systems among American shippers are in fact the greatest reasons for this year’s supply chain disaster,” the Asia-based supply chain veteran, who preferred to speak on condition of anonymity, told Splash.
So is the case? It’s not the liners at fault, not the archaic US port and intermodal infrastructure as the main culprits for 2021’s extraordinarily strained global container structures? Splash sought the verdict of experts from around the world to deliberate the matter.
Bjorn Vang Jensen, vice president at consultancy Sea-Intelligence, concedes that factors like panic buying, highly inaccurate sales forecasts, and a tendency to regard data sharing as risky and expensive, have played a role in the global supply chain meltdown.
However, these are all issues that have existed everywhere and forever, also long before containerisation, he points out.
“In the past, almost any supply chain has been able to roll with such punches, which are now mostly forgotten as minor blips in a dusty dataset,” says Jensen, whose past career including lengthy stints at Maersk and then on the other side of the negotiating table at Electrolux.
“What you see today is not only a black swan event, but in fact an entire bevy of black swans, and one which grows larger by the day, as more and more weak strands in the supply web snap,” Jensen says.
The US is indeed the real origin of this fiasco, the Dane agrees. Yet, he has answers to why warehouses are so full.
According to Sea-Intelligence research, many industries in the US are actually dangerously low on inventory.
Another explanation is the very real shortage of drivers to take goods from those warehouses that are actually full, to the consumers.
A game of musical chairs
Steve Ferreira, CEO of New York-based Ocean Audit, describes today’s clumped box situation as like a game of musical chairs.
“You don’t want to be left standing without a seat, and it’s a self-perpetuating cycle,” Ferreira says, giving a couple of recent examples such as Walmart ordering 149 containers of garbage cans on one single vessel or a French tire manufacturer inking a new charter to Houston.
“How are Michelin’s tires going to supply cars you can’t buy due to a chip problem?” Ferreira muses.
Andy Lane from CTI Consultancy, a container advisory, cites both archaic US logistics infrastructure as well as the near impossibility for retailers to have prepared for such a see-saw in demand as Covid presented as the two largest factors in today’s snarled container situation.
“US supply chains and logistics systems are frail, but to balance that, no one would ever maintain more than say 15-20% capacity latency, which would be cost prohibitive in normal times,” Lane says.
Ports cannot keep up with the pace of increased import demand over a sustained period, neither can intermodal capabilities and lastly warehouses and DCs.
“The entire system grinds to somewhat of a halt, because it was never going to be capable of absorbing a 20-30% or more increase in consumer demand,” Lane says.
Having said that, Lane does see a huge void in planning and communication across all segments of the supply chain.
“The shippers/importers have tried to import more than their DCs and distribution capacity can handle,” Lane says, adding: “The carriers have tried to move more demand than they should have known that the ports and landside can accommodate. Adding more floating capacity and container fleet is pointless if it creates a bigger gridlock.”
This has resulted in massive wasted resources. “As a complete collective, all supply chain stakeholders have simply ignored constraints, and just unintelligently flooded the system to everyone’s detriment,” Lane maintains.
Of all the capacity deployed on Asia-North America west coast in 2021 so far, 19% has been lost to congestion, and the figure increased to 24% in August, according to data from Sea-Intelligence.
Liners playing games
Kris Kosmala, a Splash columnist and partner at advisory Click & Connect, reckons shippers have not been panicking. They’ve been played by the liners, he argues in conversation with Splash.
“It all went bad with irregular sailings when carriers cut capacity in response to Covid fears,” Kosmala recounts. This deprived shippers of the regular services on which they built their supply chains execution. So, they ordered more and those orders accumulated in containers waiting for slots which were not there.
“That happened,” Kosmala says, “long before Maersk went public obnoxiously advising shippers to double up on inventories and import more just in case.”
Eventually carriers started adding capacity back, but by then the backlog was simply too immense to handle.
“Even if the carriers restored the services to 100% right away, it would have taken two years to ship all that backlog mixed with all the regular shipments that were being added at a normal pace,” Kosmala says.
Carriers still went very cautiously about restoring capacity, which simply aggravated the problem and extended the catch-up period, he argues.
Supply chain is not a perfect science
Dr John Gattorna, a Sydney-based global supply chain thought leader and author, argues that there is never a single reason for everything particularly when discussing the supply chain.
The “Covid curveball”, he argues, has exacerbated capacity management issues that were already in existence pre-pandemic.
“Supply chain is not a perfect science and people need to be more flexible in their thinking,” Gattorna argues, advising management to add greater redundancy into their supply chains.
Covid has shown multinationals that they need to give greater thought to shorter supply chains, perhaps at higher costs in order to be more resilient, Gattorna reckons. Speed of decision making will be vital to navigate future curveballs, which we all must accept will be coming our way.
Concluding, CTI’s Lane says, “In this game, it is hard to apportion blame, as it seems that most stakeholders are victims of the circumstances, and all are suffering. Except for the greedy US consumer, it is not really objective to lay the blame on any specific aspect of the door-to-door chain.”