When the headwaters of the river are blocked, it’s bound to cause problems downstream.
As Q3 comes to an end, let’s take a moment to level set for the remainder of 2021. By looking at what is happening at the ports we can start to see the impact on every aspect of the supply chain between now and the end of the year. Fixing congestion in the current supply chain is a complex topic, but the recipe for how we got here is simple. There’s massive demand for moving goods and not enough capacity to meet that demand. We can trace the origin of this demand increase to last year when consumers began buying more things (since, ya know, we couldn’t do anything else). And this surge in sales, combined with production shortages, never really stopped. So how exactly does a surge in demand lead to a congested supply chain?
It all starts at the ports.
While most years are marked by seasonality (à la The Byrds) the supply chain never really had it’s “time to plant”. In off-seasons, when time is on your side, there’s more capacity, meaning rates are lower. In a world without endless demand, businesses would have the luxury of using rail to transport their goods (at a lower cost). Over the road capacity would be freely available for other parts of the supply chain. There would be more options for moving imported goods. And, most importantly, the supply chain would be able to keep up with the volume of imported goods.
Let’s do a little table napkin math.
Just how backed up are the ports? And how much capacity is needed to move the goods coming in? The ports of Long Beach and Los Angeles can unload about 15 container ships per day. Capacity on those ships is measured in 20-foot equivalent units (about 5,700 TEUs per ship), but the trucks that run over the road are usually 48-foot trucks. So let’s simplify it a little bit. Let’s just talk in terms of how many trucks it would take to move those goods over the road. To unload and clear the port each day we would need 39,000, 48-foot trucks. It’s important to note that a lot of those goods don’t move over the road. A lot of times they’ll wait in a rail yard until they’re picked up and moved to their final destination. Currently, because businesses need to restock as quickly as possible, over the road transportation has become the preferred method of moving goods from ports inland.
So let’s go back to that number: 39,000, 48-foot trucks.
There’s a huge issue with that number. Markets in the US are having a hard time moving more than 14,000 or 15,000 loads per day. For all of 2021 demand for over the road capacity has stayed between 14,000-15,000 (and recently 16,000+) per day. However, 20-25% of those loads will be rejected. Now I’m not great at math but I know that 15,000 loads is a lot less than 39,000 loads. And because rail isn’t fast enough to move goods in time for the Holidays, we’re running into a serious problem.
Think of the supply chain like a river.
If you have a blockage at the headwaters of the river, then the volume of water that flows downstream won’t be as high. And that’s exactly what’s happening. There are sometimes between 30-60 ships at anchor off the west coast, unable to get into the port and unload their goods because the port is unable to handle that much volume. Even if they were able to clear the ports each day, the supply chain doesn’t have enough trucks to move that much volume. So we’re rounding out the third quarter and the headwaters of the supply chain are blocked which means that the rest of the supply chain’s flow is going to be dependent upon what happens at the headwaters.