Last week, we recorded and published a podcast entitled Why Are American Logistics Struggling In Late 2021? which goes into detail about the various North American supply chain problems and is getting a lot of downloads.
In that podcast, I interviewed Marshall Taplits, founder of Ship It Done (a USA-based 3PL warehouse and e-commerce fulfillment center). He did a great job explaining why getting products into the States is difficult these days.
Long-time reader Brad Pritts sent me some comments, and they are so good I thought I’d publish them as a follow-up article. Brad has a long and rich experience in the automotive sector and has assisted companies in managing their Chinese supplier base for many years. I always enjoy his comments.
Here they are:
1. Theory: Expansion in volumes and the “bullwhip effect”
You and your guest correctly noted that some of the problems are due to the “bullwhip effect” – that is, the tendency of complex networks to amplify signals and increase the magnitude of variations.
Part of the reason for this is that as ripples run through a dynamic chain, constraints appear – sometimes in unexpected places. These can be simple – for example, as volume increases, the presence of stacks of inventoried containers may slow down the flow of other containers.
What isn’t at all obvious, or consistent with “common sense”, is that many of these effects are nonlinear, even exponential. Thus, as you approach some constraints, the delays can quickly get out of hand. People generally think, and “common sense” dictates, that things behave in a linear manner… but complex networks often don’t. It turns out that the math behind these markets is very complex.
2. Practical constraints
Some resources in the USA have been short. Some are widespread, others apply primarily to the two large Los Angeles area ports.
- A lack of truck Drivers in general – Some estimates say that the USA overall is shorthanded by as many as 80,000 drivers.
- Fewer “security cleared” drivers – To access a port, the driver needs a special government background check and is given a “TWIC” – Transportation Worker ID Card”. There is a further shortage of TWIC certified drivers right now.
- A California law to prevent drivers from being independent contractors – Political efforts specifically in California have just resulted in changes that, if fully implemented, will restrict the availability of drivers there. This is a new law that requires nearly all truck drivers to be treated as legal employees rather than private contractors. In the US market, it is very common that drivers own their tractors and sell their services by the job, rather than as salaried employees. The California bill referred to as AB-5 prohibits most truckers from operating as independent private contractors. Technically the law is in effect, but enforcement has been temporarily halted while employers and truckers fight the measure in court. Should the measure survive the court challenge, there will undoubtedly be further decreases in truck drivers in California.
- Driver choices – These same independent contract drivers are increasingly choosing other work. Since their pay for taking a container from the port hasn’t increased but delays have, they are choosing better-paying work elsewhere.
- Port space for container storage – As delays have increased, most available spaces in and near ports to store containers are full.
- Slowdowns due to new Covid related work rules – As in many other fields, these occasionally add burdens. (A specific issue occurred recently back in China, where one of the major Ningbo container facilities was closed for nearly a month due to Covid quarantine.)
Note that none of these constraints is addressed by increasing the operating hours for the port.
3. Rail congestion
Rail traffic is commonly a major factor in the ocean freight trade. Many containers bound for the Midwestern and even East Coast of the US arrive in a California port and are transferred to rail.
Railyards have suffered from similar capacity issues, with container chassis being a particular resource of concern. These were severe enough in the central US rail hub in Chicago that the carriers suspended all service from the West Coast to Chicago for a week during the summer to allow Chicago to improve their backlog.
So what can a shipper do???
- Be realistic. The North American supply chain problems aren’t going away any time soon. Best guesses are that 2022 will bring more of the same.
- Work with multiple freight forwarders – more options can sometimes help.
- Stay in frequent communication with your forwarder. Like any service, it’s people-oriented. Having your forwarder thinking about your business will help. Avoid the natural tendency to vent to the forwarder!
- Be willing to consider unconventional approaches, if the costs are worth it. For example one of our forwarders discussed using refrigerated containers if they were the only option available, even though our steel auto parts don’t need refrigeration!
Are you stuck with shipping your goods from Asia to the USA right now? Let us know. We’ll try to offer you some advice if we can!