Supply Chains Face New Problems

Many companies are rejoicing now that congestion at ports has subsided and goods, albeit still at a reduced rate, are moving quickly from ports to company distribution centers. The volume of import cargo is expected to pick up at major ports from now through the summer, but will remain below the record level of last year.

The National Retail Federation (NRF) forecasts positive growth for the retail industry as consumers continue to spend. However, economic challenges remain and persistent inflation is certainly front and center. Will consumers keep spending or will they start to pull back to focus on necessities?

On top of these economic concerns, the NRF also points out that there remain many outstanding issues that have plagued the supply chain for years. Those issues were exacerbated by the pandemic and, right now, while volumes are low, is the time to collectively address them. In particular, the NRF points to the need for better information sharing and coordination among supply chain partners to better plan and prepare for the next disruption.

One such disruption is already emerging and starting to impact West Coast ports; the contract between the International Longshore and Warehouse Union and the Marine Association expired last summer. While the parties started negotiations early (last May) rather than waiting until right before the contract expired on July 1^st, it was clearly not early enough.

Unfortunately, a new agreement has not yet been reached. The NRF has urged parties not to engage in any disruptive activities, but disruptions are being seen at the Ports of Los Angeles and Long Beach where Port Management says that labor failed to show up for two consecutive shifts in early April. Since then, the union has continued to disrupt operations with slow dispatching and “red tagging” equipment with safety concerns.

The NRF has called for the union and management to return to the negotiating table and also called for the Biden administration to engage with both parties to achieve a final contract.

There are some issues that must be addressed regarding port operations that include data standardization and management of excessive dwell fees and, empty container returns etc. Now, one must add labor disruptions.

Many shippers took steps before the contract expiration to ensure there would be no significant impact arising from labor disruptions by shifting cargo to the East Coast and Gulf Coast ports. Such routing changes obviously add expense to since distance and going through the Panama Canal adds costs and time. For merchandise from Taiwan, China or Korea, it is almost imperative that the West Coast ports be open to receive the merchandise. There would be major delays if merchandise has to be rerouted.

It is time to address long-standing supply chain management and operational issues now; this will position the entire system to handle the eventual return to large import volume as well as minimize problems when the next major disruption impacts the supply chain.

POSTSCRIPT: U.S. ports activity is covered by Global Port Tracker. They say that the U.S. ports handled 1.55 million Twenty-Foot Equivalent Units (TEUs) of volume in February 2023. That is the latest figures available. That was down -14.4 % from January 2023 and down -26.8% year over year from January 2022. February is historically the lowest month of the year. However, the 2023 number is the lowest since 1.53 million TEU in May 2020. That was the time when many factories in Asia and many stores in the U.S. were closed due to the pandemic.

It is likely that imports will accelerate during the rest of the year. The forecast for May is 1.68 million TEUs, following a projected volume in April of 1.88 million TEUs. The unusually high volume last year distorts the figures somewhat. Nevertheless, the first half of 2023 is forecast at 10.8 million TEUs, down -20.2% from 2022. With customers facing high prices on everything from food to clothing, it is likely that they will cut back on spending for most of this year but we could see the final quarter show a pick-up of sales. That is a time when most consumers want to give holiday presents, and retailers promote with special values to encourage shopping.