• ITVI.USA
    15,442.580
    19.940
    0.1%
  • OTLT.USA
    2.891
    0.002
    0.1%
  • OTRI.USA
    20.850
    -0.110
    -0.5%
  • OTVI.USA
    15,411.420
    23.220
    0.2%
  • TSTOPVRPM.ATLPHL
    2.920
    -0.040
    -1.4%
  • TSTOPVRPM.CHIATL
    3.680
    -0.030
    -0.8%
  • TSTOPVRPM.DALLAX
    1.290
    -0.060
    -4.4%
  • TSTOPVRPM.LAXDAL
    3.620
    -0.020
    -0.5%
  • TSTOPVRPM.PHLCHI
    2.420
    0.100
    4.3%
  • TSTOPVRPM.LAXSEA
    4.170
    0.000
    0%
  • WAIT.USA
    128.000
    2.000
    1.6%
  • ITVI.USA
    15,442.580
    19.940
    0.1%
  • OTLT.USA
    2.891
    0.002
    0.1%
  • OTRI.USA
    20.850
    -0.110
    -0.5%
  • OTVI.USA
    15,411.420
    23.220
    0.2%
  • TSTOPVRPM.ATLPHL
    2.920
    -0.040
    -1.4%
  • TSTOPVRPM.CHIATL
    3.680
    -0.030
    -0.8%
  • TSTOPVRPM.DALLAX
    1.290
    -0.060
    -4.4%
  • TSTOPVRPM.LAXDAL
    3.620
    -0.020
    -0.5%
  • TSTOPVRPM.PHLCHI
    2.420
    0.100
    4.3%
  • TSTOPVRPM.LAXSEA
    4.170
    0.000
    0%
  • WAIT.USA
    128.000
    2.000
    1.6%
BusinessEditor's PicksFuller Speed AheadInsightsLogistics/Supply ChainsMost PopularNewsSupply ChainsTop StoriesViewpoint

Why are supply chains so messed up?

This is the question that I am asked on a daily basis. The issue is very complex, so I usually quip with a surprising response, “They’ve always had issues, but no one was really paying attention.” Turns out, unless the person works in freight, they are very unsatisfied with this answer. After all, freight and products just seemed to automatically show up before, but that is no longer the case. 

Anyone that has been around supply chains knows that there have always been issues and challenges. Weather, economic cycles, capacity, pricing fluctuations, labor strikes, war, terrorism, policy changes, etc. -– have been with us since trade first began and those issues (and others) have always been a part of managing cargo flows. But 2021 is something much bigger entirely. Why is that? 

The simple answer is there is a sudden and massive surge of demand that far outweighs the market’s capacity. The global supply chain infrastructure that exists simply can’t handle the volume of products flowing through the economy. The root cause can be blamed on the extraordinary government stimulus that has stimulated demand. 

DOT wants supply chain disruption data including information on container, chassis shortages. (Photo: Jim Allen/FreightWaves)
DOT wants supply chain disruption data including information on container, chassis shortages. (Photo: Jim Allen/FreightWaves)

As the money flowed from the government, it ended up in the hands of consumers and businesses that spent it. The transfer of money coincided with a shift in consumer demand from purchasing services to purchasing physical products. This caused the United States to race through trillions of dollars of inventory while domestic and global production was shut down. 

Simply stated, production was shut down while the U.S. economy went into demand overdrive. As production came back online, the manufacturing sector responded by fulfilling an unprecedented backlog of orders. 

China ramped up manufacturing and products started to flow again. And the volumes were much bigger than before. Every container ship was put to work to move the cargo across the oceans. However, ports were built to handle a certain volume and each port has a finite number of cranes and space to store containers. When the ports became flooded with cargo, they simply didn’t have the capacity to handle it. A lack of labor, trucks, warehouse capacity, and rail infrastructure all started to create significant supply chain challenges in handling the surge of cargo.  

Ships have been piling up off the coasts in ever-increasing numbers and this is taking that capacity offline as the ports try to handle it.  

Ships at anchor, waiting to offload their cargo. (Photo: Jim Allen/FreightWaves)
Ships at anchor, waiting to offload their cargo. (Photo: Jim Allen/FreightWaves)

And this is not just an issue in the United States. This issue also exists in China. In fact, as I write this, the coastal cities of China have four times as many ships sitting off the coast as the Pacific ports in the United States do

The oceans are also just one part of the story. To get freight to American consumers, it must go through an intricate system – shifting from port to other modes of transportation. This may include dozens of touchpoints in the domestic freight network, all of which are vulnerable to their own choke points. 

Once a cargo shipment reaches the U.S. docks, it may go from truck to rail to truck to distribution center back to truck and dozens of sorting facilities in between before you receive it. Most of the capacity constraints in the domestic market have been labor-related, i.e. not enough workers at the distribution centers or drivers in the trucks. Trucking companies and warehouse operators have tried to respond by jacking up wages, but are finding that it isn’t solving their employment challenges. 

Trucking has the most challenging labor picture of all; it simply is a job of last resort for many people. When construction, retail, food service, gig economy, and warehousing are all competing with the trucking industry for labor, it is often the trucking industry that loses

After all, the lifestyle for an over-the-road driver is unique and difficult. Being forced to stay away from home for three weeks at a time is a major turn-off for many. 

Truck driving is hard work and often the only recourse carriers have to attract more drivers is more money. But with alternative employment offering similar pay packages – but not requiring someone to stay away from home for weeks at a time, trucking companies are finding that new would-be drivers are not coming into the market in the numbers needed. 

The challenges don’t end there. Warehouses and distribution centers have their own labor issues along with space constraints. 

In the industrial sector, the supply chain issues that are causing chaos for retailers are also keeping domestic manufacturers from being able to complete the production of their finished products. The most obvious is in the automotive industry. This has an additional knock-on effect of restricting truck capacity. Even if labor supply wasn’t a major factor in the trucking industry, the carriers wouldn’t be able to get their hands on new trucks to handle the freight supply. Simply said, there aren’t enough trucks and trailers on the road to handle all of the demand

Will the supply chain issues end soon? Very unlikely. 

Even if we solve for current demand on the oceans, at the ports, in the distribution centers, and in the trucking industry, we haven’t begun to discuss what happens when the government ramps up additional domestic spending. While most supply chain professionals would agree that investing in infrastructure is the right thing to do, the worry is that it will continue to compound the imbalances between supply and demand across the supply chain

As domestic manufacturing ramps up to handle the building of new roads, bridges, and other physical construction projects, this will put a massive onslaught of freight on the market. It will also pull labor out of the trucking industry, which will further exacerbate the driver shortage. Construction jobs will become more valuable, as contractors try to handle the surge of new projects. In turn, this will drive wages higher and increase economic growth. 

For transportation providers, the good news is that it appears that we have a long way to go before the market catches up with demand. This could go on for a few years and break the typical three-year boom-and-bust cycle. For shippers and supply chain professionals that pay for capacity, while the work has never been more challenging, the rewards have also never been greater. Managing supply chains is no longer a back-office function, largely ignored and taken for granted. Going forward, business survival will require a highly functioning supply chain run by professionals with the experience and instincts to respond. 

Embrace it.

Craig Fuller, CEO at FreightWaves

Craig Fuller is CEO and Founder of FreightWaves, the only freight-focused organization that delivers a complete and comprehensive view of the freight and logistics market. FreightWaves’ news, content, market data, insights, analytics, innovative engagement and risk management tools are unprecedented and unmatched in the industry. Prior to founding FreightWaves, Fuller was the founder and CEO of TransCard, a fleet payment processor that was sold to US Bank. He also is a trucking industry veteran, having founded and managed the Xpress Direct division of US Xpress Enterprises, the largest provider of on-demand trucking services in North America.

17 Comments

    1. What do you mean ‘switched from spending on services to purchasing actual products?” What ‘services’ are you referring to?Uber rides? Sandwich delivery? There’s a hidden dimension to this issue that’s no being addressed. The choke points of ports like Los Angeles, San Franisco, Seattle, Portland and Vancouver. Is Hamburg and Calais looking at a hundred container ships loitering for weeks at a time offshore?

  1. As a truck owner, I continually see rules and regulations being forced on the driver by people who have never even been in a truck or let alone driven a truck hauling the freight. The Biden administration is trying to get a woman confirmed to run the FMCA, one she is a bureaucrat, two has a degree in something that might be related to trucking, but has never had to drive the trucks or manage trucks, yet she will make rules that are impossible for drivers to follow and deliver their goods in a prudent manner. Until real people who actually work the trucking industry and manage the freight get put in place, we end up running in circles trying to get freight to the receivers

  2. How do we fix this now!!!

    1. Automation: We need more automation at all levels (and it’s coming)!!!!! From ports to trucks to warehouse pickers the robots are coming and there is not much we can do to stop it. The push for this is as the author says “demand for logistics menial jobs is just not there” Because they are too many other options for menial labor.
    2. Warehousing: the concept of just-in-time logistics is now dead. Long live your three PL’s and people with warehouses. Unfortunately, I think the writing is on the wall the US has tons of space available and the best thing any manufacturer can do is stockpile their parts and products so that they can weather storms such as the one we’re having right now. (God help you for your technology company because you really can’t weather.)
    3. AI: AI is a big part of software development now. AI can help predict and prevent some of these hiccups that we experience in logistics.
    4. Capacity/tracking: with AI the carriers can predict load times shifting demands whether but this is only possible if there actually tracking their assets this includes containers and chassis. If you start doing this using the latest 5G technology we can actually make strides to prevent logistics hicups going forward.

  3. Thanks for a good insight. Being a Logistics professional for past 25 years, I can relate to many dimensions highlighted in your article.

    I wished to highlight that the issue of Labour is quite real and challenging esp in the US. With Labour requirements going thru the roof, I wonder where does the Labor come from ? Is the current environment conducive to support an increase . Yes new technology will provide some relief but I feel you still humans in sizeable numbers to get the Job done. Thanks

  4. A good summary of global supply chain challenges that have been exacerbated by the current situation.

    In addition to “sudden and massive surge of demand that far outweighs the market’s capacity” there are at least two other dynamics compounding the problems:
    Increased e-commerce small package deliveries. Instead of a 54′ trailer delivering to a major store, there are now thousands of packages to be delivered from central distribution centers to individual homes and businesses, which introduces complexity at the DC and a different delivery model. The major package delivery carriers have already acknowledged significant capacity shortages over the coming months and the need to discuss with their major customers.

    Another dynamic is the age old problem of supply chains reacting to “our most important customer” or “a critical part needed for manufacturing”. Too often this results in half-empty trucks being shipped to meet delivery commitments, meaning that we are wasting precious capacity.

    Fortunately, there are some great innovators in Supply Chain Management including growing use of AI to optimize the current situation and quickly respond to changes to keep our products flowing!

  5. Speaking as a consumer, I can relate to this by way of a recent example:
    I tried to purchase a replacement mirror for my bike yesterday, but my local bike shop didn’t have it. The owner, where I’ve shopped for years, actually suggested I shop for it on Amazon. In years past, he probably would have ordered it himself and charged me the usual markup fee for the effort, or sent me off to call or visit other stores for the part. But now, it was instantly available on Amazon instead so why should either of us bother? Well, not instantly…it will take a week to get here, and that of course is where a myriad of opaque and unaccountable – at least to an end consumer like me – packing and shipping operations take place. Oh, and Amazon was willing to ship it for free to me…as long as I ordered two more items to get the total order over $35. So, more shipping and handling.
    We consumers have gotten used to a nearly infinite variety of choices. Just as my bike shop had OTHER mirrors that didn’t fit my bike, there are an virtually infinite number of choices in the virtual world that has become nearly divorced from the real, physical world. You can do or see anything on the internet, but making it happen in real life involves all kinds of personnel and moving stuff on creaky, over-used, high traffic networks.
    We DO still need to beef up our infrastructure. We are going backwards now, losing even the capacity we used to have, and in real danger of having bridges and roads collapse, as has actually happened. When riding my bike across the George Washington Bridge the other day, I saw rust and deterioration everywhere. The bridge literally shook the bike path every time an 18-wheeler crossed, which was nearly continuously. By the way, the bike path on the bridge is the most heavily traveled bridge in the region, and used by bike commuters as well as recreational riders. Fortunately, workers were already scrambling all over the bridge structure undertaking repairs and maintenance. But this effort has to be multiplied by millions nationwide. Where will the trained workers come for that?
    Due to the pandemic, people were paid to stay at home, not to spread Covid in their jobsites. That will have to end now. The real world is not virtual and people still have to eat, dress, and move around.

  6. Agree 100%. Maersk CEO touched on similar points recently in an interview.
    I believe that there are two main issues that need to be addressed:
    1. We’re dealing with old and new GPO issues with the same old technology.
    2. Lack of true collaboration among bigger players in the industry to solve these issues and benefit not only mid-size but also small players in the industry and the end consumers.

  7. I’m sure this is part of the problem, but could it also be that people, like me, are now ordering, not just a few things, but everything online. Covid stopped us from going into stores. I haven’t been in a major store in over a year. Truckers evidently aren’t driving. This whole pandemic scare has disrupted everything in our lives.

Leave a Reply

Your email address will not be published. Required fields are marked *

We are glad you’re enjoying the content

Sign up for a free FreightWaves account today for unlimited access to all of our latest content

By signing in for the first time, I give consent for FreightWaves to send me event updates and news. I can unsubscribe from these emails at any time. For more information please see our Privacy Policy.