The coronavirus pandemic has affected our world in many different ways. From lockdowns to wearing masks to social distancing, our lives look nothing like they did before March 2020. Even though many cities are reopening, the impacts of the virus can still be felt around the world, especially when it comes to the supply chain.
The Wall Street Journal recently shared a story about a cargo ship lockjam in Los Angeles that left ships sitting in the middle of the ocean for days. The situation is an enlightening case study of supply chain challenges brought on by the Covid-19 pandemic.
WSJ illustrates the problem in the video below:
These ships are trying to make their way to the ports of Los Angeles and Long Beach which handle close to ⅓ of the nation’s imports. Earlier this year, the ship known as the “Ever Front” waited 13 days to port. It wasn’t the only ship waiting either. The WSJ reported that according to the Marine Exchange of Southern California, the number of ships waiting offshore to dock at Los Angeles and Long Beach peaked at 40 in February.
As of mid-April, that number had dropped, but it was still between 20-30 ships per day. “Seeing vessels at anchorage outside the nation’s largest container port does not happen every day, and it is a once in about a decade situation that we see,” Gene Seroka, Executive Director of the Port of Los Angeles, told the WSJ. To put this into perspective, the Marine Exchange of Southern California Executive Director said normally the amount of ships anchored ranges from 0-1.
When the world shut down last March, we all had to stay home. Stores were closed, and that meant the only way we could get many goods was by ordering them online. S&P Global Market Intelligence Panjiva Supply-Chain Analyst Chris Rogers said he believes this is what caused the issue. “Staying home leads you to go, alright, my desk isn’t great if I’ve got one,” Rogers said. “Actually, I can’t go to the gym, so I’m gonna go buy a Peloton or a running machine or some dumb bells.”
Many of these items come from overseas, so when everyone is ordering them at the same time, you run into the age-old issue of supply and demand. The WSJ explained that manufacturers and retailers trying to restock following the large amounts of online orders at the beginning of the pandemic led to seaborne imports rapidly increasing last summer.
“We had 57 extra ships arrive in the fall above normal levels, which choked the system because at that same time the goods movement system ashore, the terminals, the trains, the trucks, the warehouses, the forklift drivers had some fraction of the workforce out with COVID and a different fraction out because of contact tracing,” Marine Exchange of Southern California Executive Director Kip Louttit said, “so just when there’s more cargo, there’s a less efficient goods movement system ashore so the ships backed up.”
Rogers added that they have noticed the ships coming into port now are also larger and carrying more items. “There has been a significant increase in the number of the very biggest boats that come in and more so very efficient when they’re at sea, they’re a devil to unpack and a devil to pack, and so it takes longer to get all of them sorted out,” Rogers said.
Businesses are having to attempt to find ways to work around the shipping delays. Peloton, for example, poured millions of dollars into shipping, including air shipping, during the first half of 2021. Smaller businesses don’t have the same luxury, so they are having to improvise or wait. According to a survey of around 800 companies by Vistage Worldwide Inc., 44% of small businesses said they experienced “temporary shortages or other supply chain issues” during March of 2021. The WSJ highlighted one Oklahoma restaurant owner who needed to find Nitrile gloves. Normally, the owner paid $40 for a case of 1,000. That cost has skyrocketed to $185 per case. Higher prices for retailers mean higher prices for consumers. “Someone’s gonna pay for that,” Rogers said. “It’s likely gonna come off companies’ profits or they’re gonna pass it through to consumers. The longer it lasts, the more likely it is that consumers are gonna pay it.”
How quickly this bottleneck situation clears up will depend on what happens this summer. “If we’re gonna spend another summer locked down, then people are gonna be buying new lawn chairs and a whole bunch of stuff they didn’t buy last year,” Rogers said. “If everything’s open again and people can go on vacation, it’s all services spending. We’re not gonna buy stuff, so the demand for shipping will drop off relatively quickly.” The good news is that progress is being made. In mid-April, Seroka said the number of ships anchored was half of what it was at its peak in February. Hopefully, this means we are getting closer to returning to normal.