Supply chain delays have been in the headlines for months now. The backlog of containers off the California ports and the doomsday holiday shopping forecasts have both consumers and executives wondering when these historic bottlenecks will finally let up. When will we be able to resume our normal purchasing patterns, and when will talk of inflation and production shortages wane?
Some, including JPMorgan Chase CEO Jamie Dimon, see these slowdowns as short-lived. At a conference last month, he predicted that the supply chain issues wouldn’t even be on our radar next year.
While Dimon’s influence and access are vast, I couldn’t disagree more. I believe we haven’t even seen the worst of these problems. Dimon’s words may provide comfort to some (and the market is always hungry for positive news), but they won’t help you get merchandise any sooner, whether you’re a retailer or consumer.
Let me make the case. To start, we need to divide the problem into two buckets: the international supply chain—the network that ferries products made overseas to U.S. ports—and the domestic supply chain, which is the network that receives those products and delivers them to consumers. Unfortunately, both are broken, and both need to be addressed if we’re going to see any real improvement.
The workers don’t exist
President Joe Biden recently announced that the West Coast ports would operate 24/7. Prior to this edict, there were two 9-hour shifts on the docks on Monday through Friday, with limited work Saturdays. The ports of Long Beach and Los Angeles funnel roughly 40% of all imports into the U.S, and there are nearly 100 vessels awaiting dock space.
To the uninformed, expanding service seemed like an excellent decision and an initiative sure to make progress in easing the congestion. Timely also, as retailers struggle to get product onto the shelves for the ever-critical holiday season. However, those paying close attention know that this won’t do much to change realities on the ground. Round-the-clock operating schedules are theoretically great—if you can get people to work.
The ports are struggling to get workers during the normal daily shifts, forget about enticing people to work overnight or on the weekends. This isn’t just a case of incentivizing, either. The workers don’t exist. COVID-19 and its restrictions have made keeping full staffing almost impossible. Case in point: As of late October, there’s a shortage of 80,000 truck drivers, according to the American Trucking Associations. These workers tend to be older, and many chose to retire or find new fields when lockdowns hit. (This doesn’t even take into account the looming strike next year by the union that represents dockworkers. The ports might be plodding now, but if movement were to completely cease, the fallout would be staggering.)
Our infrastructure is broken
We must not forget: We haven’t invested in our supply chain on a national level in decades. The same highways, railroads, and ports that were moving our merchandise pre-pandemic (if not in the ’80s) are still relying on that tired infrastructure. Yes, the hotly debated and recently passed infrastructure bill will address some of these issues, but it will be years, if not longer, before tangible change is seen.
The pandemic didn’t cause these structural problems in the supply chain, but it exposed its weak and frail state and brought it to its knees. Consumer shopping patterns have changed over time, while our systems to deliver those goods have remained stagnant. Amazon used to deliver books, now it represents 51% of all online orders, from paper towels to lampshades. While the existing system was (somewhat) able to handle that shift from physical shopping to delivery, it was operating under stress and unable to weather the storm surge of 2020’s e-commerce boom.
But the current supply chain issues are so much deeper than just supply and demand. As our consumption patterns change, so too must the back end needed to deliver it.
At that same conference last month, Dimon said he sees years of growth and prosperity ahead. I, on the other hand, see out-of-hand inflation. From raw materials to freight costs to grocery stores, this pipeline of logistics spend will erode profits faster than anyone can predict. For example, shipping costs alone grew 20% at Amazon in the third quarter. This is unsustainable.
Companies are increasingly turning to air freight despite its prohibitive costs. Even Walmart and Home Depot began chartering their own ships to ensure having goods on the shelves. Sure, these behemoths can (temporarily) take that hit to their margins, but for how long? As the line items begin to take a toll on the bottom line, firms will be forced to reduce staff and raise prices. Hitting consumer income while simultaneously increasing the price of goods.
Anyone saying this won’t have an impact is naive. As products become scarce, so does the advertising spend needed to support them. What was a booming economy, filled with higher margins, waitlists, little to no markdowns, and a very competitive and pro employee landscape will be flipped on its back.
The prognosis doesn’t look good. Either we completely rebuild our supply chain or wait for the pendulum to swing and humble us all. Regardless, this isn’t ending anytime soon. If we want to prepare for a future of consumption that relies heavily on e-commerce, the entire supply chain needs to be reworked. So when will things return to “normal”? Most likely, never.
Edward Hertzman spent more than a decade as an executive for major sourcing companies all over the world. In 2009, he founded Sourcing Journal, a trade publication focused on sourcing and supply chains in the textile industry.