A chain is only as strong as its weakest link, so the saying goes. When it comes to the current state of the global supply chain, weakness is everywhere. Massive dislocations are present in the container market, shipping routes, ports, air cargo, trucking lines, railways and even warehouses. The result has created shortages of key manufacturing components, order backlogs, delivery delays and a spike in transportation costs and consumer prices. Unless the situation is resolved soon, the consequences for the global economy may be dire.
What created this logistical nightmare and when will it normalize?
The collapse and subsequent surge in consumer demand
Stress in the supply chain pre-dates COVID. Trade tensions, particularly between the U.S. and China, escalated under President Trump with the introduction of unprecedented tariffs and sanctions on Chinese companies. Beijing retaliated, targeting U.S. agriculture exporters. This created volatility in supply and demand as companies on both sides of the globe rushed to stock inventories ahead of the implementation of tariffs. The unexpected shift in trade put the initial stress on global logistics.
Then came COVID.
During the first half of 2020, demand for most goods cratered as economies worldwide went into lockdown. Sailings by ocean carriers were canceled, manufacturing capacity was cut, and workers everywhere were displaced.
But beginning in the summer of 2020, thanks to massive fiscal stimulus, imports to the U.S. surged. Consumers flooded online retailers with new orders. Manufacturing restarted and international trade resumed. The global economic machine was turned back on.
By late 2020, real cracks in the supply chain started to emerge. From a logistics perspective, restarting the manufacturing machine after the lockdown turned out to be quite difficult. The complex system that moves raw materials and finished products around the globe requires predictability and precision. Both had been lost.
A shortage of shipping containers emerged, shipping rates for certain routes skyrocketed, congestion developed at international ports that then spread to railroads and inland rail terminals, exasperating the trucking and chassis shortage that was already in place. U.S. importers experienced delays in receiving key manufacturing components and exporters faced challenges accessing containers and getting bookings on shipping vessels. The chain had broken.
As the holiday season approaches, the logistics industry is bracing for another jump in demand that could further cripple the supply chain. Every link in the chain needs to operate effectively to restore order in the system, yet each component has its own unique challenges to overcome.
Container prices are soaring
Shipping containers are the backbone of global trade. They move dry bulk and finished goods from one international trade hub to another. Historically, woes for the container industry have followed the economic cycle. Today, it is booming.
The average price for a Chinese-made standard 40’ container is approaching $6,000, more than double what it was in 2016. The post-lockdown jump in demand, combined with lower container turnover, caused prices to rocket higher. Thousands of containers are still stuck in the wrong place.
Many containers that carried millions of masks to countries in Africa and South America early in the pandemic remain empty and uncollected because shipping carriers have concentrated their vessels on their most profitable Asia-North America/Europe routes. In other words, there are fewer containers in circulation, creating an imbalance in usable supply and demand.
Lack of circulation is a problem in the U.S., too. Record-high shipping rates for some routes is impacting U.S. exports. Exporters say shipping lines are refusing to send boxes inland to pick up their cargo because they are trying to get empty containers back to factories in Asia as quickly as possible.
At the port of Los Angeles, the busiest port in the country where 17% of national cargo is received, import volumes increased by 27% in June 2021 vs June 2020 compared to loaded exports that decreased 12% over the same period. It was the lowest amount of exports at the Port of Los Angeles since 2005. Meanwhile, the number of empty containers jumped 47% compared to last year due to the heavy demand in Asia.
Further strains came from the grounding of the Ever Grand in the Suez Canal in March and the shutdown of a key port in southern China in May and June that left roughly 350,000 containers idle.
Until container circulation improves, prices will likely keep rising.
The shipping industry is another key component in the supply chain, moving millions of containers around the globe every day. Shipping lines coordinate with logistics companies to carry around 90% of world trade.
When the Suez Canal was blocked, it stranded containers and caused backlogs and delays in shipping schedules as vessels were forced to wait for the canal to reopen or take the much longer route around the southern tip of Africa. The situation was similar to an airport that has to deal with an unexpected change in traffic. It takes time to sort through the chaos and reroute everything. Unfortunately, these giant ships to move as fast, and consequences of the disaster are still being felt.
More ships are needed, but additional supply is a few years away. There are new orders for shipping vessels, equal to almost 20% of the existing capacity, but they won’t come online until 2023. In addition, the trend toward larger and larger ships creates infrastructure challenges at the ports and in other areas that service them. Ships are double or triple the size from the early 2000s and can now hold more than 20,000 containers. They require more truck, train and warehouse capacity to load and unload, and when delays occur, more containers are affected.
The price to ship a container from China to the U.S. West Coast has gone up 13-fold from pre-COVID levels. Shipping from the West Coast to China has also risen, but only by a factor of two. The discrepancy in prices for the different routes is an indication of relative demand and highlights why many carriers are willing to return to China with empty containers rather than wait around for U.S. export product that is slow to make its way to the ports. It is more profitable for the carriers to do so.
The discrepancy in prices between various shipping routes will eventually normalize, but it will take time. The imbalance is impacting container circulation and the flow of trade. Until then, companies will have to deal with higher costs and long delays.
Ports are more productive but still struggle to meet demand
Of course, port infrastructure is a critical component of the supply chain linked to shipping.
In a recent interview, Gene Seroka of the Port of Los Angeles highlighted the changes the port has made to deal with the increased traffic from the import surge. Productivity is 50% higher than pre-COVID levels, but delays are still happening. Shipping vessels and their container cargo are sitting 2.5 times longer at anchor than they used to before COVID. Think of it as a huge traffic jam.
Port congestion is not just a U.S. phenomenon. Traffic on the Yangtze River in China has been challenged due to extreme weather this summer. Authorities had to close the river during storms, creating severe backlogs at Chinese ports as ships wait days for passage to resume. And it may get worse. From August to December, 16 to 18 typhoons are forecast to form in the Northwest Pacific and South China Sea.
As for the weather in the U.S., the ports of New Orleans, Baton Rouge, Gramercy, and Morgan City in Louisiana and the Port of Pascagoula in Mississippi remain closed following the recent arrival of Hurricane Ida.
Capacity issues at the ports, however, are largely due to problems with the next link in the chain: a shortage of truck drivers.
Truck driver shortage is not going away
Trucking is the primary source of container transport once the cargo is unloaded at a port. A shortage of drivers across the country means much of the container volume sits idle at capacity-constrained facilities. Frustration with employment prospects, safety concerns, expanded unemployment benefits and having kids at home have contributed to drivers leaving the industry.
According to driver recruiting firms, there is one qualified driver for every 9 job postings. The trucking industry is very fragmented, with the bulk of drivers working at small firms. 89% of trucking companies have one to five trucks. With the average price for a Class 8 truck at $59,377 in July compared with $40,666 a year earlier, margins are heading lower, making it even less attractive for independent contractors to enter the industry.
The importance of trucking to large multi-national corporations is reflected in their desire to expand their internal fleets to keep a competitive advantage in dealing with the shortage. Walmart WMT has the nation’s third-largest fleet of around 6,500 trucks and is aggressively trying to hire drivers, offering a $12,000 signing bonus in some areas.
Many of the 500 drivers it plans to hire will be plucked from the for-hire ranks, and Walmart plans to offer them an average salary of $87,500, double the median salary for the industry. More drivers dedicated to Walmart may help Walmart’s logistics, but it will add to the congestion for hundreds of smaller retailers that rely on the “for hire” market.
Wages are rising in the industry, but it will take time to lure back people into the industry who have moved on to jobs with a better lifestyle. Of all the bottlenecks in the supply chain, the truck driver shortage appears to be the most acute. The hauling industry is also one of the most critical links in the chain when it comes to alleviating the congestion at ports, warehouses and rail terminals.
Railroads are stuck in the middle
The next link in the chain is railroads. Trucks bring containers to various hubs where the containers are loaded on trains and taken inland. When the system works properly, containers are lifted from arriving trains and placed directly onto a wheeled chassis, which is then hauled away by a local driver. The chassis is supposed to be quickly unloaded by the final customer and returned by truck to the rail yard.
A notable bottleneck is in Chicago, where seven of the major North American freight railroads converge, creating a complicated web of inbound and outbound operations between trains and trucks.
But the major railroads have their own issues to contend with, including a labor shortage of their own.
Railroads retrenched quickly when the economy seized up last year, furloughing thousands of workers and taking hundreds of locomotives offline. Workers who were furloughed have been slow to come back and some rail companies are reporting difficulty in hiring conductors.
Yet, one of the major hurdles in dealing with supply and demand swings was created years ago. It had nothing to do with COVID. It is known as “precision scheduling.”
In 2017, Jacksonville-based SX was the first U.S. railroad operator to implement the operating philosophy. The strategy calls for running fewer trains longer distances and keeping them on a tighter schedule, allowing the railroad to scrap locomotives, employ fewer workers and shut facilities. Think of the strategy as equivalent to just-in-time manufacturing. Even a small hiccup in the system can create major problems, and the volatility in supply and demand over the last two years were no small challenge.
Let’s not forget another source of uncertainty: weather.
Almost all the major railroads, including Union Pacific UNP , CS CSX X and BNSF Railway, have lines that run to New Orleans. Hurricane Ida forced the Kansas City Southern KSU rail network to shut its main line in Louisiana. The service disruption could spread across the US rail network as freight cars are rerouted. It typically takes weeks and even months for railroads to fully recover from an extended shutdown of main lines.
Switching to air cargo is not a solution
With all the congestion on the ground, one might think relief could be found by switching to air cargo rather than container ships and trains. The problem with switching is cost. Airfreight is roughly eight times the cost of sea shipment. Most airfreight is carried in the cargo holds of passenger jets and with international air travel severely constrained, so are available cargo slots. Fewer slots translate to higher prices. For example, air freight prices out of China’s largest cargo airport have risen by up to 30% following an outbreak of coronavirus cases. Air cargo is not an economical nor practical solution.
Warehouse capacity is contributing to the bottleneck
Warehouse capacity is an often overlooked component in the supply chain. Many containers are unloaded at distribution centers, and if there is no available space, it adds to the container circulation problem. Growing e-commerce demand, especially post-COVID, created a shortage of warehouse space, leading to higher warehouse rental rates, which, in turn, is beginning to pass through into consumer prices.
In the July Logistics Manager’s Index Report, the Warehousing Prices Index component, which tracks warehouse pricing, registered the highest mark in the history of the index. The reading represents a 2.6% increase from the prior month and a staggering 20.5% rise from the reading one year ago.
Another sign of strong warehouse demand industry fundamentals is the performance of dedicated warehouse REITS. The Bloomberg Industrial/Warehouse Index is up 45% from the beginning of 2020.
Consequences of continued disruption
For obvious reasons, fixing the supply chain bottleneck is important for many reasons.
Higher costs of containers, shipping, hauling, and storage lead to higher consumer prices and overall inflation. The Fed is banking on the transitory nature of the bottleneck, expecting prices to level off once the supply chain is cleared.
If the disruption gets worse or drags on for longer than expected, policymakers will likely get impatient with the current ultra-loose monetary policy that is helping fuel demand for goods that is causing the bottleneck and begin to rate interest rates.
Additional delays in the delivery of key inputs could also lead to a decline in manufacturing. This is already happening in several industries, particularly the auto industry, where a semiconductor shortage is forcing a slowdown in production. Toyota Motor, the world’s largest automaker, plans worldwide production cuts of 40% in September because of the shortage in computer chips. Ford plans to idle a plant near Kansas City, Mo. that makes its highly profitable F-150 pickup truck. G.M. stopped most of its truck production in North America last month because of the shortage. These curtailments will feed into lower real GDP figures over the next few quarters, hampering the economic recovery.
Near term relief for the global supply chain disruption is not around the corner. As long as demand holds up through the holiday shopping season, COVID outbreaks continue to shut shipping hubs around the world, and extreme weather batters individual links in the chain, expect the disruption to persist.
The White House is leaning toward releasing information to Congress about what Donald Trump and his aides were doing during the Jan. 6 attack on the U.S. Capitol despite the former president’s objections — a decision that could have significant political and legal ramifications.
Trump has said he will cite “executive privilege” to block information requests from the House select committee investigating the events of that day, banking on a legal theory that has successfully allowed presidents and their aides to avoid or delay congressional scrutiny for decades, including during the Trump administration.
But President Biden’s White House plans to err on the side of disclosure given the gravity of the events of Jan. 6, according to two people familiar with discussions who, like others, spoke on the condition of anonymity to describe the private discussions.
In response to questions about White House deliberations over what information to release, Biden spokesman Michael J. Gwin said the president views the attack on the Capitol as “a dark stain on our country’s history” and is “deeply committed to ensuring that something like that can never happen again, and he supports a thorough investigation.”
Members of the investigative committee argue that Trump no longer enjoys the protection of executive privilege, encouraging the White House to push aside institutional concerns about sharing information with Congress and aid the panel in an investigation focused on what Democrats and a handful of Republicans have called an assault on democracy.
“It’s not really relevant because there’s no president involved — there’s no such thing as a former president’s executive privilege,” said Rep. Jamie B. Raskin (D-Md.), a committee member who teaches constitutional law. “That’s extremely dilute and not really relevant.”
What Trump was doing while the attack was occurring and who he was speaking with remain one of the big, unanswered questions concerning the assault on the Capitol and how his administration responded during those hours.
The debate over the veracity of his executive privilege claims comes as the committee is moving into a new, more aggressive phase of its investigation. Having requested material from telecom, social media companies and the White House — and receiving some response — it is now looking at how best to compel testimony and documents from those reluctant to participate.
Committee Chairman Bennie G. Thompson (D-Miss.) said this week that his panel will soon issue subpoenas to witnesses and organizations, adding that the committee has started scheduling closed door testimony with cooperative witnesses. A preliminary list of subpoenas is expected to be released by the committee as soon as Thursday and may include prominent Trump allies and White House officials.
Trump has derided the committee’s work as partisan and is promising to fight its effort to collect information and testimony related to the attack.
“The highly partisan, Communist-style ‘select committee’ has put forth an outrageously broad records request that lacks both legal precedent and legislative merit,” Trump spokesman Taylor Budowich said in a statement. “Executive privilege will be defended, not just on behalf of President Trump and his administration, but also on behalf of the Office of the President of the United States and the future of our nation.”
In response to the House panel’s request, the National Archives has already identified hundreds of pages of documents from the Trump White House relevant to its inquiry. As required by statute, the material is being turned over to the Biden White House and to Trump’s lawyers for review.
[... ... ...]
The decisions Biden and Trump make about the current records and interview requests will be momentous, said Jonathan Turley, a professor at George Washington University who has written about the protection of White House documents and previously argued that Democrats’ impeachment efforts against Trump were a misguided use of congressional power.
“There is an unbroken tradition of deference by the incumbent presidents to their predecessors,” Turley said. “In the past, incumbent presidents would generally support their predecessors in restricting access, despite partisan differences. It appears we may be poised here to shatter that tradition.”
The former Vice President was speaking at a forum devoted to demographics and family values in Budapest, Hungary.
Former US Vice President Mike Pence has said he is hopeful the new conservative majority on the Supreme Court created during his and President Donald Trump’s administration will overturn abortion rights in the United States.
Mr Pence spoke at a forum devoted to demographics and family values in Budapest, Hungary, where conservative leaders from central Europe expressed their anxieties about falling birth rates in the Western world.
“We see a crisis that brings us here today, a crisis that strikes at the very heart of civilisation itself. The erosion of the nuclear family marked by declining marriage rates, rising divorce, widespread abortion and plummeting birth rates,” Mr Pence said.
The Budapest Demographic Summit, which was first held in 2015 and takes place every two years, has become a platform for leaders to denounce illegal migration and urge families to have more children.
Hungary under Prime Minister Viktor Orban has become a political model for right-wing leaders and commentators across the Western world who admire his hard-line opposition to illegal migration and his support for conservative social values.
Often they overlook Orban’s authoritarian streak — his erosion of democratic institutions and discrimination against minorities, including asylum seekers and LGBT people.
Mr Pence praised how abortion rates had fallen under Orban’s leadership. And he hoped things would change in the US as well.
“We may well have a fresh start in the cause of life in America,” he said. “It is our hope and our prayer that in the coming days, a new conservative majority on the Supreme Court of the United States will take action to restore the sanctity of life at the centre of American law.”
Mr Pence has tried to position himself as a conservative who can appeal both to his white Evangelical Christian base as well as Trump supporters and those who may have been fond of Trump’s policies, but not his pugilistic style.
I sometimes criticize Edgar for criticizing democrats.
But Biden deserves some heavy criticism for his whole action/inaction on immigration. He has GOT to do better.
One of the things I point out when I’ve defended Biden is that the president has no way to more directly take action on certain issues.
But he can have immediate, decisive effect on the way we carry out immigration policy.
Here’s a snapshot. Right now, the Department of Homeland Security is holding over 13,500 migrant children in custody. Presidents have direct access to DHS because it’s policies and the way they are implemented are coordinated by the Homeland Security Council in
the White House. He could directly influence the efforts for the treatment and repatriation of those kids.
And another thing about immigration. The way the Haitians are being treated is shameful. Those people fled a country that’s a living hell right now, with political and economic upheaval at all time highs. They are being blatantly denied any of the due process we afford to any other people attempting to enter our country under duress. Biden could at the very least ensure that they are not being singled out for harsher treatment than others.
I will defend against criticisms I think are unfair, or exaggerated, or overly broad. But Biden is dropping the ball on immigration badly.
On Monday, we learned that after last year’s election, John Eastman, a well-connected lawyer advising former president Donald Trump, outlined a six- point plan to overturn the outcome of the election and install Trump as America’s leader. They planned to cut the voters’ actual choice, Democrat Joe Biden, out of power: as Trump advisor Steve Bannon put it, they planned to “kill the Biden presidency in the crib.” This appears to have been the plan that Trump and his loyalists tried to execute on January 6.
That is, we now have written proof of an attempt to destroy our democracy and replace it with an autocracy.
This was not some crazy plot of some obscure dude in a shack in the mountains; this was a plan of the president of the United States of America, and it came perilously close to succeeding. The president of the United States tried to overturn the results of an election—the centerpiece of our democracy—and install himself into power illegitimately.
If this is not a hair-on-fire, screaming emergency, what is?
And yet, Republican lawmakers, with the notable exceptions of Representatives Liz Cheney (R-WY) and Adam Kinzinger (R-IL), have largely remained silent about the fact that the head of their party tried to destroy our democracy.
The best spin on their silence is that in refusing to defend the former president while also keeping quiet enough that they do not antagonize the voters in his base, they are choosing their own power over the protection of our country.
The other option is that the leaders of the Republican Party have embraced authoritarianism, and their once-grand party—the party of Abraham Lincoln, the party that saved the United States in the 1860s, the party that removed racial enslavement from our fundamental law—has become an existential threat to our nation.
Democracy requires at least two healthy parties capable of running a government in order to provide oversight for those currently in control of the government and to channel opposition into peaceful attempts to change the country’s path rather than into revolution. But Republicans appear to believe that any Democratic government is illegitimate, insisting that Democrats’ calls for business regulation, a basic social safety net, and infrastructure investment are “socialism” that will destroy the country.
With Democrats in charge of the federal government, Republicans are cementing their power in the states to support a future coup like the one Eastman described. Using “audits” of the 2020 elections, notably in Arizona but now also in Pennsylvania and Texas, Trump loyalists have convinced their supporters to distrust elections, softening the ground to overturn them in the future. According to a new poll by NORC at the University of Chicago, 26% of Americans now believe that “[t]he 2020 election was stolen from Donald Trump and Joe Biden is an illegitimate president,” and 8% believe that "use of force is justified to restore Donald Trump to the presidency."
Arguing that they have to stop the voter fraud they have falsely claimed threw the election to Biden, Republican lawmakers in 18 states have passed more than 30 laws to cut down Democratic voting and cement their own rule. Trump supporters have threatened election workers, prompting them to quit, and have harassed school board members and local officials, driving them from office.
Although attorneys general are charged with nonpartisan enforcement of the law, we learned earlier this month that in September 2020, 32 staff members of Republican attorneys general met in Atlanta, where they participated in “war games” to figure out what to do should Trump not be reelected. The summit was organized by the Rule of Law Defense Fund, the fundraising arm of the Republican Attorneys General Association (RAGA), which sent out robocalls on January 5 urging recipients to march to the Capitol the following day “to stop the steal.” In May, RAGA elevated the man responsible for those robocalls to the position of executive director, prompting others to leave.
In states where Republicans have rigged election mechanics, party members need to worry about primary challengers from the right, rather than Democratic opponents. So they are purging from the party all but Trump loyalists, especially as the former president is backing challengers against those who voted in favor of his impeachment in the House in January 2021. Last week, one of those people, Representative Anthony Gonzalez (R-OH), announced he was retiring, in part because of right-wing threats against his family.
Trump loyalists are openly embracing the language of authoritarianism. In Texas, Abbott is now facing a primary challenger who today tweeted: “Texans deserve a strong and robust leader committed to fighting with them against the radical Left. They deserve a leader like Brazil has in Jair Bolsonaro…..” Bolsonaro, a right-wing leader whose approval rating in late August was 23%, is threatening to stay in power in Brazil against the wishes of its people. He claims that the country’s elections are fraudulent and that “[e]ither we’ll have clean elections, or we won’t have elections.”
Representative Marjorie Taylor Greene (R-GA) today used language fascists have used in the past to stoke hatred of their political opponents, tweeting that “ALL House Democrats are evil and will kill unborn babies all the way up to birth and then celebrate.” Yesterday, the leader of Turning Points U.S.A., Charlie Kirk, brought the movement’s white nationalism into the open when he told a YouTube audience that Democrats were backing “an invasion of the country” to bring in “voters that they want and that they like” and to work toward “diminishing and decreasing white demographics in America.” He called for listeners to “[d]eputize a citizen force, put them on the border, give them handcuffs, get it done.”
Today, we learned that the 2022 Conservative Political Action Conference (CPAC) will be held in Budapest, Hungary, where leader Viktor Orbán, whom Fox News Channel personality Tucker Carlson has openly admired, is dismantling democracy and eroding civil rights. When former vice president Mike Pence spoke in Budapest earlier this week at a forum denouncing immigration and urging traditional social values, he told the audience he hoped that the U.S. Supreme Court would soon outlaw abortion thanks to the three justices Trump put on the court.
Establishment Republicans who are now out of power are not on board the Trump train. They are quietly backing anti-Trumpers like Representative Cheney. Former House speakers John Boehner and Paul Ryan, former Florida governor Jeb Bush—who was widely expected to win the Republican nomination in 2016, only to be shut out of it by Trump—and former president George W. Bush's former adviser Karl Rove have all donated money to Cheney to help her stave off a challenge from a Trump loyalist in the 2022 election. Next month, former president Bush himself will hold a fundraiser for Cheney in Texas.
Other establishment Republicans currently in power might be staying quiet about the party’s slide toward authoritarianism because they are simply hoping that the Trump fire will burn itself out. The former president is no longer commanding the crowds he once did, and his increasing legal woes as well as the investigation into the insurrection will almost certainly take up his time and energy. The mounting coronavirus deaths among his unvaccinated supporters also stand to weaken support for his faction.
But the fact that Republican lawmakers have ignored the Eastman memo, which outlines the destruction of our democracy, suggests that the party, which organized in the 1850s to protect the nation against those who would destroy it, has come full circle.