Supply Chain Pains Poised to Continue in 2022April 1st, 2022 by Travis Rains
U.S. policymakers have their eyes on the pre-existing issues that worked in concert with COVID-19 to bring about the current supply chain crisis. But even as mitigation is employed and the world begins to return to some degree of normalcy, uncertainty regarding the supply chain outlook for 2022 remains.
The virtual Window & Door Manufacturers Association’s (WDMA) Spring Meeting and Legislative Conference began Wednesday, March 30, and came to a head on Thursday, March 31, with a panel from the U.S. Chamber of Commerce addressing the supply chain crisis, its causes and recommended steps for remediation.
Emergence of the Crisis
Jack Overstreet is a senior manager in the Cyber, Intelligence, and Supply Chain Security Division at the U.S. Chamber of Commerce. He says that while the pandemic served as the tipping point for current supply chain issues, plenty of pre-existing factors also played a role. That includes a surge in global trade leading to fiscal stimulus and shifts in consumer spending habits and, therefore demand.
Overstreet says the commercial sector expected the pandemic to reduce consumer demand and took steps to prepare. At first, that appeared to be the right move.
“Folks weren’t leaving their homes and were spending far less money,” Overstreet says. “However, the drop in consumer spending shifted dramatically in April 2020 after the CARES Act was signed into law. The economic stimulus led to a surge in consumer spending to well above pre-pandemic habits.”
But that spending was targeted on retail as opposed to expenditures related to travel, for example.
“At a glance, that sounds great. However, a collection of factors stemming from the pandemic stymied the ability for the commercial sector to effectively respond to the surge in demand,” Overstreet says. “Many businesses prepared for what they assumed would be a slowdown and cut orders. This left them unprepared for the surge.”
By the time it was clear demand would rise rather than wane, it was too late for many in the sector to respond. Reaction to the pandemic overseas also resulted in the closure of some foreign ports, including Asia, reducing the flow of goods to the U.S. Additional strains on the supply chain included the exacerbation of the U.S. trucker shortage as trucking companies went out of business during the pandemic and a workforce shortage due to the Great Resignation.
“Perhaps most notably, the pandemic led to a monumental shift in consumer spending habits, mainly toward e-commerce,” Overstreet says. “Five to seven years of predicted growth in e-commerce was compressed into a single year. So our ports, transportation industries, and logistic industries were simply not prepared for this increase, and it put a huge stress on the system, which led to dramatic increases in transportation costs and more disruption.”
Then there are issues with the ports themselves. According to Overstreet, 40% of all seaborne imports enter the U.S. through the ports of Los Angeles and Long Beach in California. Both those ports experienced 21% increases in volume, which Overstreet says would be difficult to address even in the best of times.
Further compounding the issue is that the U.S. has some of the least-productive ports in the developed world. Overstreet says the ports of Los Angeles and Long Beach rank 328 and 333, respectively, out of the 351 ports worldwide in terms of productivity. Some relief came by way of coordinated efforts courtesy of port officials and federal and commerce authorities, the easing of public COVID protocols and the return to a degree of normalcy. As supply chain bottlenecks became increasingly visible, businesses began using other U.S. ports to import their goods.
“So are we through the worst of it? No, or not necessarily,” Overstreet says.
He says COVID continues to be a potential threat to the flow of goods as new variants emerge. There is also the existing fear that some businesses will begin to hoard goods, which would worsen the issue. And he says labor union negotiations at the West Coast ports don’t seem to be going well. A strike resulting from the breakdown of those negotiations could be “devastating” to the supply chain.
“All in all, the 2022 supply chain outlook is fairly difficult to determine,” Overstreet says.
Short-term mitigation recommended by Overstreet includes stable labor negotiations, better logistical communication at the ports, and the utilization of workers with employment-based visas to close the gaps. He also cited tariff relief.
In the long-term, Overstreet says communication gaps and increasing data sharing by logistical entities must be addressed and that the U.S. must get on board with automation at its ports. As businesses look to near-shore or re-shore their operations, Overstreet says there must be smart policies for undertaking that action.
He adds that there must be more investment in port infrastructure in the U.S., even more than what was allotted with the trillion-dollar bipartisan infrastructure bill signed into law in November 2021. Trey McKenzie, executive director of Government Affairs at the U.S. Chamber of Commerce, said the legislation has positive and lasting impacts that will unlock the productive capacity of the U.S. economy.
“It’s going to go a long way to making our supply chain much more reliable and much more efficient, which is going to lead to increased opportunity for American domestic manufacturers,” McKenzie says.
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