For Want Of A Nail: Sudden Demand Shifts Impact Container Availability
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The RSR team has been spending a lot of time in the last year on the subject of an agile supply chain. Short version: retailer respondents in our recent studies show an appetite to use predictive models to anticipate supply chain disruptions, and tools that can also recommend cost-optimized corrective actions. This is good news, since it points to the possibility of a new wave of improvements to the supply chain that ultimately will help consumers affordably find the products that they want from anywhere in the world. That’s certainly the objective, anyway!
In the meantime, in the world as it is (vs. how we would like it to be), supply chains are really struggling with big shifts in consumer demand that were triggered by the COVID-19 pandemic. The winners in today’s market are those companies that are servicing consumer demand for products in and around the home – everything from food for the table to consumer electronics, clothing, and home furnishings. The biggest losers are those businesses that serve consumers outside of the home, for example restaurants and movie theaters. Consumers are still able to spend, but they can’t dine out, so they are redirecting their spending. But that is having a serious impact on supply chains that assumed pre-COVID patterns of global production and distribution.
This week, the Washington Post reported that “abrupt and unprecedented spending shift has upended long-standing trade patterns, causing bottlenecks from the gates of Chinese factories to the doorsteps of U.S. homes… exposing vulnerabilities in the physical plumbing of cross-border commerce that may linger, according to exporters, port officials and trade specialists.” (Pandemic aftershocks overwhelm global supply lines, Washington Post, 1/24/2021).
Initially, since fashion retailers in particular were hit so hard by stay-at-home orders, goods piled up on the docks and in warehouses. That caused shippers to scale back on capacity (ships, containers, trucks). But as consumers began to redirect their spending, the swing in demand for products for the home simply outran shippers’ ability to redirect capacity to meet that new demand.
What it boils down to is that the surge in consumer demand for certain types of products has overwhelmed the smooth running of the global supply chain. And while shippers try to meet the changing demand, new bottlenecks are being created.
One of the most fascinating is lack of enough shipping containers. Since Chinese manufacturers are experiencing such a high demand for certain products, shippers are rushing to return containers from the U.S., often even if they are empty. That in turn is making it harder for US exporters to get their goods to Chinese markets. And this dynamic is affecting more than the China-US trade route. For example, Japanese exporters worry about increased costs resulting from the scarcity of capacity for their products.
Seafood exporters like Vietnam and Thailand are also having difficulty getting their products to market. SeaFoodSource News reported on 1/22/2021 that “Shipping rates from Vietnam to major ports this month increased <approximately 150% in December> per container… The rates for shipping to ports in the U.S. West Coast also surged <approximately 15% in December>, while the costs for U.S. East Coast ports rose <approximately 19%> per container ….”
It also doesn’t help that accidents do happen – for example, Maersk apparently dropped 750 containers into the ocean last weekend! The containers were lost in heavy weather from the Maersk Essen on 1/16 while it was sailing from Xiamen, China, to Los Angeles, according to an email from the company.
Ultimately, consumers pay for it all, and that has raised concerns about consumer price inflation – coming at absolutely the worst time as families try to cope with the dual challenges of the pandemic and the resulting loss of jobs.
So, what’s the relevance of all of this? My RSR partner Paula Rosenblum is fond of pointing out that “ships still have to get across the ocean… and you can’t shrink the ocean”, meaning that keeping supply and demand in perfect sync with each other is a great goal, but a theoretical one. Even if forecast models were to be perfectly accurate all of the time (and if there’s any one thing we should have all learned in 2020, it’s that forecasting remains a black art), there are lag times that result from the physicality of the supply chain.
Ultimately that leads to a discussion of the importance of being able to see every physical component in a supply chain, so that manufacturers, shippers, freight-forwarders, and retailers can at least have more time to react to disruptions even if they didn’t foresee them. That’s where the “digital twin” comes in – but we’ll save that topic for another day.