Supply-Chain Crisis? What Supply-Chain Crisis?
(Bloomberg Opinion) -- One of the big lessons of this pandemic, supposedly, is the need for more resilient supply chains. The story goes something like this: In an effort to drive down costs, manufacturers and retailers cultivated gossamer-thin networks dependent on low-priced, just-in-time shipping from around the world. That lithe approach boosted profits when times were good — but when a crisis hit, it snapped.
There’s only one problem with this story: Very little of it is true. There were major supply problems in 2021 in the world in general and the U.S. in particular, but they had little to do with the chains.
Consider the ports of Los Angeles and Long Beach, often cited as illustrations of the broken international supply chain. In the last two decades, the number of cargo containers handled each year in the adjacent ports almost doubled, growing from almost 4.9 million in 2000 to more than 10 million in 2021, a record high (the figure was 9.9 million through November).
Yes, the pandemic created a lot of strain for the ports and the supply chain they are part of. Average shipping times from China doubled, and price of moving a typical container rose from 4% of its value to nearly 20%. The number of ships waiting to unload at any given time rose from one or two in the summer of 2020 to high of 82 this past November. President Joe Biden considered sending in the National Guard to ease the pressure.
About that last point: If it is the sprawling international supply chain that is failing, how would it help to add extra manpower at its point of convergence in the U.S.?
The answer, of course, is that the ports are under strain not because the supply chain is breaking down under the weight of the pandemic. They’re under strain because volume has surged in response to demand. Personal Consumption Expenditures on Goods, a broad measure of U.S. consumer spending, has surged 25% since the pandemic began, and the value of imports has risen by a nearly identical 27%.
Yes, imports from China are flat or slightly down. But there were increases from alternative sources. Imports from Vietnam, for example, have grown by more than 50%. That is precisely the response one would expect from a resilient global supply chain.
The problem is the U.S.’s domestic distribution network, which has been unable to keep up, in large part because it’s in a mad scramble for labor. Employment in trucking collapsed in the spring of 2020 and recovered slowly, just reaching its pre-pandemic levels in November. By contrast, the payrolls of couriers and messengers, a category that includes local delivery drivers, grew rapidly through most of the pandemic.
Likewise, intermodal rail traffic — which competes against long-haul trucking — is flat since the start of the pandemic, even as retailers have seen their inventory-to-sales ratio fall from 1.43 to 1.07.
The story, then, is clear: Americans are buying, foreign markets are supplying — and the domestic distribution network is struggling.
Part of the story is simply that distribution is hard work that many Americans prefer not to do in a tight labor market. Solid growth in warehousing and storage employment, however, shows that they can be persuaded to take such jobs. Businesses such as Amazon have faced tremendous turnover but have pulled out all the stops — raising pay and hiring with a click on an app — in order to increase the size of their workforce.
It’s the so-called legacy distribution network that is sclerotic, over-regulated and slow to adopt new technology. The industries that have evolved the least in response to the rise of global supply chains are holding the system back.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.
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