Container Ship Crisis Underscores Critical Supply Chain Challenges
Growing up, the term “on a slow boat to China” was often used to describe something that would take a very long time. Unfortunately, we are seeing the opposite term come to fruition off the east and west coasts of the USA at the moment as container ships from China and other Asian ports are lined up in a 40 mile traffic jam off the west coast, waiting to dock.
As I write, there are:
- 76 container ships sitting off the west coast waiting to dock at LA and Long Beach. The ships have been in this log jam for approaching 3 months.
- The average container ship has about 14,000 containers
- The average value of merchandise on each container is $100,000
- That is a total of $106,400,000,000 of inventory just sitting in limbo, sometimes expiring, often devaluing.
And it’s not just the west coast that is affected. There are similar problems up and down the east coast off New York and Georgia.
This is compounded by astronomical rises in shipping costs. It is estimated that the cost to ship a container from southern China to the west coast of the USA is as much as $20,000, up from $3,000 post pandemic. That is a rise of over 650%.
And when the goods finally make dry land, there is a shortage of truck drivers to clear the docks, and storage space to put them.
Why the log jam?
I recently wrote about a phenomena called the “revenge economy” and that as a result of the vaccine rollouts, the $1.9 trillion stimulus package, restrictions starting to be lifted, shops opening, children returning to school and employees going to work, there is a pent up demand for goods. As a result, on-line sales, which grew out of necessity during the pandemic, have continued, with retail sales ramping up.
Our global supply chain is struggling to meet the growing demand from markets such as the USA, as seen in the automotive and high tech industries due to the continuing semiconductor shortage. Or how the recent COVID related shutdown of factories in Southeast Asia have impacted the sneaker and furniture industries.
And even when there were products to ship, port closures in Asia have caused a bottleneck of supplies sitting awaiting both containers to package and vessels to carry them.
All these factors have resulted in a steady increase in container ships waiting to enter US ports since July. And with the ports operating at full capacity, the next challenge is both how to transport the goods from the port, and where to store them. For example, there is an estimated 2 billion square feet of warehousing space in Southern California which is already fully utilized.
One thing is true. The topic of supply chains, which has been front and center in all discussions for the past 18 months, will continue to be a major talking point well into 2022.
To learn more about how supply chain leaders can help minimize risk and disruption download this recent Oxford Economics study.