The Supply Chain Around Our Necks

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As many as a hundred of these monsters, fully loaded, are queued up at anchor off the coast of Southern California waiting to offload. The backup is the worst in history and no end is in sight.

Remember the 1990s, when all the smart (i.e. rich) people in the room believed that Japan was eating our lunch and would soon bestride the world? (The movie Rising Sun, which came out in 1993, summed it all up.) The Japanese were buying American real estate, American companies and American debt with wild abandon, and our American oligarchs were swooning with admiration.

One of the techniques they most admired, and immediately began to emulate, was the concept of just-in-time manufacturing and inventory control. The Japanese had discovered that with the computational and communications speed of computers, you could arrange the delivery of raw materials to a factory, or manufactured goods to a retail store, to occur precisely when they were needed. This saved the costs of warehousing and sped up reimbursement. 

What industry touches, industry kills, and industry wrapped this concept in an octopus-like embrace. When industry scales something up, it increases profits and concentrates risks, but the profits almost always come first and the risks appear later. The benefits of just-in-time management to industry have been bountiful for 30 years. Now it’s later.

The downside of just-in-time is that when you have no accumulated goods — food, autos, clothes, it doesn’t matter what — in the system, the system has no resilience. If any part of the system is disrupted or fails, for any reason, it brings down the whole thing. If several parts of the system fail, as extensive as the practice is in today’s world, it could bring down the world.

What has gone wrong with our (and the world’s) supply chain? Damn near everything:

• The COVID pandemic took so many people out of the workforce, either through illness or collateral damage, that it shut down factories, idled trucks (which are perhaps the most essential tool for just-in-time management), grounded planes and slowed down just about everything.
• But plenty had gone wrong before COVID appeared. The southern California megaports — Los Angeles and Long Beach — were already among the slowest in the world, chronically undermanned (by dockworkers whose average pay is $171,000 a year), deploying only one crane for 50-100 trucks, slowed by union opposition from adopting new technology, and until recently never operating 24/7.
• Because of the unbelievably long delays they have long encountered at the ports, most truckers and independent trucking companies refuse to do business with the ports at all, leaving it to companies organized specifically for that kind of business. Most truck drivers are paid per load, not per hour, and the long waits at the ports mean they often lose money on every trip.
• Warehouses are still important as places to take the containers from the ports in order to divide the contents for forwarding to various locations. According to a brutal exposé  of the whole system by a veteran truck driver, most contents of containers from overseas are not on pallets and must be unloaded by hand. The warehouses laid off people wholesale, so to speak, as COVID began, and whether because of illness or the “take-my-job-and-shove-it” movement, many have not come back. So the warehouses are backed up too.
• The combined and cumulative delays mean that the offloaded containers stay on their trailers, or chassis, much longer than normal. Those chassis are not owned by the truckers but by the container companies, and the entire system depends on their being offloaded and returned to duty promptly. That hasn’t been happening for a while, and by itself contributes to the delays. (The Wall Street Journal ran a piece identifying this as the chief cause of the supply-chain backup, but it is actually a small part.)

This is mostly being passed off as a relatively minor glitch caused by COVID that will soon sort itself out. Every major industry in the world is teetering because of this coagulation of the life’s blood of trade. Bare shelves threaten the profits of food stores that cannot restock them; the auto industry is on the verge of shutting down because of a shortage of computer chips and more lately, aluminum; much of the crap intended for sale to frenzied Christmas shoppers is on those stranded container ships. And on and on.

And there is no solution in sight. If one is somehow discovered tomorrow, it won’t be just in time.