Fresh coronavirus outbreaks are forcing factory shutdowns in countries such as Vietnam and Bangladesh, aggravating supply chain disruptions that could leave some U.S. retailers with empty shelves as consumers begin their back-to-school shopping.
The overseas work stoppages are just the latest twist in almost 18 months of pandemic-related manufacturing and transportation woes. The new infections come as two of the largest U.S. railroads last week restricted shipments from West Coast seaports to Chicago, where a surge of shipping containers has clogged rail yards.
Supply headaches stretching from Asian factory towns to the American Midwest are intensifying as the economic recovery tries to outrun the highly infectious delta variant. Aftershocks from earlier limits on a major Chinese port following a surge of covid-19 cases are expected later this month to worsen backlogs at U.S. West Coast facilities.
Chronic shipping delays also are feeding inflation, just as consumers prepare to stock up for the coming school year. Spot shortages of clothing and footwear could appear within weeks, and popular toys may be scarce during the holiday season. Even as the U.S. economy is slated to enjoy its fastest growth since 1984, supply lines now are expected to remain snarled through the first half of next year or longer, according to corporate executives.
The pandemic has exposed fragile global supply chains across multiple continents. No sooner did the recent reopening of southern China’s Yantian port solve one problem than the closure of Bangladeshi factories until Aug. 5 created another.
White House economists say interruptions in the supply of semiconductors and home building materials are contributing to the highest inflation in 13 years. The president earlier this month signed an executive order designed to increase competition and lower prices in the shipping and freight rail markets, but any impact will be felt only in the long run.
Corporations such as Levi Strauss, Harley-Davidson and Unilever are among those rewiring their supply lines or raising prices to offset higher input costs.
But the Biden administration has parried industry calls to help companies financially by eliminating import tariffs on Chinese products or to use the National Guard to physically clear the cargo jam.
The interruption of Chinese manufacturing at the pandemic’s outset toppled the first of several dominoes leading to today’s global supply chain pileup. While Chinese factories quickly returned to normal operations, an unexpected increase in American demand for goods during the work-from-home era discombobulated traditional trade patterns.
As a result, ocean-spanning supply chains, the distinguishing characteristic of the age of globalization, are failing at multiple points.
The massive cargo carriers that arrive off the coast of Southern California, some bearing more than 15,000 metal shipping containers, often must wait at anchor for days before disgorging their cargo.
Once on land, containers frequently idle in temporary storage while awaiting space on an outbound truck or train, incurring additional costs.
Inland rail yards have emerged as the latest pain point for companies trying to move goods internationally. Trains full of clothing, computers, furniture and appliances have been streaming for months into Midwestern hubs.
When the system works as designed, containers are lifted from arriving trains and placed directly onto a wheeled chassis, which is then hauled away by a local driver. The chassis is quickly unloaded by the final customer and returned to the rail yard.
But this year’s flood of cargo has overwhelmed the system, leaving the yards without enough chassis. So containers have piled up by the thousands.
Rather than a single movement from train to truck, containers now are lifted off, placed in storage and then moved a second or even third time before eventually exiting the yard, according to Lawrence Gross, a transportation consultant in Durango, Colo.
“Once you fall behind, it’s really hard to dig your way out,” Gross said. “The system has gotten out of whack.”
Union Pacific, the nation’s largest publicly traded railroad, halted all eastbound traffic from the ports of Los Angeles, Long Beach, Oakland and Tacoma, starting July 19, for at least one week. BNSF Railway, which boasts one of North America’s largest freight rail network, said it was reducing the flow of containers from Los Angeles and Long Beach for two weeks in what it called “a somewhat unprecedented” move.
Both railroads have made more room for containers that are awaiting pickup. Union Pacific reopened a terminal in Rochelle, Ill., that it closed two years ago. BNSF paved over two tracks to create space at a 638-acre facility in Chicago it calls the nation’s largest inland port.
Rail executives acted after seaport congestion and equipment shortages reached alarming levels. At the Port of Long Beach in California, cargo was sitting on the docks for up to 12 days, waiting for a rail car to arrive, according to Mario Cordero, the port’s executive director. That compared with a pre-pandemic norm of 3.5 days.
The idea behind the Union Pacific and BNSF actions is that a temporary pause will clear their backlogs, just in time for the annual shipping season peak. But in the short term, the actions effectively shoved the problem back onto the western ports.
About 40 of the three-mile-long trains that would typically travel from Long Beach to Chicago were canceled last week, meaning that perhaps 25,000 containers that should have already left for the Windy City are still stuck in California, Cordero said.
“It’s likely these issues will persist through the end of the year as the capacity to move boxes from our ramp to the final destination fall short of demand,” Lance Fritz, Union Pacific CEO, told an earnings call last week.
Dysfunctional shipping could soon affect consumers. Apparel imports in June fell almost 5% even as clothing stores reported a more than 17% gain in sales, “raising the prospect of shortages during the ongoing back-to-school shopping season,” S&P Global’s Panjiva unit said last week.
The next several weeks, when back-to-school shipments blend into holiday cargoes, could be critical.
Retailers only have enough goods on hand for a bit more than one month of sales, near the lowest level of inventory since 1992, according to the U.S. Census Bureau. So imports are likely to remain at high levels for the rest of the year, meaning more strain for beleaguered supply lines.
“The network is at full capacity or over capacity,” said Zvi Schreiber, CEO of Freightos. “So if there’s any shock, there’s a very long recovery period.”