Good Luck Trying to Fix the Supply Chain Crisis


    Good Luck Trying to Fix the Supply Chain Crisis

    The result? A global slowdown in the supply chain that has thrown everything into chaos—and made shipping items across the globe more expensive than ever. “The economics of shipping are great for the ship lines,” says Levinson. “They’re making record profits.” While shipping rates have long been unbalanced, with higher costs to send a shipping container from Asia to Europe than Europe to Asia, costs across the board have soared. Shipping a single 40-foot container from Shanghai to Los Angeles in early August 2019, for example, cost $1,700. A year later, it had risen to $3,000. By August 2021, it cost $10,200, according to data tracked by analyst firm Drewry World Container Index. Cole has previously paid around $2,500 to ship a single 20-foot container from China to Australia. Now it’s $5,500. “I’m a little bit worried when I see the bills for my 40-foot containers,” he says. “I don’t get the bills until the container lands in port.”

    At such high prices, many bigger businesses are avoiding the traditional shipping industry and going it alone, finding it more economical to do so. Costco has chartered three container ships that will work to deliver goods to the US and Canada from production facilities in Asia, as have Walmart, Ikea, and Home Depot. “Inflationary factors abound,” Costco’s chief financial officer Richard Galanti told investors when announcing the company’s most recent financial results. “Higher labor costs, higher freight costs, higher transportation demand, and port delays, increased demand in certain product categories, various shortages of everything from computer chips to oils and chemicals, and higher commodities prices” have all had an impact on the retailer’s business, Galanti added. Those that haven’t chartered their own vessels are feeling the impact. Half of lingerie retailer Victoria’s Secret’s products are stuck at sea. The rest are being flown in—but that now takes nine days rather than two, because the race to snap up supply flights is causing backlogs there too.

    Nor is the issue going away any time soon. Drewry forecasts that global shipping operations will not return to normal until the end of 2022—an estimate supported by Breslin. It’s boom time for shipping operators, who are expected to make earnings before interest and taxes of $150 billion this year. For everyone else, it’s a major headache. “People have lost sales because they didn’t have enough stock to sell, or have been sitting on too much stock,” says Breslin. “No CEO of a large retailer or brand is ever going to want to be in that position again.” The answer, he believes, is a wholesale reworking of how the supply chain operates—one he compares to the way the internet’s protocols were first drawn up in the late 1960s. “It was made to be nuclear strike-resistant,” he says. Similar slack needs to be built into the supply chains of the future, with sops to nearshoring production so shorter supply chains don’t move markets as much as they have now.

    Published at Wed, 24 Nov 2021 12:00:00 +0000

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