![Inside America's Broken Supply Chain 1 David Lynch](https://millerwoodtradepub.com/wp-content/uploads/2021/11/David.Lynch_.Headshot-copy-1-1024x1024.jpg)
By David J. Lynch
(c) 2021, The Washington Post
The commercial pipeline that each year brings $1 trillion worth of toys, clothing, electronics and furniture from Asia to the United States is clogged and no one knows how to unclog it.
This month, the median cost of shipping a standard rectangular metal container from China to the West Coast of the United States hit a record $20,586, almost twice what it cost in July, which was twice what it cost in January, according to the Freightos index. Essential freight-handling equipment too often is not where it’s needed, and when it is, there aren’t enough truckers or warehouse workers to operate it.
As Americans fume, supply headaches that were viewed as temporary when the coronavirus pandemic began now are expected to last through 2022.
Dozens of cargo vessels stuck at anchor off the California coast illustrate the delivery disruptions that have become the signature feature of the recovery, fueling inflation, sapping growth and calling into question the global economic model that has prevailed for three decades.
Today’s twisted supply chain is forcing companies to place precautionary orders to avoid running out of goods, which only compounds the pressure. Consumers are confronting higher prices and spot shortages of cars, children’s shoes and exercise gear, as the holiday shopping season looms.
“It’s going to get worse again before it gets better,” said Brian Bourke, chief growth officer at SEKO Logistics. “Global supply chains are not built for this. Everything is breaking down.”
![Inside America's Broken Supply Chain 2 Inside America's Broken Supply Chain 1](https://millerwoodtradepub.com/wp-content/uploads/2021/11/Graph-A-supplychain-repeat_c9c2e9d0-23bb-11ec-9309-b743b79abc59-copy-1.jpg)
Fallout from the once-in-a-century health crisis is the chief culprit behind soaring freight bills and delivery delays. Americans trapped at home slashed spending at restaurants, movie theaters and sporting events and splurged on goods such as laptops and bicycles, triggering an import avalanche that has overwhelmed freight channels.
But the pandemic also exposed weaknesses in the nation’s transport plumbing: investment shortfalls at key ports, controversial railroad industry labor cuts, and a chronic failure by key players to collaborate, according to interviews with more than 50 individuals representing every link in the nation’s supply chain.
“It’s like an orchestra with lots of first violins and no conductor. . . . No one’s really in charge,” said Fran Inman, a Los Angeles-based commercial real estate executive who has advised government agencies on supply issues.
– Port of Los Angeles
On Sept. 1, 40 container ships belonging to companies such as Hyundai, NYK Line and Evergreen were anchored off California, waiting for a berth. (Less than three weeks later, the number reached 73.) Some vessels sit for two weeks or more, effectively cutting capacity on trans-Pacific shipping lanes and driving up costs.
“From an economic point of view, it’s a disaster because cargo is waiting,” said Markus Grote, captain of a Hapag-Lloyd container ship.
For goods to move seamlessly from overseas factories to American addresses, the oceangoing vessels, shipping containers, cargo terminals, truckers, chassis providers and railroads all must work together, like runners in a relay race. If equipment gets stuck at any point, delays ripple along the entire chain.
Yet the United States is “decades behind” foreign ports in getting carriers, terminals and shippers to provide each other access to commercial data for planning purposes, said Gene Seroka, executive director of the Port of Los Angeles. Concerns over data privacy, business secrets and security have resulted in a fragmented approach. Individual ports operate as separate fiefdoms rather than as part of a national system.
In the Dutch city of Rotterdam, Europe’s largest port, everyone involved in a cargo vessel’s arrival sees the same information on a common data-sharing platform. Called “PortXchange,” the software makes port calls “smarter and more efficient” than the use of separate systems or the telephone, according to the port’s website.
Seroka touts a tool called the Port Optimizer, which forecasts three weeks of incoming cargo. More information sharing – including over a longer time period – would allow carriers, terminals, truckers and dockworkers to better position equipment and people. But other than Los Angeles, New Orleans is the only U.S. port that is even testing the system.
“Information sharing and additional transparency is one of the few areas where indisputably we could get more capacity out of the current system,” said Dan Maffei, chairman of the Federal Maritime Commission.
To be sure, the United States is importing historic amounts of goods. The L.A. port expects this year to handle a record 10.8 million containers. To keep pace, the International Longshore and Warehouse Union has accelerated training of new workers. Twenty union members have died of covid-19 while working through the pandemic, the union said.
“Our members are tired. Our members are feeling the pain of these covid deaths,” said Mike Podue, president of ILWU Local 63. “We’re lucky there hasn’t been a major accident.”
When the supply chain works, goods flow continuously, as if borne along by a river. Today, one bottleneck follows another. The problems are especially acute on the Asia-to-U.S. trade route.
Once a berth becomes available, longshoremen operating massive blue cranes lift the metal containers and position them to head inland via truck or train.
Ideally, a truck driver who has been alerted to the presence of a customer’s goods arrives at a terminal to find a chassis waiting. The container is then hoisted aboard and the driver pulls the chassis to the customer’s warehouse.
But too often, congestion elsewhere keeps the port jammed. Shippers with full warehouses won’t dispatch drivers to collect additional containers. Many loaded chassis sit outside overstuffed warehouses for days waiting to be unloaded, leaving ports short of needed equipment.
Even as cargo piles up on the docks, almost a third of the port’s night-shift appointments for truckers go unfilled.
At APM Terminals, the largest container site in the Western Hemisphere, the air echoes with truck horns, air brakes and the warning beeps of mobile cranes.
This 484-acre facility boasts 12 miles of railroad tracks, linking the docks to points east for customers such as Walmart, Nike and Ikea. Across from the headquarters building, trucks wait to navigate canyons of containers stacked about 50 feet high.
Steven Trombley, the facility’s managing director, needs the agility of a hockey goalie to ward off the daily complications. Today, his berths are full and four of the ships loitering in San Pedro Bay are impatient for a spot.
Trombley has nearly a week’s worth of truck chassis on the dock. But truckers are scarce. Such mismatches help explain why containers destined to travel by rail sit dockside for an average of eight days, up from two before the pandemic.
“It’s a headache. Cargo is sitting here longer than planned,” Trombley said. “If I don’t get the cargo moving, then the next ship is not going to have space.”
Even as total federal ports spending has increased, the L.A. gateway has been neglected, Seroka said. West Coast ports, including the L.A.-Long Beach complex, which handles about 36 percent of U.S. imports, have lagged East and Gulf Coast facilities over the past decade, $11 billion to $1 billion.
With more money, the port could have expanded channels, fortified wharves and improved road and rail links, he said.
One shortcoming: The lack of a direct rail connection to the distribution centers for companies such as Amazon and Nordstrom 75 miles east in California’s “Inland Empire.”
Advocates of a rail link say it would eliminate from Southern California’s freeways thousands of daily truck trips and ease port congestion by moving millions of containers off the docks. But the railroads doubt the financial case.
The backlog got so bad last fall that port officials opened overflow lots to store thousands of containers.
![Inside America's Broken Supply Chain 3 Inside America's Broken Supply Chain 2](https://millerwoodtradepub.com/wp-content/uploads/2021/11/Graph-B-supplychain-repeat_d0c68cdc-23bb-11ec-9309-b743b79abc59-copy-1.jpg)
– APM Terminals, Los Angeles
At Pier S, on the other end of a harbor island from APM, about 7,300 containers and chassis are parked. Some have been sitting for almost three weeks.
One of the facility’s users is TRAC Intermodal, the nation’s largest chassis operator. CEO Dan Walsh, a wisecracking Australian, said current supply snags reflect Americans’ greater reliance upon e-commerce.
“They expect things to come faster, which puts pressure on everyone in the supply chain,” he said. “They also expect to be able to return things without cost.”
TRAC has spent $1 billion over the past decade upgrading its 180,000-vehicle fleet for what Walsh calls “the permanent whitewater of daily work.”
The company has increased spending by 20 percent this year, adding models that boast GPS locators, LED lights and antilock brakes. But expanding more aggressively to meet the cargo emergency would not be cost effective: new tariffs have made Chinese models unaffordable at a time when domestic makers struggle to fill orders.
As demand for shipping has soared, carriers have grown choosy about what they carry—eschewing hazardous chemicals and heavier products that increase vessel fuel costs. They often decline to send containers inland to collect American farm exports, preferring to rush them back to Asia to capitalize on high eastbound freight rates.
That’s why the L.A. port exports three times as many empty containers as full ones.
The seven largest publicly traded ocean carriers—including companies such as Maersk, COSCO and Hapag-Lloyd—reported more than $23 billion in profits in the first half of this year, compared with just $1 billion in the same period last year.
The soaring freight bills that fueled those profits, however, have put smaller shippers at a disadvantage to giants like Wal-Mart or Amazon. The biggest companies not only can more easily absorb higher costs. They also negotiate more attractive contracts in the first place, which means they can reliably get their goods across the ocean while smaller companies struggle.
National Tree, a maker of artificial Christmas trees, was able over the past three months to import only half as many containers as planned, CEO Chris Butler said.
“We had contracts to bring in all of our containers. Those contracts were not worth the paper they were written on,” he said.
Supply interruptions first hit the United States in early 2020, as Chinese factories closed amid coronavirus shutdowns. Shortages of Clorox wipes, masks and other medical goods have evolved since then into a kaleidoscope of scarcity, with appliances, toys, industrial parts and semiconductors all proving hard to find.
Now, persistent cargo concerns are exposing the risks of ocean-spanning supply lines and hyper-efficient “just-in-time” production strategies that keep inventories and costs low.
A shortage of computer chips has shuttered General Motors and Ford auto plants and left Whirlpool scrambling to keep refrigerators and dishwashers in stock. Congestion in California prompted Levi Strauss to reroute Asian cargoes to less crowded East Coast ports despite longer, costlier journeys.
Cargo carriers are offering expedited VIP service for truly desperate shippers, some of whom offer to pay any price to get their goods moving.
Craig Grosscart, SEKO’s senior vice president for global ocean, said one desperate shipper recently asked: “Do you take bribes?”
Others have pleaded to use helicopters to retrieve containers from vessels offshore.
Long before the coronavirus, the United States lagged other major economies in moving goods efficiently. In 2018, the World Bank ranked the U.S. 14th out of 160 countries, down from ninth four years earlier, based on a periodic survey of freight forwarders and cargo carriers.
Likewise, regulators with the FMC warned in 2015: “Congestion at ports and other points in the nation’s intermodal system has become a serious risk factor to the relatively robust growth of the American economy and to its competitive position.”
Those earlier backlogs were sparked by unrest over a West Coast dockworkers’ contract. With that deal scheduled to expire July 1, businesses in coming months will probably order more than normal to avoid being caught short again, further aggravating congestion, executives said.
Seeler Industries in Joliet, a maker of chemical solutions used in household cleaners and municipal water treatment facilities, has been forced to turn down several million dollars in orders because of shortages of key ingredients and truckers to move them.
CEO Steve Seeler, who calls that a “significant” hit for his family-owned business, said he buys whatever materials become available for fear of missing out. Some imported chemical ingredients that once took six weeks to arrive now take up to three times as long, making just-in-time production “much more difficult, if not impossible,” he said.
Asked to describe his current strategy, Seeler said: “We’re praying. That’s what we’re doing.”
![Inside America's Broken Supply Chain 4 Inside America's Broken Supply Chain 3](https://millerwoodtradepub.com/wp-content/uploads/2021/11/Photo-A-copy-1024x683.jpg)
– Union Pacific rail yard, Joliet, Ill.
One of the main rail routes leaving the port leads to Union Pacific’s Global 4 facility in Joliet, which sprawls across the equivalent of 500 football fields.
The rail yard is essentially an inland version of the terminals in Los Angeles. Like an industrial Lego set, the lot is replete with towering walls of orange, green, white and blue containers.
Last year, as the economy rebounded from its spring plunge, cargo arrived faster than it could be pushed out of the gate. This summer, the problem suddenly became acute, with nearly 8,000 containers clogging the paved ramp, roughly double the July 2020 figure, according to Union Pacific.
At one point, trains trying to enter the yard were backed up for 25 miles.
Frustrated truckers would drop containers at random spots, making it harder to navigate the narrow aisles and slowing operations. In late August, nearly all of the 5,500 parking spots were occupied by chassis or containers waiting to be picked up, leading to grumbling that shippers were using the yard as a warehouse.
“When things like this happen, the train can’t get loaded and we’re wasting hours of service,” said Thomas Moses, 49, a veteran locomotive engineer.
The normal 3.5-day cycle for a chassis to exit with a container and then return for another pickup stretched to 17 days. That slowdown meant the facility would need an unimaginable 6,000 chassis for normal operations, up from its customary 1,000. Those delays, in turn, meant more train crews were needed. That takes time to assemble and adds cost.
In July, Union Pacific took the extraordinary step of temporarily halting all trains arriving from West Coast ports. In Los Angeles, Seroka said he was informed of the decision just one or two days in advance.
The railroad also reopened another yard, Global 3, which had been closed in 2019 under a strategy known as “precision scheduled railroading,” to act as a relief valve. Used throughout the industry, PSR is “intended to benefit customers” by providing more predictable service, according to Union Pacific.
But union representatives and regulators question the associated job cuts. Union Pacific’s 31,000-person payroll is more than one-third smaller than it was in 2015, part of a broader shrinkage across all major railroads.
“You take that many people out of the workforce, I don’t see how it could but impact service,” said Martin Oberman, chairman of the Surface Transportation Board. “What’s happening is just stripping down the workforce.”
Global 4 has reopened to incoming trains at 75 percent of its previous volume. A planned doubling of capacity, with the introduction of five massive new cranes, is scheduled for next year.
Union Pacific says it has reduced the number of stockpiled containers. Managers have compiled pandemic lessons into a crisis manual known as “the playbook” and are hiring again.
Ongoing efficiency studies aim at additional fine-tuning. Already, the railroad is installing uniform signage at all Union Pacific facilities, so that truckers will see familiar instructions no matter where they go.
“We’ve got it fluid,” said Drew Steinkamp, general manager of the Chicago service unit. “But we’ve got a constant volume coming at us.”
Alvaro Ramirez has learned to be patient. Sitting in his green-and-white Freightliner truck, stuck in line for hours at cargo depots, the veteran driver listens to Conan O’Brien comedy routines, self-help audiobooks and tai chi lessons.
“It helps me breathe and calm down,” said Ramirez. “I used to be a screamer.”
He had good reason. Ramirez is almost 2,100 miles from the Los Angeles port, where dozens of ships wait offshore. But he confronts the same dysfunction.
With global supply lines in an epic snarl, it can take him five hours to enter a Chicago-area rail yard, locate a customer’s shipping container and mount it on a truck chassis before hauling it to its destination. Chronic rail-yard traffic jams last so long that he has learned salsa dancing by watching videos on his phone while waiting.
Before the pandemic, Ramirez, 44, could make seven round trips in an 11-hour workday. That number fell to just one or two, forcing him to switch to the less crowded overnight shift. Still, his earnings are down 20 percent.
Ramirez is a “drayman,” a 16th-century term for the final cog in the 21st-century supply lines that link the American heartland to Asian factories. His daily plight shows how today’s disruptions feed on themselves, like a line of tumbling dominoes.
At Road One Intermodal, which employs Ramirez and provides trucking services at nearly 90 ports and terminals, a truck was out of commission for more than two months while the company suffered its own supply chain woes, waiting for a new clutch.
Even as business boomed, executives opted not to order new truck cabs, after learning they could not be delivered until the end of next year. A shortage of aluminum and factory labor made the schedule for new trailers even more uncertain, said David McLaughlin, Road One’s chief operating and financial officer.
“This is my 46th year in the business. I’ve never seen anything like this and it’s not easily resolved,” he said.
In July, when two of the nation’s largest railroads restricted shipments from the West Coast to their Chicago hubs, they reduced the backlog of containers jamming their facilities but made port congestion worse.
As space aboard freight trains grew scarce, shippers switched to trucks, driving over-the-road freight bills up by 85 percent compared to April 2020, according to DAT Solutions.
But many logistics companies are reluctant to add permanent capacity, fearing they will be caught with too many ships, trucks or chassis (the trailer-like frame that holds the containers) once consumer buying patterns return to normal.
“You don’t build a church for Easter and Christmas. You build it for the average week,” said Jason Hilsenbeck, president of Load Match, an equipment clearinghouse in Naperville, Ill.
– American Sale Warehouse, Tinley Park, Ill.
The supply chain ends at Bob Jones’s door in Tinley Park, Ill., more than 7,700 miles from the Chinese port of Ningbo, where many of his products originate.
The president of the American Sale retail chain is one of the smaller shippers buffeted by supply chain tumult. With eight stores in the Chicago area, Jones imports annually about 150 containers of pools and patio furniture. (Walmart, the nation’s largest importer, according to the Journal of Commerce, brings in several hundred thousand.)
Before the pandemic, the cost of shipping one container to his 200,000-square-foot warehouse was less than $5,000. In late August, the bill hit $26,000.
Some of his containers sit for two or three weeks once they reach Union Pacific’s rail yard or a similar facility belonging to rival BNSF.
Jones passes some of the higher cost to consumers and absorbs some himself. Since Americans have stocked up on outdoor products during the work-from-home era, he makes up some of his losses on volume.
The uncertainty is his chief worry. Kinks in the supply chain mean he has summer products arriving now when summer is a memory on the shores of Lake Michigan. More out-of-season goods will reach the Midwest as the snow flies.
“We have a typical supply chain route. This year, there’ve been hiccups all along the way,” Jones said. “It’s not getting better. In fact, I would say it’s getting worse.”