How a break in the supply chain impacts pricing, access to goods
Like a wobbly Jenga tower, global trade relies on a series of interconnected parts to maintain its balance. And when one loosely placed block falls, the whole tower may topple with it.
In the case of the current global trade crunch, many pieces have loosened — leaving the system as rickety as ever. And this global supply imbalance has disrupted all kinds of local businesses, from construction companies and furniture stores to governments and beverage distributors. It has been addressed at this week's Oregon Business Summit.
"It's a multitude of problems, not a singular factor," said Daniel Wong, an instructor at Portland State University's Center for Executive and Professional Education.
"It's like being on a freeway where there's an accident," said Janna Jarvis, the president of the Oregon Trucking Association. "A slowdown at one point translates into a complete stoppage down the road for a couple miles."
System gone haywire?
According to Josh Lehner with the Oregon Office of Economic Analysis, Oregon relies less on imports than most other states. But 70% of all goods consumed in the state are brought in from outside its borders, which means Oregon is far from immune to disruptive factors.
"Slowdowns at ports in Southern California, or backups at rail yards in Chicago, impact the ability of Oregon firms to get the supplies they need and for Oregonians to buy products at the store," Lehner said.
At ports in Los Angeles and Long Beach, dozens of ships sit idly waiting for goods to be picked up. Reports from Vox and other media outlets have attributed this slowdown to an equipment shortage, a lack of longshoremen to carry the goods out of the ports and not enough truck drivers to transport them to manufacturing warehouses and other destinations.
"Manufacturing bottlenecks and shipping delays have resulted in cargo piling up not only in port terminals but also in rail yards and warehouses. Critical equipment, like shipping containers and truck chassis, is unavailable, causing distribution centers to develop deep backlogs," a Vox article read.
The first shot to the system, according to Wong, rang at the onset of the pandemic when orders were canceled and trade ceased as governments acted to prevent the spread of COVID-19. One detrimental impact, he said, was that shipping containers were not returned from the United States to China, leaving the latter country short. That problem has only accelerated as containers languish at docks due to the bottleneck.
"If things are not running in synchronous fashion, you don't have enough empty containers in Asia to send enough manufacturing goods," he said.
Pent up demand from that waiting period and a spike in consumer spending led demand to exceed supply in many cases. Wong mentioned the Vietnam shutdown, which recently ended, as another factor constraining trade.
"All of this has happened because of the bottleneck COVID created. There's huge backlogs. What does American society do when we stay home? We consume, go online for shopping," said Brad Hart, the president of OrePac Building Products.
Wong recently spoke with a large logistics company struggling to find enough people to work the docks, even after raising compensation significantly to incentivize workers.
Trucking companies, as Oregon Trucking Association President Janna Jarvis explained, are acting similarly. She said that in some cases, companies are offering $80,000 per year to prospective drivers. But there still are far fewer than needed to keep up with demand.
Jarvis added that there already was a driver shortage prior to the pandemic. But with the economy halted and conditions worsening at the beginning of the pandemic — due to a lack of places to stop and rest — many drivers retired and the truck-driving community skews older. Many of the nation's driving schools also closed, and Jarvis was happy to see recent legislation that will start a pilot program for 18- to 20-year-olds to perform interstate commerce as a way to increase the worker pool.
"The pandemic really stretched our industry. Prior to the pandemic, nationally we were 6,500 drivers short. The pandemic increased the shortage," she said.
Contractor and Lake Oswego resident Skip O'Neill said the general workforce in trade is the more problematic issue — which is not relative to the pandemic, rather the workforce in general.
"Supply chains can be fixed over time, but the amount of people doing the work is a real problem," O'Neill said. "And it's a long-term (problem), so it's odd that being in the trade is not considered a great job to have among parents and their kids because trades now can make a fabulous living.
"So we have more people retiring in the trades than we do going into the trades."
What businesses are experiencing
Though Lehner said U.S. corporate profits are higher than ever, Wong described a skewed dynamic when it comes to which companies suffer most from the supply chain stalemate.
He said that large businesses have longstanding partnerships with steamship lines that want to maintain their business. They also are offered cheaper prices and more containers than smaller businesses, which often rely on logistics brokerages for maritime transportation.
Small businesses have it harder, Wong said. "Nike and Danner may not get 10 containers a month allocation, (but) at least they get some at a reasonable price — not $20,000. Others have to pay market price and that's $20,000 for a 20-foot container," he said.
April Garstin, former manager at Lake Oswego's Gemini Bar & Grill, said the hospitality industry has been facing shortages as well.
Last fall, Garstin said there were "bizarre" shortages every week — and it wasn't consistent. Garstin noted at the beginning of the pandemic, there were shortages of personal protective equipment, cleaning supplies and toilet paper. Now, the shelves are fully stocked with those items, but she's noticed a lack of various food items.
Garstin noticed difficulties obtaining pint glasses, certain types of tequila, limes, cherries and olives, among other food items.
"Then (with) some of the things you do get, the prices are jacked up so high," Garstin said. "That is by far one of the hardest things to deal with right now."
Shawn Nili, the owner of NW Rugs & Furniture in Wilsonville, said orders that once took four-to-six weeks to arrive are now taking six months. Not to mention it's costing them $20,000 per container, up from around $2,000 prior to the pandemic.
"Normally shipping of the merchandise was between 5% and10% of whatever you buy. Right now some of them go almost over 100%. The shipping costs more than the merchandise in the container," he said.
Nili, whose business buys from companies in India, Pakistan, Turkey and China as well as within the United States, said that even domestic distribution is impacted because the furniture factories often buy their materials from overseas as well.
Preparation, he said, has been a business-saver.
"One of the things we did when we saw the pandemic happening was, we ordered a lot of merchandise — rugs and furniture. We are probably one of the few or only who have the merchandise for people to take home," Nili said.
Jarvis, of the Oregon Trucking Association, added that the buildup at the ports has led to inefficiencies for truck drivers as well, oftentimes forcing them to wait for hours to pick up the goods they need to bring to their destinations.
"There's so much product stacked up (that) it's hard to find the right containers and there is a lack of chassis to haul the product," Jarvis said.
Columbia Distributing, which recently opened office space in Wilsonville and distributes beverages from beermakers to grocery stores and other retailers, has had to shift its operations a bit. Though he didn't name names, Vice President of Procurement Alan Tait said the company has responded to a lack of supply from certain beermakers by switching to others with more goods to meet customers' needs.
"It's been all over the board from packaging to glass, to cans, aluminum, to issues in the trucking industry to labor to government mandates," he said of the beverage industry, adding that, "We have pivoted to similar types of products based on the availability of the inventory."
Right now, according to Tait, Columbia is stocking up on projected orders for next summer — which is the beverage sector's busy season.
"With some suppliers we're buying more inventory now, because it's more of a slow time in the season, to try to smooth the demand model for 2022," Tait said. "We don't need it, but we're doing it to help with manufacturing or brewing — and buying it so they don't have to deal with demand they can't keep up with."
Wage increases are not unique to the trucking industry. According to Lehner's blog, wages are 8% higher across the state's economy than the previous peak.
"We're still making money and we are paying employees more than we ever have. It's a really strong labor market. It's good for American workers and for those who want to work. It's a positive to raise wages and allow people to afford more," Hard, the OrePac Building Products president, said.
However, the combined impact of shipping and transportation constraints and wage increases dovetails into higher overall costs for them and, in turn, their customers. Lehner mentioned supply chain challenges as one factor in the overall price inflation seen nationwide.
"With demand so strong across the economy, businesses currently have a considerable amount of pricing power, and have been able to pass most of their cost increases along to consumers," he wrote.
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