The supply chain is all screwed up.

It’s going to dominate our conversations for the next few months.

I know, you have enough crises to worry about, thank you very much, no need for one more. Bad news: what’s unfolding right now in “supply chain disruption” leaves me gasping a bit at just how damn weird things are. Maybe you saw that Costco just limited purchases of toilet paper, but this is not just a repeat of last year – there are much bigger problems. You’re actually going to want to do your Xmas shopping early because the supply chain is falling apart. Yes, seriously. The LA Times consulted economic leaders and the advice for Xmas shoppers who start early, like right now, is to “be prepared to accept your second or even third choice.” “If you wait, be prepared to wait some more.” “Make your own gifts.”

I’m going to give the absolute minimum of info for some context on what’s going on. Each thing I mention is a complicated, nuanced problem. Everything is interlocking; the solution for one depends on another one being solved, which depends on another one, and so on, a global web with no center, no fulcrum, no single pressure point to make things okay.

One of the triumphs of the modern global economy was a “just in time” supply chain. We have depended on an elaborate dance where items appear in one place at exactly the moment they are needed to allow this step to be taken so the products can be moved to the next place, where they arrive at exactly the right time, and so on, all the way until a finished product is in your hands – toilet paper or a car or a laptop or a book. Businesses have been able to reduce the expense of purchasing and warehousing huge inventories of parts or finished products because they would have what you wanted at exactly the time you wanted it.

This was possible in part because each step in producing almost anything could be spread out across the world to where it could be done most cheaply and effectively. I haven’t been able to convince my wife to read The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, a fascinating history by Marc Levinson, but you’ll learn more from it about how the world works than from a hundred political books. Container shipping transformed the world. Got a t-shirt handy? The cotton for it might be grown in Texas, knit in China, sewn in Bangladesh, and shipped to San Francisco so it can be sent to you by the Gap for $24.95. That’s a journey of 16,500 miles facilitated by fast, cheap, reliable container shipping, and every step happening just in time for the Chinese weavers to be ready when the cotton arrives and the Bangladesh sewers to be ready when the cloth arrives and so on.

The whole concept worked brilliantly. Until it didn’t.

Ever done a home remodeling project? Remember that moment when the entire project grinds to a halt because one subcontractor, just one tiny cog in the wheel, doesn’t show up on time and none of the rest of the work can proceed? Take that idea and blow it up to global scale, with millions of contractors who depend on each other.

The New York Times has a couple of examples.

A shipping container that cannot be unloaded in Los Angeles because too many dockworkers are in quarantine is a container that cannot be loaded with soybeans in Iowa, leaving buyers in Indonesia waiting, and potentially triggering a shortage of animal feed in Southeast Asia. 

An unexpected jump in orders for televisions in Canada or Japan exacerbates the shortage of computer chips, forcing auto manufacturers to slow production lines from South Korea to Germany to Brazil.

Covid is one of the important causes of the current disruption, naturally. In 2020 the pandemic caused demand for some things to go down. As the economy recovers in 2021, demand for some things has skyrocketed, but not necessarily for the same things that faltered in 2020.

When the pandemic reached its full fury in 2020, just about everyone made plans for the post-pandemic world. The plans are turning out poorly in hindsight. Manufacturers, distributors, shippers, ports, the trucking industry, suppliers of raw materials, all of them are being caught flat-footed by a world that is not doing what they expected.

The scale of the modern world is unimaginable. When demand skyrockets, it is frequently impossible to respond quickly. The White House released a study of the supply chain that makes that point about toilet paper:

“How did U.S. toilet-paper manufacturers respond to the shortages? None appear to have added production lines or built new plants to expand capacity. That is because the modern toilet-paper manufacturing process is highly mechanized and capital-intensive, requiring four-story-tall machines that cost billions of dollars and months to assemble before a single roll comes off the line.”

Manufacturers might not make the investment in massive new equipment if they guess that the demand will be short-lived – and remember the first point, no one is guessing very accurately. Toilet paper manufacturers improvised their way through the shortage last year. They didn’t install those new machines, they just ran the old ones 24×7 until the shortage eased. Their capacity isn’t much changed this year if we decide to panic buy again. And we might.

Want some specifics?

Let’s start over in China.

China and the US are co-dependents. We depend on Chinese imports for raw materials, finished goods, semiconductors, much more. (If it occurs to you to say, well, we’ll just build things in the US, rah rah USA!, please, go do some Googling and come back when you’re up to speed on how the world really works.)

China’s manufacturing capacity is down because of power shortages. I know, weird, huh? An example (and all of these are just examples of bigger problems) from Nikkei: “Several key Apple and Tesla suppliers have halted production at some of their Chinese facilities to comply with Beijing’s tighter energy consumption policy, putting supply-chain continuity at risk during a peak season for electronics goods including the latest iPhones.”

China is having trouble loading export ships to the US because of Covid – operations at the Chinese port of Yantian were heavily curtailed by a Covid outbreak in June and Covid shut down a Shanghai port in August. China is also having trouble keeping up with the flow of container ships seeking to unload in Chinese ports. The number of container ships anchored off Shanghai and Ningbo has surged over recent weeks. There are now 242 container ships waiting for berths countrywide.

Even taking the ships stuck offshore into account, though, there aren’t enough ships to meet the demand for trans-Pacific shipping. The next wave of new shipping vessels won’t come online until 2023.

But that’s okay because there aren’t enough shipping containers. Many containers are stuck uncollected in other parts of the world because reasons.

What happens if China catches up and starts to load container ships bound for the US? That’s what happened after Chinese shipping recovered from the June Covid outbreak and it’s part of the problem today. There is a surge of delayed cargo arriving at US ports that do not have the capacity to receive them.

There are currently more than seventy container ships circling around the Pacific because the ports in Los Angeles and Long Beach do not have the capacity to unload them. The executive director of the Port of Long Beach said it is working toward 24/7 operation – and that might not be enough.

According to Business Insider, “With record numbers of huge cargo ships stuck at key ports, consumers could face a shortage of items, including clothing, electronics, toys, and furniture. Bottlenecks at some ports are beginning to spark concern that there could be a shortage of goods in the run-up to Christmas.”

The port issues are spreading to the east coast – there are more than 20 ships idle off the coast of Savannah, the fourth-largest gateway for seaborne imports in the US.

Climate change is playing a role, of course. More from Forbes: “Traffic on the Yangtze River in China has been challenged due to extreme weather this summer. Authorities had to close the river during storms, creating severe backlogs at Chinese ports as ships wait days for passage to resume. And it may get worse. From August to December, 16 to 18 typhoons are forecast to form in the Northwest Pacific and South China Sea. As for the weather in the U.S., the ports of New Orleans, Baton Rouge, Gramercy, and Morgan City in Louisiana and the Port of Pascagoula in Mississippi remain closed following the recent arrival of Hurricane Ida.”

Improving our ports is properly considered an investment in US infrastructure. I’m told there are some good ideas floating around for improving American infrastructure. Once funded, infrastructure projects take a decade or more to fulfill. Personally, I kinda wish we could get some of that under way.

The ships are circling offshore because there aren’t enough port workers to unload the boats.

If the workers were there, it wouldn’t matter because there isn’t enough space to set the containers down.

There isn’t enough space for the containers because there aren’t enough trucks to drive them away.

There aren’t enough trucks because there is a shortage of truck chassis.

It wouldn’t matter if there were more trucks because there aren’t enough truck drivers. Forbes: “A shortage of drivers across the country means much of the container volume sits idle at capacity-constrained facilities. Frustration with employment prospects, safety concerns, expanded unemployment benefits and having kids at home have contributed to drivers leaving the industry.”

If there were enough trucks and truck drivers, it wouldn’t matter because containers are taken to rail yards and railroads have their own issues, including labor shortages and disruptions caused by climate emergencies. The Washington Post reported today that at one point trains were backed up for 25 miles outside a key Chicago facility. In July Union Pacific took the extraordinary step of temporarily halting all trains arriving from West Coast ports.

If the railroads could move the containers, it wouldn’t matter because there is a shortage of warehouse space at the other end when the containers reach their rail destination. Also because there aren’t enough trucks or truck drivers to take them to the warehouses that don’t have space to receive them.

And so it goes.

Once things get jammed up, everything adds pressure – Chinese trade tariffs, a fire in a Japanese chip plant, or a ship stuck in the Suez Canal that delays other ships.

Semiconductor delays are a particular pain point, especially for auto manufacturers.

Tesla is the poster child for the delays in the automotive industry caused by semiconductor supply chain disruption. If you order a Tesla Model Y today, you’ll get a delivery estimate more than six months from now. It’s rather bizarre that some used Teslas are selling today for more than the price of a new Tesla because the used one is available today instead of a far distant date in 2022. All of the car manufacturers are impacted by semiconductor shortages – cars are basically just specialized computers. GM and Ford have shuttered auto plants.

New semiconductor plants are planned or under construction to alleviate the shortages. The first of them will start to come online in 2022 – because these are big problems and big solutions take time. The US and the EU are talking nice about “rebalancing” the global semiconductor supply chains after the Trump administration took sledgehammers to everyone’s relationships for no particular reason. Taiwan says it is raring to go on making semiconductors but it’s being held up because necessary Malaysian plants are offline. Malaysia says it’s running as fast as it can and it won’t have any additional capacity until next year.

New books will be hard to come by for the next few months – paper shortages, lack of printing and warehouse capacity, labor shortages, shipping delays.

There are long lines at British gas stations and panic buying has started, mostly caused by a shortage of truck drivers to deliver the fuel. British restaurants are struggling to obtain food and grocery stores are unable to replenish shelves.

New York Times: “Construction companies are paying more for paint, lumber and hardware, while waiting weeks and sometimes months to receive what they need. In Britain, the National Health Service recently advised that it must delay some blood tests because of a shortage of needed gear.”

There are aspects of the global supply chain crisis that are going to be relieved as new ships, containers, manufacturing plants, trucks, workers, and everything else come online in 2022. There are other parts that are unpredictable – climate events, another pandemic, a trade war, or whatever else comes next.

In the meantime, expect “supply chain” to be frequently bandied about in conversation for the next few months. And you might want to do your Xmas shopping earlier than usual.

Toilet paper? Dear god, let us not go back to that hell again.

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