Check It Out: Why the disruption in supply chains?
By Joan Janzen
joanjanzen@yahoo.com
How many supply chain planners does it take to change a light bulb? None. The light bulbs are late and not shipping.
We’ve all seen news reports of cargo ships waiting offshore, and heard reports advising shoppers to buy their Christmas gifts early. Closer to home, we’ve heard friends say they’ve been waiting many months for the appliance they ordered.
Ross Kennedy, a logistics expert and 15 year veteran in the supply chain industry, helped explain the situation. As someone who is paid to move things from point A to point B, he said the past few months have been a wild ride.
People began to notice when a giant steel ship, 400 meters in length, blocked the Suez Canal when it turned sideways, wedged into the bank of the canal. Now we’re seeing thousands of shipping containers across the world unable to unload their supplies at ports; a serious problem since 90% of global trade moves on water.
Kennedy said these problems started in January, 2020 when China had their annual shut down for their new year, however the shutdown was extended to eight weeks because of the pandemic. “A lot of people in China who work in manufacturing leave the city to celebrate the new year with their families, which takes days of travel to return back to work. Meanwhile purchase orders from American companies were still coming in, so there were delays,” he explained.
He also explained that it costs between $50,000 - $100,000 per day to operate the big ships. During this shutdown, the ships couldn’t afford to wait around. “They moved to places like Vietnam where goods were still being produced, shipping goods to Europe,” he said. But it took weeks to get crews and vessels lined up once China began ramping up production as fast as possible. Twenty percent of everything we consume is made in China.
“By the time the shipping industry got their full capacity back in July, rates had already doubled. Clearing the backlog of goods from China was a slow process,” Kennedy said, since there was no way to ship the goods. And there were more contributing circumstances ...
People who were stuck at home, unable to travel or even work, began renovating their homes and replacing furniture. “Spending changed from activities to buying products that required shipping containers, which further complicated the problem,” Kennedy said.
An additional complication was reports of ongoing power disruptions at warehouses and manufacturing facilities in China. In response, officials began rationing power to factories, cutting back operation days to one or two days a week. Kennedy predicted future power disruptions in 2022, at which time industries which are considered critical will be favoured. Those industries include auto and ship building, petrochemicals and medical and metal processing. However home goods, garments and electronics would likely receive the least support, which will impact retailers in North America who are already falling short on inventory.
Kennedy explained that shipping costs have also increased substantially. “Ocean carriers get paid by the shipper or receiver to move the goods. To get a container from China to a warehouse in Chicago used to cost $4500. That same container is now going to cost $23,000,” he said. “It’s five or six times more expensive, an enormous increase for companies,” Kennedy said.
More expensive products, or unavailable products all have the same root cause, according to Kennedy. That cause is the supply chain and anything that is disruptive in that supply chain. But what is a solution?
As a result, shoppers are looking to buy more products locally. For example, “People are looking to buy their meat from a local farmer. Moving supply chains to the local level will become more common.” Kennedy said.
A shortage of goods on our shelves could have a positive impact in our communities if shoppers begin to seek out local suppliers for the products they need.
You can contact me at joanjanzen@yahoo.com