Michael E. Kanell

A sign of the times: Ships lined up at US ports

If you want to understand the state of the economy, both the good and the bad, Savannah, Ga.’s port offers a vivid snapshot. The queue of 22 ships waiting to unload Sept. 27 signaled strong demand for goods and the scramble by retailers to stock up as the holiday season approaches. But the nautical backlog — virtually non-existent a few months ago — was also a warning that consumers could see shortages and higher prices, according to supply chain experts. A few months ago, the port was busy enough, but there were often no ships waiting, said Griff Lynch, executive director of the Georgia Ports Authority. “In the spring, it was nothing like this,” he said. In August, the Port of Savannah had its second-busiest month on record, handling 485,595 containers. That was 10 percent higher than the same month a year ago, which was then a record for August. About 65 percent of containers passing the port are imports bound for American companies and consumers. Much of the demand now is pegged to the approaching holidays. But moving all of that cargo isn’t easy. Many other U.S. ports also are backed up. At the giant West Coast ports of Los Angeles and Long Beach, more than 60 ships have been lined up at times this month, part of an unprecedented global bottleneck in moving goods. When ships and trucks and people have to wait, the whole system becomes less efficient and more costly. “The backlogs and delays in ports are very worrisome,” said Pinar Keskinocak, a professor in Georgia Tech’s Stewart School of Industrial and Systems Engineering. With the overall economy growing, incomes up for most people, and discretionary travel still subpar, there is a lot of money for holiday buying, economists say. Despite a still-uncontrolled coronavirus, many retailers are betting on a robust holiday season, and that means trying to stock up in advance. But those efforts are complicated since the world’s supply chain is still struggling to rebalance itself after repeated disruptions more than 18 months into a pandemic. One of the casualties is “just in time” inventories: the pre-pandemic practice in which businesses kept little stock on hand to keep costs down and were able to quickly replenish that stock as needed. “We used to have an efficient system where everything on the supply chain was synchronized,” said Nikolay Osadchiy, an associate professor who teaches supply chain management at Emory’s Goizueta Business School. “Right now, it’s not predictable at all.” The rush to stock up has its own danger, Osadchiy said. What if retailers buy the wrong goods? What if each of their efforts adds up to too much buying? That could mean dropping prices, layoffs and more disruption in the supply chain. The past few months, the highest-profile shortage has been in production of vehicles, which cannot get enough of the silicon chips used in the on-board computers. That scarcity has meant shutdowns in auto assembly plants, including the massive Kia plant in West Point. This holiday’s shortages are least likely in products made in the United States, said Osadchiy. Among foreign-made goods, the most likely shortages are in goods that depend on silicon chips. “With the more complex toys and electronics, we may have shortages,” he said. Yet if ever in the year retailers want to minimize disruption, this is it, said Aleksandar Tomic, associate dean for strategy, innovation and technology at Boston College. “Holidays kind of have a ‘hard deadline’ in the sense that a holiday gift delivered late simply will not do,” he said. “So, retailers are building safety stock. That gives them one less issue to manage come the shopping season.” But much is out of their control. Factories in some parts of Asia are still being shut down to stifle the virus. Some Americans are still stay-at-home employees, which changes their purchases. Meanwhile, front-line workers have been hard to find, making it harder and more costly to handle goods in warehouses or move them by truck. While Savannah isn’t the only port being overwhelmed with shipments, it is one of the few with room to expand. The port is already developing 145 acres to handle containers, and officials announced Sept. 28 that it is investing $34 million to add 230 acres more. But the expansion will take months, and, moreover, the imbalances in the supply chain are global. In the meantime, consumers will likely see the effects of the continued ebb and flow in trade, said Nada Sanders, professor of supply chain management at Northeastern University. “We are going to see rolling bottlenecks for a long time,” she said. “We are going to see shortages. We are going to see higher prices. And we are going to see less choice in product variety.”

Consumers wait or pay more as businesses wrestle supply chain

For months, cars were driven sporadically or not at all. So as the economy reopened, when many people grabbed keys and headed out the door to work, shop or visit with friends, an odd thing happened. Nothing. Many vehicles didn’t start. Others badly needed service. And while that is good for a mechanic’s business, it has been bad for getting the parts needed to do the work all at once, said Kevin Keller, a Norcross, Ga.-based mobile technician for YourMechanic.com. Prices are higher and everything has to be ordered early or the job gets postponed — which has happened, Keller said. “Even for simple stuff, like brake pads, I have to be pre-emptive. I need a fuel pump tomorrow for a Dodge Charger. I better have it today.” The problem — supplies coming up short as demand suddenly rebounds — is widespread. And it means consumers sometimes can’t get what they want right away, or they have to pay more to get it. Inflation as measured by the U.S. Consumer Price Index soared 5.4 percent in June from a year earlier, its fastest pace in 13 years. Prices for used vehicles surged 10.5 percent from the previous month, fueling much of the run-up, amid a global shortage in semiconductor chips used in cars and trucks. But prices on other goods and services also rose sharply last month, from airline fares to apparel. That worries some economists and businesses, who wonder whether it’s time for the Federal Reserve to lift interest rates and choke off inflation. Pressed on the idea, Fed Chairman Jerome Powell told Congress he thinks price spikes will be temporary, but that depends on how long the supply chain’s gears keep grinding. It is, of course, all about the pandemic. Fifteen months ago, business closures and stay-at-home orders triggered shortages of consumer products like toilet paper and yeast. Most kinks got straightened out but reopening the economy jangled the supply chains. Like a machine revving up after running in low gear for months, the multi-trillion-dollar global supply network has bucked, rattled and run rough. Part of today’s problem is the efficiency of the pre-pandemic system, said Pinar Keskinocak, professor in Georgia Tech’s Stewart School of Industrial and Systems Engineering. For decades, supply chains were increasingly designed to be economical, using cost-saving tricks like keeping inventories as low as possible. Supply chains “are not designed for flexibility and responsiveness. They are not like race cars. If you turn to the right or the left, they don’t turn quickly,” she said. The effects run the economic gamut. When Winton Machine in Suwanee, Ga., orders an electrical strip that is a component in the fabrication equipment it makes, it used to wait about six weeks, said Maureen Paige, operations manager. “Now, it is looking like 17 weeks.” Some clients won’t wait — they’d rather change the order, said Dean Collins, president of Axis Companies of Alpharetta, Ga., which designs buildings and manages projects, some of them disrupted by a scarcity of steel bar joists. The joists are used to support roofs. But they are in short supply, which forces Axis to hurriedly redesign buildings for impatient customers, he said. “Maybe we use shorter spans in the building. Maybe we go to wood or use Redbuilt trusses, which are metal and wood.” In a restaurant, a change in supply can make an immediate difference, and not always in a good way. Jose “Pepe” Fundora, co-owner of Casa Nuova Italian Restaurant in Alpharetta, said he has been frustrated by a series of shortages, starting with a French liqueur that has been widely used to make Oysters Rockefeller for decades. “Now it’s out of stock,” he said. “We had to use alternatives and it changed the flavor a little. Some people liked it, some people did not.” And sometimes there’s no substitute. “First, calamari was three times the price, and then I couldn’t even get it,” Fundora said. “I tell the customers that it’s just not available, and they look at me like I’m the bad guy.” Uncertainty about what happens next — and for how long For now, higher prices are a nuisance, not a crisis. But all the added costs have not been passed along. Prices of many materials have climbed far more than most consumers realize, because many businesses thus far have been reluctant to raise prices and risk losing customers. Winton Machine is paying an average of 20 percent more for many parts, but is not passing it along, Paige said: “But we will eventually have to build that in. We want to be profitable, too.” So long as businesses think their higher costs are temporary, they will be slow to raise their own prices, economists say. The danger comes when businesses think even-higher costs are coming and start to raise their prices to get ahead of the curve. As others in the chain follow suit, inflation begins to feed on itself, a process that can be painful to people on fixed incomes, businesses that are locked into long-term contracts and workers who cannot get higher wages. If this were an old-fashioned, overheating economy, manufacturers would want to grab the higher profits, ramping up production quickly. Soon, supplies would exceed demand and prices would drop. This time, the problem is much more complicated. Since demand so far has been partly fueled by government spending and stimulus payments, factory owners aren’t sure they can depend on it, so they are slow to expand, said Aleksandar Tomic, associate dean for strategy, innovation and technology at Boston College. “I think the higher prices are here for six months to a year,” he said. The adjustment also depends on where the goods are coming from. The shorter and simpler the chain, the quicker it will adapt, said Sanchoy Das, supply chain expert at the New Jersey Institute of Technology. “Lumber is a good example,” Das said. “Prices jumped but are now closer to normal.” But chains reaching to Asia are more complex, he said. “Christmas could be a challenge,” he said. Production is off kilter because some factories were closed, and many have had trouble rehiring workers as they reopen and try to adapt to a post-pandemic demand. Distribution too is uneven. Thousands of ships were idled or out of position, while air services were curtailed. And the usual paucity of truckers is worse than usual. “A wide swath — nearly everything — is affected. Nike sneakers, computers, bananas, grain, medical devices, heart valves. It will disentangle itself, but it is not going to happen overnight,” said Ira Breskin, author of “The Business of Shipping” and a senior lecturer at the State University of New York Maritime College. The more complicated the industry, the harder the adjustment. “In capital-intensive industries, it’s not easy to ramp down and then ramp up again. Or with something like pharmaceuticals, it is not just equipment. It is rules, regulation and a trained workforce,” said Georgia Tech’s Keskinocak.
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