The supply chain crunch, modern logistics, and that famous trip around the Port of Long Beach
N.S.: The supply chain crunch has been the biggest economic story in the world for about a year now, causing inflation and throwing the Biden administration’s plans into disarray. What sparked the supply chain crunch? How much of a factor was increased demand for physical goods due to the pandemic? Were shifting trade patterns at all to blame? Basically, why now?
R.P.: The supply chain crunch was started by increasing demand for goods, as consumers stopped spending on services. Americans in particular had more money in their pockets because they weren’t going on trips, spending at restaurants and bars, or attending concerts. Instead as city after city started enforcing lockdowns and restrictions, people started spending a lot more goods and not services. You’ve got to get your dopamine somewhere. So what we saw was an unprecedented increase in imports from China—as much as 20% more containers entering the United States than were leaving our ports since the start of the pandemic. It turns out, our infrastructure is just not made to scale this fast, and by infrastructure what we mean is the entire ecosystem: The number of container ships in the world, the number of containers available, the throughput of our ports, the availability of trucks and truck drivers, the availability of chassis (the trailers that haul containers around), the entire system is overwhelmed and clogged. We simply don’t have enough of these essential supply chain elements, or resilient systems that are agile enough to shift the supply of these assets to where they’re needed.
While the pandemic drove this shift in demand from services to goods, it also changed where consumers were buying goods (increasingly online), the types of goods they were buying, and where those goods were flowing to and from. One thing to note is that e-commerce logistics networks are fundamentally different in their geographical and physical space than that of traditional retail. They’re more complicated because you are edge caching your inventory to be closest to your users instead of positioning everything in a distribution center in a single hub. You now have to position your warehouses all over the United States, making it exponentially more complicated. So the more people bought things online, the more these systems were overloaded.