More on the Supply Chain Crisis

I also wanted to draw your attention to this interview at the Wall Street Journal of logistics economist Philip Levy. Some interesting observations:

The typical transit time for a container in pre-pandemic days was 71 days, Mr. Levy says. That’s how long it took for a full container to depart from Shanghai; discharge in Los Angeles; proceed to a warehouse near, say, Chicago; get trucked empty back to California; and then return to Shanghai. The current transit time is 117 days or more. The greatest delays are in the U.S., owing to port bottlenecks and trucking shortages. The Los Angeles to Chicago leg, for instance, now takes 22 days, 12 more than before. It takes 33 days for the empty container to return to California, compared with 20 in the old days.

Not only does it take much longer to import goods, it’s also become eye-wateringly expensive. “Where it might have cost $1,500 to move a container across the Pacific,” Mr. Levy says, “you’re seeing them go for more like $15,000 per container.”

This surge in transport costs has hit lower-value goods hardest and made quick restocking all the more of a challenge. Mr. Levy talked to a company that sells office supplies. “They were moving a container whose contents were in the order of $15,000 in value. Well, if that now costs $15,000 to move, you have a problem, right?”

The pandemic is at the root of the supply-chain crisis. Covid-19 has led to work disruptions at factories and ports in China, with quarantines and shutdowns hitting the production and movement of goods. Mr. Levy cites the monthlong shutdown owing to Covid cases in May 2021 at the Chinese port of Yantian, which handles a third more volume than the Port of Los Angeles.

“It’s one of the major Chinese ports. And every time you shut down at one of those places, you’re interrupting the flow of containers.” Buildups and backlogs accumulate. “How do you ever work them down?” Ports have fixed capacity: “You can’t suddenly process twice or three times as many ships once a lockdown is lifted.”

Ninety percent of all exported goods move over the ocean. These include not only finished goods but also parts. “So even if you’re manufacturing in the U.S.,” Mr. Levy says, “the odds are you’re using some imported parts.”

Ports are built “so you can just meet peak demand.” It’s too expensive to build at excess capacity, “because then most of the time you’d have lots of extra stuff sitting around.” The peak season is August through November, “when it’s, ‘How do you stock store shelves for the holidays?’ ” The problem is that a system that can “barely handle” a normal peak season has seen “above peak demand for about an entire year and a half,” placing it under “a cumulative strain it wasn’t really built for.”

A major cause is what Mr. Levy calls “the defining economic characteristics of the pandemic.” There has been a “marked tilt” in buying behavior, a shift from services toward goods. “We still buy more services than goods, don’t get me wrong,” he says. But whereas U.S. consumers spent 69% of their money on services before the pandemic and 31% on goods, the breakdown now is more like 65% to 35%.

Nearly every bullet point highlighted in that interview highlights issues that can only be addressed by the government at one level or another. All U. S. ports are owned and operated by governments (one of the reasons I chuckle when people who should know better complain about socialism—we’re already plenty socialistic, they just don’t think of it that way). The reasons that we import so much to begin with is largely due to federal trade policy. And sustaining consumption during the pandemic which impelled the transition from services to goods was explicit government policy. It just had unforeseen consequences.

The remedy for bad government policies is not no government intervention. That’s wishful thinking like that old joke about “Get government hands off my Medicare!”. It’s better policies.