Holiday season is likely to be affected
The pandemic not only can affect your health, it can affect your wallet too. If you strolled through any store lately, you’ve most likely noticed that shelves have been looking quite sparse these days. With the holiday season quickly approaching there is no guarantee those shelves will replenish anytime soon, which has some concerned.
Toy company Hasbro reported approximately $100 million in orders were not filled in its third quarter due to port congestion and other supply chain issues, which resulted in a hit to operating profit as a result of lower sales and higher freight costs. Other companies are also facing the same issue.
So why is this happening now when it seems that the pandemic is starting to subside once again? It’s simple. There are not enough supplies to meet the consumer’s demands now that people are returning to more normal life activities, which is now causing inflation. Factories and manufacturers in Asian countries such as Vietnam, China, South Korea and Taiwan—where most of the world’s manufacturing capacity is—were hit particularly hard by COVID-19. Factories were forced to shut down or reduce production because of the rampant caseload of virus those countries experienced. Now that factories are starting to slowly reopen, it’s a game of catch-up.
“We have disruption in the supply at the same time demand is through the roof,” U.S. Commerce Secretary Gina Raimondo said. “The bottom line is that it’s frustrating for Americans who see prices higher or lead times longer.”
The fact that there is a record number of people quitting their jobs is also complicating things. Approximately 4.3 million Americans quit their jobs in August—the most since the Department of Labor started tracking this data in 2000. In July, the Labor Department reported that the warehouse industry had a record 490,000 job openings. With so many openings, companies like Walmart, Target and Amazon are trying to get workers by offering them benefits as well as free college tuition.
The lack of truck drivers to transport goods once they’re finally offloaded from the dock is also complicating matters. According to the American Trucking Association (ATA), the U.S. has a shortage of around 80,000 truck drivers—a record high within the industry. According to Goldman Sachs, more than 30 million tons of cargo await delivery ahead of the Thanksgiving to Christmas rush, which makes images being shown of container ships floating in the Pacific and Atlantic oceans waiting to unload its cargo all the more daunting.
The White House has now decided to step in to try and alleviate the bottlenecking of goods coming into ports.
“As long as the pandemic continues, we’re going to see all kinds of disruptions,” United States Secretary of Transportation Pete Buttigieg said. “If COVID shuts down a port in China or a shoe factory in Vietnam in September, you’re going to notice that in the mall in December or January. [We’re] working with the ports to get them open 24/7, which hadn’t been the norm until now, and [we’re] working to make it easier for truck drivers to get commercial driving licenses and cut out some of that red tape to get those goods flowing.”
The Biden Administration has also pondered whether or not to use the National Guard to help unload cargo at the ports and even drive trucks if needed.
The supply chain shortage, as well as inflation, is expected to last at least through the middle of next year.
‘The Butterfly Effect’
Joseph Sarcona III of Manhasset has a front row to the problems of supply and distribution.
He is the third generation of his family to run JJS Transportation, a trucking company that owns import and export warehouses and operates at metropolitan area airports and shipping ports. Its approximately 200 employees and 100 tractors and box trucks serve customers in the tri-state area as well as Pennsylvania.
According to Sarcona, the problems customers have had with the delays in ocean shipping, which typically take a month to travel from Pacific rim countries, have made them turn to the more costly air freight. He has seen huge backups at Kennedy Airport due to labor and trucking shortages.
In addition, the bulk of air freight is carried on Boeing 747s and JFK is the only airport in the metropolitan area where the giant aircraft can both take off and land, exacerbating distribution issues.
He noted that holidays like Halloween and Thanksgiving are time sensitive, and the value of holiday-themed products plummets if they are not sold beforehand, putting pressure on distributors in getting them into the hands of the consumers.
The sharp drop in passenger plane travel has also had a material effect on the supplies, he said, because commercial flights carry cargo as well.
There is an incredible level of interconnectedness around the global supply chain, he said, likening it to the “butterfly effect,” the theory that the beating of a butterfly’s wings start a process that will result in a hurricane in another part of the world.
Traveling to his company’s warehouse in Elizabeth, NJ, he has seen the container ships waiting to unload.
“Each container ship carries 10 to 12,000 containers—and each container is a truck,” he pointed out. “It’s quite amazing that ports, which are heavily automated, can unload an entire ship within 48 hours.”
There is still a massive amount of freight coming in, he said, but because of the labor shortage and trucker shortage it’s outstripping the ability of airlines and shipping ports to handle it in a timely manner.
In normal times the supply chain takes six to eight weeks from order to delivery. These days, he said, its more like nine to 14 weeks.
Regarding the future, Sarcona said, “People will have to rethink the distribution model and the time period in which goods and services are delivered.”
He gave kudos to the people in his industry who have had to deal with an unprecedented situation and challenges.
“They are working so incredibly hard,” he said. “We’ve been incredibly proud of the workers and team members at places like JJS. They have selflessly given their effort to work at unprecedented levels. They’re being innovative in working with each other and are working long hours in very difficult conditions. The people who work for JJS have done an unbelievable job and it has brought forth more of a team feeling.”
-Anthony Murray contributed additional reporting