US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

Logistics: Logjams at Ports Continue & Supply Chain Challenges Persist

The global economy has been experiencing supply chain challenges since the start of the coronavirus pandemic. Troubles have cascaded from factory shutdowns to shifts in unexpected shifts in demand levels for products and materials to port shutdowns, which result backups and container ships stuck in the “wrong” places as well as challenges in staffing port workers, truck drivers, warehouse personnel, and others. All the way, things were complicated by hoarding, stockpiling, pricing volatility, and severe storms that closed ports or processors of plastic materials or various types of fuel. Whew.

Now, even previously unheard of measures – such as the Port of Long Beach going to 24/7 operations in September and companies (such as Home Depot and Walmart) hiring out their own container ships – are not making for sufficient solutions.

The functional implementation of 24/7 port operations has made the move at the Port of Long Beach not as quick a fix as some hoped. It will be tested further in the coming weeks and months as the Port of Los Angeles also begins 24/7 operations.

Prices to ship a container from Asia to the US remain at historically high levels – reportedly rising from a few thousand dollars per container in mid-2020 to the $20,000-$30,000 range. These costs pose a challenge for large shippers and are effectively impossible for smaller importers, and many guess that these challenges and high prices will extend well beyond the 2021 holiday season and through 2022.

So what’s to be done?

Some companies are rearranging their supply chains, if they can, by shifting needed production to areas that run through less crowded ports or to countries closer to their destination. Those that can do so more easily already have production facilities or relationships with suppliers in these places.

Some companies are ordering earlier and stocking up. Is this the end of just-in-time supply? At least for now, it is. Of course, this requires having the warehouse space available and the data needed to plan further in advance for stocks, parts, and material inputs.

Some are pivoting their business. Those that can backward integrate into parts production or materials supply are looking at ways to do that. Those that can operate in a related field or shift production to something that is needed locally and right away (e.g., personal protective equipment) are doing so.

Some companies are waiting it out. This requires longer waits for needed parts, materials, packaging, or products and often higher prices to customers. The kinks in the supply chain will eventually work themselves out… just not as quickly as many would prefer.

Freedonia analysts will continue monitoring the effects of the supply chain challenges and the pivots businesses are making to keep operations moving as smoothly as possible.

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