Wed. May 25th, 2022


It turns out I was a few months too early when I left last October thought that “supply chains” could be retired by Chinese new year as a blanket excuse for why everything is late and expensive. But here we are, a few weeks away from vacation, and there are still ships waiting along the coast and annoying shortages continuing.

I was not completely wrong then. For about two weeks in October, the prices and availability of both container vessels and the “dry mass” trucks that roll over commodities such as iron ore and coal have been tumbling. It seemed as if the world could return to normal by mid-February.

And indeed, the Baltic Dry Index of bulk cargo shipping prices continued to decline, from a high of more than 5,000 at the beginning of October to a little over 1,500 today. This is confirmed by weak iron and metallurgical coal prices and declining shipments.

It’s encouraging, but most end products or parts we need come in containers, and deliveries of those boxes are still delayed during transportation. Why did it take so long to get these parts of the global supply chain right?

The most serious post-October supply chain challenge is the spread of the Omicron variant. This has exacerbated skilled labor shortages that have converged around the world.

However, according to experts in public health and logistics, it appears that recovery from its effects and contagion will be faster than was the case with earlier variants. The staff shortages should therefore start to improve next month.

Second, even though ships outside California ports became the iconic images of supply chain problems, the more serious and protracted tangles were in land transportation. Omicron absences have affected the availability of truck drivers, but there are other complications, the most serious of which can be attributed to policy failures.

In America, the Biden administration set a massive own goal in May 2021 when it was approved 221 percent rates on truck chassis imported from China. Chassis, in this context, refers to the relatively simple structures attached to the back of a truck that allow containers to be transferred directly from a ship or onto a railroad.

These low-tech assemblies are essential for the “intermodal” transportation that has transformed global supply chains. According to Lars Jensen, a container shipping specialist in Copenhagen, “the chassis shortage has become a debacle”.

The chassis rates were a residual Trump administration ‘Buy American’ proposal that could have been scrapped in the name of pandemic recovery. But no. And the resulting undercarriage shortage has led to parts and goods backlogs around the world.

Tim Denoyer, a truck analyst at ACT Research, a surface transportation consultant in Indiana, explains: “We had already underinvested in chassis by 2019, and the onset of the pandemic dampened demand. Then the tariff was introduced in May last year and it tripled the cost of the chassis overnight. ”

American manufacturers needed time to increase their own production. Already, according to Denoyer, “the population of chassis is already 4 percent to 5 percent below the previous peak in 2018. We are now building American chassis at a rate of 2,000 or 3,000 per month, but with a total market of 500 000 chassis, it will take time to meet our requirements. ”

The undercarriage shortage means it is not possible for trucks to pick up enough containers at U.S. ports, and to bring back the empty containers. It also puts more strain on the rail transport system. Jensen says there are cases of importers picking up containers and leaving them on chassis in parking lots, which exacerbates the shortage.

And because the containers do not move faster, ships wait on global routes in port or sail more slowly to save on port costs. So the American undercarriage is reverberating all over the world. But the White House got the “announcement value” to set its rates.

Europe has its own policy failures, starting with Brexit paperwork and immigration restrictions that have exacerbated staff shortages. China’s drastic zero-tolerance Covid policy at ports has also contributed to delays. But this practice has begun to decline, according to logistics and shipping experts. Infections detected in parts of a Chinese port are less likely to lead to total shutdown.

Even after the truck chassis arrives and Omicron infections decrease, there will be higher energy prices and spot shortages of commodities. But by the second half of this year, global supply chains should finally unravel.



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