It seems I was a few months early when I thought last October that “supply chains” might shut down until Chinese New Year as a blanket excuse for why everything is late and expensive. But here we are, a few weeks before the holidays, and ships are still waiting offshore and annoying bottlenecks persist.
I wasn’t entirely wrong then. For about two weeks in October, prices and availability of both container ships and “dry bulk” carriers, which transport commodities such as iron ore and coal, skyrocketed. It looked like the world might actually get back to normal by mid-February.
Indeed, the Baltic Dry bulk carrier price index has fallen further, from a peak of over 5,000 in early October to just over 1,500 today. This is confirmed by weak iron and metallurgical coal prices and declining supplies.
This is encouraging, but most of the final products or parts we require are shipped in containers, and the delivery of these boxes is still delayed during transit. Why has it taken so long to fix these parts of the global supply chain?
The biggest challenge for the supply chain after October is the proliferation of the Omicron variant. This has exacerbated the skills shortage that has become interlinked around the world.
However, according to public health and logistics experts, it appears that recovery from the effects and infectivity will be faster than has been the case with previous variants. So this staff shortage should improve next month.
Second, although the ships off California ports have become the iconic images of supply chain problems, the more serious and longer-lasting entanglements have been overland. Omicron outages have impacted truck driver availability, but there are other complications, the most serious of which stem from policy failures.
In America, the Biden administration scored a massive own goal in May 2021 when it approved 221 percent tariffs on truck chassis imported from China. Chassis in this context refers to the relatively simple structures attached to the rear of a truck that allow containers to be transhipped directly from a ship or onto a rail car.
These low-tech assemblies are essential to the “intermodal” transportation that has revolutionized global supply chains. According to Lars Jensen, a container shipping specialist in Copenhagen, “the chassis shortage has become a debacle”.
The chassis tariffs were a holdover from the Trump administration’s “Buy American” proposal, which could have been shelved in the name of pandemic recovery. But no. And the resulting shortage of chassis has resulted in parts and merchandise backlogs around the world.
Tim Denoyer, trucking analyst at ACT Research, an Indiana-based ground transportation consultancy, explains, “We underinvested in chassis back in 2019, and the onset of the pandemic dampened demand. Then tariffs came in May last year and that tripled the chassis cost overnight.”
US manufacturers needed time to ramp up their own production. According to Denoyer, “The chassis population is already 4 to 5 percent down from the previous peak of 2018. We are now building American chassis at a rate of 2,000 or 3,000 a month, but with a total market of 500,000 chassis, it will be some time before we can build ours Meet requirements.”
Due to the chassis shortage, it is not possible for trucks to pick up enough containers in US ports and bring back the empty containers. This also puts more strain on the rail transport system. According to Jensen, there are instances where importers pick up containers and place them on chassis in parking lots, compounding the shortage.
And because containers don’t move faster, ships on global routes wait in port or slow down to save on port fees. So the shortage of US chassis is echoing around the world. But the White House got “announcement value” to impose its tariffs.
Europe has its own political failings, starting with the Brexit paperwork and immigration restrictions that have exacerbated staff shortages. China’s drastic “zero tolerance” Covid policy in ports also contributed to delays. However, according to logisticians and shipping experts, this practice has gradually subsided. Infections detected in parts of a Chinese port are less likely to lead to total shutdowns.
Even after the truck chassis arrive and the Omicron infections subside, there will be higher energy prices and punctual raw material shortages. But in the second half of this year, global supply chains should finally unravel.
