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Stop, start and reinvent the supply chain

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Supply chain is too proper a name for the global choreography that brings raw materials to factories, produces goods of all kinds, and transports them around the world to consumers.

And to say it’s broken is too simple.

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Through a single lens, and despite all the talk that evokes images of closure, the supply chain is disconnected like never before.

According to the Global Port Tracker, produced by the National Retail Federation and Hackett Associates, US ports are on track to handle the equivalent of 26 million 20-foot containers, up 18.1% from last year. It would be a new annual record, exceeding the high water mark set last year despite the pandemic.

The supply chain hasn’t stopped, but it has certainly lost its momentum with thousands of small disruptions reverberating through the system.

COVID-19 has closed factories in Vietnam and Indonesia, containers pile up in US ports and are scarce in China, ships wait at sea for a place to unload at key ports, workers don’t care about maritime jobs badly paid, microchip shortages slow down the system, and so on.

Part of that is a slow reboot, the aftermath of unprecedented coronavirus lockdowns that have essentially shut down much of the economy.

And part of it is an overloaded system as it reboots and catches up.

Despite everything, the United States retail sales rose 20% to $ 4.3 trillion through August, a massive rebound that came on top of a 1% increase a year earlier when lockdowns took hold.

The trend is similar, though more dramatic, in fashion. Sales at specialty brick-and-mortar clothing and accessories stores have fallen 33% in the first few months of 2020 and have rebounded with a 64% increase so far this year. Department store sales fell 17% in the first nine months of 2020 and returned with a 22% increase this year.

The supply chain is not only hampered by shortages, its race to keep up with the unprecedented peak of consumer spending that accompanied government stimulus checks and a life lived closer to home.

For a system that has spent decades optimizing a just-in-time, lean approach, that’s just too much of an economic move.

Supply chains are very finely calibrated instruments, said John McQuiston, responsible for structuring and managing global receivables programs and trade finance activities at Wells Fargo. Rule number one is you don’t have inventory. This is because it equals money. The less inventory I have to hold, the less money I have to spend. These supply chains are finely calibrated thanks to this dynamic of control as little as possible. Broadly speaking, in a $ 19 trillion macroeconomy, this has an effect.

If you finely calibrate for 2 to 3 percent ups and downs and go down 15 percent to 30 percent, you start to get these vast distortions, McQuiston said. It’s not broken, it’s been stretched beyond the tolerance it was built for. It was never built to have this kind of gyrations.

Add to that a shortage of workers with the necessary skills or the willingness or need to return to work, or take a new job and even bigger changes could be in sight.

Now that the supply chain is such an obvious problem, businesses and the highly technical next generation will surely be looking for solutions.

There is a possibility that there is a de-globalization movement, McQuiston said. Maybe I just did it here. Maybe I just did it on the street in the UK Midlands or Ohio. There’s going to be pressure on governments to increase immigration to bring in the workforce. There’s going to be the pressure to better educate the local workforce. Finally, if the port is full, a new port has to be built for 100 billion dollars, which will take 50 years.

The global economy is much more innovative than you might think, he said. It will respond, that’s how fast it responds and how it moves. It comes down to hundreds of millions of individual decisions.

So in the long run, there is a possibility that this coal shortage that has kept a factory in China in the dark or that container stacked in the port of Long Beach when it should be halfway around the world. leads to something new perhaps a new kind of approaching the domestic manufacturing sector which relies more than ever on automation. Or something else.

The world has changed, President Joe Biden said, addressing the supply chain crisis. Before the crisis, we applauded the emphasis on lean and efficient supply chains, leaving no buffers or margins for error.

We need to take a longer-term view, however, which invests in building greater resilience to withstand the kinds of shocks we’ve seen time and time again, year after year, whether it’s the pandemic, extreme weather conditions, climate change, cyber attacks or other disruption, he said. noted. Research tells us that a business can expect to lose over 40% of its one-year profits every 10 years due to supply chain disruptions.

In the short term, the traffic jam must break.

To help with that, Biden struck a deal to keep the Port of Los Angeles open 24 hours a day, putting it in sync with its neighbor in Long Beach. Walmart has also pledged to move its products from ports to its stores with a 24/7 mindset, with plans to increase off-peak usage by 50%.

For now, it looks like it will just take time for the vast global trading machinery to fall back into a rhythm.

Projected that import volumes would remain strong in the first half of 2022, said Daniel Hackett, partner at Hackett Associates, and a force behind the Port Tracker. Until consumers stop spending, warehouses will have to keep bringing in more goods, and they arrive through ports. The ports do an incredible job.

There is the chance of a respite with the Chinese New Year in February.

Seen the new year as a potential time to catch up, Hackett said.

Normally, factories in China close as workers return home to be with their families. If that happens this time around, the system might have a rhythm to catch up. (It’s still a big if since many factories have remained open this year to avoid travel and fight COVID-19.)

Everything is so interconnected that it will just take time, Hackett said. There is no magic wand.

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