Retail

Biden announces measures at major ports to battle supply chain woes


WASHINGTON: President Joe Biden announced Wednesday that the Port of Los Angeles will operate around the clock and major companies including Walmart, UPS and FedEx would expand their working hours as his administration struggles to relieve growing backlogs in the global supply chains that deliver critical goods to the United States.

Product shortages have frustrated American consumers and businesses and contributed to inflation, which threatens to hurt the president politically. And the problems appear poised to worsen, enduring into late next year or beyond and disrupting shipments of necessities like medications as well as holiday purchases.

Biden said Wednesday that the moves would almost double the number of hours that the Port of Los Angeles is open for business, in an effort to resolve a logjam that has slowed the shipment of manufactured goods from Asia. He praised the role of the International Longshore and Warehouse Union in stepping up to work extended hours and also urged the passage of an infrastructure bill that would make significant investments in ports, roads and factories for the longer term.

“In order to be globally competitive, we need to improve our capacity to make things here in America while also moving finished products across the country and around the world,” he said. Samsung, The Home Depot and Target also committed to moving more products at night to help ease congestion at the Port of Los Angeles and the nearby Port of Long Beach, which together handle 40% of the shipping containers imported into the United States, the White House said.

But it is unclear how much the White House’s efforts can realistically help. The blockages stretch up and down supply chains, from foreign harbors to American rail yards and warehouses. On Wednesday, 25 container ships were anchored in the Port of Los Angeles waiting to unload their cargo, and the average anchorage time had stretched to more than 11 days. Analysts say some of these issues are worsening, and may last into late next year or even 2023.

Michael Farlekas, the chief executive of supply chain firm E2open, said that extended hours would help, but “I don’t think that’s going to materially move the needle. Some of the issues are just basic supply and demand issues.”

Consumer demand for exercise bikes, laptops, toys, patio furniture and other goods is booming, fueled by big savings amassed over the course of the pandemic.

Imports for the fourth quarter are on pace to be 4.7% higher than in the same period last year, which was also a record-breaking holiday season, according to Panjiva, the supply chain research unit of S&P Global Market Intelligence.

The pandemic has shut down factories and slowed production around the world. Port closures, shortages of shipping containers and truck drivers, and pileups in rail and ship yards have led to long transit times and unpredictable deliveries for a wide range of products — problems that have only worsened as the holiday season approaches. Home Depot, Costco and Walmart have taken to chartering their own ships to move products across the Pacific Ocean.

The Port of Long Beach began implementing a pilot program to extend its hours overnight in late September. Many other major foreign ports already offer round-the-clock service.

The shortages have helped stoke inflation that is chilling consumer confidence and weighing on Biden’s approval ratings. On Wednesday, the Labor Department announced that the Consumer Price Index, a key reading of monthly inflation, jumped 5.4% in September when compared with the prior year, raising the stakes for the White House and the Federal Reserve.

Jennifer McKeown, the head of the Global Economics Service at Capital Economics, said that worsening supplier delivery times and conditions at ports suggested that product shortages would persist into mid- to late next year.

“Unfortunately, it does look like things are likely to get worse before they get better,” she said.

McKeown said governments around the world could help smooth some shortages and dampen some price increases, for example by encouraging workers to move into industries with labor shortages, like trucking.

“But to some extent, they need to let markets do their work,” she said.

Phil Levy, the chief economist at the logistics firm Flexport and a former official in the George W. Bush administration, said a Transportation Department official gathering information on what the administration could do to address the supply chain shortages had contacted his company. Flexport offered the administration suggestions on changing certain regulations and procedures to ease the blockages, but warned that the problem was a series of choke points “stacked one on top of the other.”

“Are there things that can be done at the margin? Yes, and the administration has at least been asking about this,” Levy said. However, he cautioned, “from the whole big picture, the supply capacity is really hard to change in a noteworthy way.”

Administration officials acknowledged on Tuesday in a call with reporters that the problems were global, and that private companies would have to lead the way. They also acknowledged that the $1.9 trillion economic aid package Biden signed into law in March had contributed to supply chain issues by boosting demand for goods, but said the law was the reason the U.S. recovery has outpaced those of other nations this year.

The shortages have come as a shock for many American shoppers, who are used to buying a wide range of global goods with a single click, and seeing that same product on their doorstep within hours or days.

The political risk for the administration is that shortfalls, mostly a nuisance so far, turn into something more existential. Diapers are already in short supply. As aluminum shortages develop, packaging pharmaceuticals could become a problem, said Robert Handfield, a professor of supply chain management at North Carolina State University.

And even if critical shortages can be averted, slow deliveries could make for slim pickings this Christmas and Hanukkah.

“I think Johnny is going to get a back-order slip in his stocking this year,” Handfield said.

Discontent is only fueled by the higher prices the shortages are causing. Consumer price inflation climbed by 5.4% in the year through September, data from the Bureau of Labor Statistics showed Wednesday. The rate was more than expected in a Bloomberg survey of economists and faster than its 5.3% increase through August. Before the pandemic, that inflation gauge had been oscillating around 2%.

Officials at the White House and the Federal Reserve, which has primary responsibility for price stability, have repeatedly said that they expect the rapid price increases to fade. They often point out that much of the surge has been spurred by a jump in car prices, caused by a lack of computer chips that delayed vehicle production.

But with supply chains in disarray, it is possible that some new one-off could materialize. Companies that had been trying to avoid passing on higher costs to customers may find that they need to as higher costs become longer lived.

Others have been raising prices already. Tesla, for instance, had been hoping to reduce the cost of its electric vehicles and has struggled to do that amid the bottlenecks.

“We are seeing significant cost pressure in our supply chain,” Elon Musk, the company’s chief executive, said during an annual shareholder meeting Oct. 7. “So we’ve had to increase vehicle prices, at least temporarily, but we do hope to actually reduce the prices over time and make them more affordable.”

For policymakers at the White House and the Fed, the concern is that today’s climbing prices could prompt consumers to expect rapid inflation to last. If people believe that their lifestyles will cost more, they may demand higher wages — and as employers lift pay, they may charge more to cover the cost.

What happens next could hinge on when — and how — supply chain disruptions are resolved. If demand slumps as households spend away government stimulus checks and other savings they stockpiled during the pandemic downturn, that could leave purveyors of couches and lawn furniture with fewer production backlogs and less pricing power down the road.

If buying stays strong, and shipping remains problematic, inflation could become more entrenched.

Some of the factors leading to supply chain disruptions are temporary, including shutdowns in Asian factories and severe weather that has led to energy shortages. Consumer habits, including spending on travel and entertainment, are expected to slowly return to normal as the pandemic subsides.

But most companies have enormous backlogs of orders to work through. And company inventories, which provide a kind of insulation from future shocks to the supply chain, are extremely low.

To get their own orders fulfilled, companies have placed bigger orders and offered to pay higher prices. The prospect of inflation has further encouraged companies to lock in large purchases of products or machinery in advance.

“The customers that are willing to pay the most are most likely to get those orders filled,” said Eric Oak, an analyst at Panjiva. “It’s a vicious cycle.”



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