We’ve all heard it. The supply chain is broken. Everyone is pointing fingers. Here is what is happening and where it needs to improve before we can expect relief.
What is the Supply Chain?
In 1958, economist Leonard Reed wrote a short groundbreaking essay on the miracle of capitalism entitled, “I, Pencil.” Everyone should read it. In the essay, Reed describes how materials come together from all over the world to make a common pencil. This is the global supply chain.
In the 1980s, the biggest management fad was just-in-time manufacturing (JIT), where work-in-process inventory (WIP) was eliminated in factories, and parts were made just-in-time for the next step in the manufacturing process. JIT exposed quality problems before piles of WIP were created and needed to be scraped if there was a problem. This was then extended outside of the factory and stretched around the world.
The global supply chain was like a series of teeter-totters, all coordinated so that when the end of one was up, the start of the next was up to match and its end was down, matched by the next teeter-totter, and so on. As long as they worked synchronized, they worked well. With COVID, they got jumbled.
Now, the owner of each teeter-totter is pointing fingers at the one ahead and the one behind. Each is blaming the other. It’s an out-of-sync mess.
The State of Supply
The global supply chain is completely out of balance. Container ships are parked for weeks off West Coast ports waiting to be off-loaded. Longshoremen have long prevented automation to preserve union jobs. Automation would come in handy now, but it would take more time to install than we have.
Ports are working at two thirds capacity. Politicians boast about 24 hours activity, but it turns out that’s limited to a single terminal for Monday through Thursday, according to a Washington Post report.
Supply will achieve equilibrium, but not before 2023.
Ports have good reasons to avoid 24-hour operation in the current environment. Once they offload ships, railroads and trucks need to be available to receive the containers. If they are not ready to take them and go, there needs to be a place to stack the containers. The temporary storage areas are nearly 99% full.
I, Pencil
Truckers need places to stack the empty containers they are returning, which is a requirement. There’s no place because the ports have stacked full containers there. California laws like AB5 that targeted the gig economy, ended up impacting trucking owner-operators as a consequence, intended or not. The California Air Resources Board is mandating that all trucks are 2011 or newer, further restricting capacity. It is unknown how much impending vaccine mandates will impact the port and shipping labor.
Under these conditions, it would make sense to turn to rail. Waits at railheads are running 10 to 20 days.
The government’s press toady recently proclaimed that supply chain problems result from the extra cash people have, which is causing excess demand. So, it’s really a good problem, says the toady with a straight face. And yes, the beatings will continue until morale improves.
In truth, the number of import containers handled by the Port of Los Angeles in September was 1% less than a year ago. We do not have a demand problem. We have a leadership problem. Our Secretary of Transportation recently attended a conference in Scotland on climate change. Thus, we have no leadership and no near-term hope.
What You Can Do
The supply chain will eventually achieve equilibrium. For contractors, this cannot happen soon enough. Unfortunately, it likely won’t happen before 2023. This means a continuation of the policies of 2020.
Most of all, channel Winston Churchill and “never give up.” If the past couple of years have shown anything they have shown that consumers need you and you can prosper serving them even while the rest of the world goes insane.
Increase your odds of surviving and prospering by joining the Service Roundtable, HVAC’s largest and most affordable best practices group. Learn more at www.ServiceRoundtable.com.