A LOOK AT THE GLOBAL SHIPPING CRISIS

Global supply chains have been suffering over the past few months – with cargo containers piling in up in seaports and incoming container ships being forced to wait at sea before they can be unloaded, due to the ever-growing backlog of work in ports.

Meanwhile, stores and manufacturers are waiting for those goods to be delivered, leading to product shortages and manufacturing constraints. And these problems are only going to be exacerbated as holiday shopping draws ever closer.

Just how did this crisis start, and what effects will it have on the economy going forward?

According to MHCC economics instructor Peter Cunningham, this is in part resultant of U.S. and multinational firms shifting production to China and other emerging nations to reduce labor costs during the time of globalization in the early 2000s, and the disruption that the COVID pandemic drove into that system.

“During normal times when shipping costs are minimal, (many) firms can have products and components arrive ‘just in time’ to be integrated into finished products, Cunningham said. The pandemic significantly reduced demand in certain industries, which led to reduced shipments.”

The ‘just in time’ model described operates on the idea of responding to demand by ordering supplies only as needed – with a narrow turnaround time – to avoid the cost of maintaining warehouses for storage. As a result, there is not a surplus of products that can be relied on when demand quickly surges, and as such the shift from low demand during the pandemic to high demand these past few months is a major contributor to the shipping crisis.

However, the pandemic also worsened a nagging problem that had slowly been growing in the background. The issue illuminated is a shortage of truck drivers, which has contributed to products getting stuck in ports and warehouses, anotherheadache that other countries, suchas the UK, are experiencing.

While the pandemic has contributed to the shortage by worsening working conditions, two noteworthy factors in America, low pay and retention, are the result of federal deregulation of the trucking industry in 1980.

“All of these transportation industries have been slowly deregulated since the 1970s and we are seeing the impact now,” Cunningham said. Pay for truck drivers prior to deregulation was 50% higher than currently, with the current median annual wage as of 2020 in the United States being $47,130 according to the Bureau of Labor Statistics.

While truck fleets are now raising wages and offering bonuses to entice new workers, Cunningham predicts there will be a shift of focus by the federal government to re-regulating this key transportation industry. Unless working conditions, pay for, and retention of long-haul and port truck drivers improve, this will be a major factor that will continue to perpetuate the shipping crisis.

While some ocean-spanning ships are trying to avoid the most congested U.S. ports by detouring to ports such as those in Portland, the strategy of U.S. retail giants to circumvent the shipping crisis so they can prepare for the holiday shopping rush could only worsen the crisis. Their attempted solution? Chartering their own vessels. While this ensures their goods can get across the sea and provides cargo liner firms a lucrative opportunity, this will only serve to put strain on the already short supply of truck drivers here.

As for how the ongoing shipping crisis will impact the global economy, the one headache most people in America will experience firsthand is soon paying higher prices for high-demand products.

“We are seeing gas prices creep up every week at the pumps as one high-profile indicator,” Cunningham noted. A pressing issue that is even more domestic is that measured inflation is currently at 5.4%, nearly triple the target inflation rate for any country before intervention by the country’s central bank to slow the economy is necessary.