Supply Chain Explained
Have you been wondering where your furniture is? Or curious why lead times seem so far away? We dove headfirst into researching this issue to help give our clients some knowledge as to why this may be happening.
We have discovered there are issues at practically every stage of getting your furniture from oversees into your home. We will break down each step of the process, and you will quickly discover that the sectional that you've been waiting 8 months for has travelled more than you, and has seen more of the United States than you have since before the Covid-19 pandemic.
We have also broken down the White House Response to these supply chain issues.
Step 1: existing issues exacerbated by pandemic online shopping
Talk to any supply chain expert and they will tell you that American infrastructure had issues long before the Covid-19 pandemic. Did you know that American ports are owned by the cities they are in? Making it a local government issue, not federal. When everyone was stuck indoors during the lockdowns, practically every American was online shopping. Stimulus checks contributed to the influx of goods. Then as workers at the ocean liners, ports, truck companies, and warehouses started to call in sick, the extra cargo began to stack up and now frankly it seems almost impossible that they will be able to catch up without the intervention of the federal government.
Step 1.5: Shortages
Before your sofa exists, there is a lot of labor and attention that has to be done. There are shortages of material that ultimately delay the creation of the item, and thus delay your sofa being placed on a ship.
Step 2: Yay! Your Sofa made it onto a boat!
Great news, right? Maybe. According to a 2020 study, there are at least 80 ships off the port of Long Beach in Los Angeles, California at any given time. This port is responsible for receiving about 40% of the United States' international products.
Step 3: Your sofa made it onto U.s. soil
It is estimated that once your item has actually made it on the ground from the ocean, it will take a minimum of an additional 45 days to arrive in a warehouse. Why is that? Well, it depends on who you ask. It seems like everyone is pointing fingers at everyone else.
Step 4: The truck arrives at the port to transport your sofa
The technology these trucking companies are using is so outdated that they are in desperate need of an upgrade. Trucks that arrive to the port need to bring an empty container in order to acquire a new one. There are two major issues with this system:
There are now so many empty containers stacked at the port that there is no more room to store them. As an added frustration, these empty containers are sitting on the rigging systems required to hook up a new container to a truck for transport.
The antiquated systems these companies are using are asking for containers of a certain color that change day-by-day. So in theory, a truck can be waiting in the queue for hours with an empty blue container attached and he never is chosen because they are looking for yellow containers on that particular day.
Additionally, these trucking companies are privately owned, so they set the prices. Demand is high, and because of the issues with technology and communication with the ports, supply is low. This drives up the prices astronomically for the warehouses, small businesses, and everyday consumers.
With the recent skyrocketing gas prices across the United States, it costs more now than ever to fill a truck's gas tank. Large trucks can carry between 5,000 to 11,600 gallons of gas. We can expect even higher prices to ship items as a result.
Step 5: Time to get on a train!
...hopefully!
If possible a truck could deliver a storage container from the port to a warehouse, but it is very common for that container to first ride on a freight train to travel across the continental United States. Due to the influx of containers, These containers are sitting in storage yards. Since these train companies are so backed up, and the containers are taking up so much space, many have decided to start charging warehouses for "storage". This leaves the businesses and warehouses only two options: pay, or lose the items they have been waiting weeks or months for. Since their items are being held hostage, they will have to pay and that will ultimately drive up the cost of the items.
Step 6: Arrival at the warehouse
After your sofa's long and arduous journey, it has finally arrived at the warehouse. It is at this point that your designer FINALLY has some control over the item they have sent dozens of emails about. Usually designers and warehouses will coordinate to arrange the delivery of your furniture once it has all arrived safely and they have the opportunity to inspect it after the adventure is has endured.
Step 7: FINALLY HOME!!!!!!!!!!
After all of that traveling, you and your sofa deserve a much needed introduction. The whole process is exhausting for both of you, plus your interior designer that has spent the last 26-30 weeks tracking and advocating for you and your couch.
So how do we fix this?
Photo: © MedioImages/Getty Images
White House Response
The Biden administration has recognized that this is a major issue faced by many Americans everyday. With the cost of freight increasing rapidly by these private companies, most small business that rely on them to receive their products can no longer absorb the cost and have had to raise their prices in response.
In their initial response they decided to make the ports add an additional shift (8pm-3am) in order to lift the burden on the ports while also creating jobs. What seemed like a great solution did not have the impact they were hoping for. The ports are just one element of this chain reaction, and just because they were working almost 24 hours a day at the port, did not mean that the private companies that own the ships and the trucks were having their workers available during those same hours.
President Biden's Executive Order 14017 established the Supply Chain Disruptions Task Force (SCDTF), and on February 24, 2022 The Biden-Harris Plan to Revitalize American Manufacturing and Secure Critical Supply Chains in 2022 statement was released. Below you will find the major points from this statement.
The Biden-harris plan to revitalize American manufacturing and secure critical supply chains in 2022
Put the U.S economy on a path towards long-term resilience across critical supply chains.
Propose a new domestic manufacturing initiative through the Export-Import Bank to strengthen U.S. manufacturing exports.
Expand access to capital for small manufacturers.
Advance the technological leadership of both small and large manufacturers.
Leverage the Bipartisan Infrastructure Law to move critical goods from ships to shelves faster and more affordably.
Invest in sustainable domestic production and processing of critical minerals.
Leverage the American Rescue Plan to jumpstart a more competitive, innovative, and resilient meat and poultry supply chain.
Institutionalize supply chain resilience throughout the federal government.
Bolster the American manufacturing of critical goods through new reforms und the Buy American Act.
Fully establish a Defense Production Act Investment Program to build and expand the health resources industrial base.
Bolster clean energy manufacturing through implementation of the Bipartisan Infrastructure Law.
Restore U.S. global leadership on supply chains
Misc. Information
During President Biden's first year in office, the economy added 367,000 manufacturing jobs (the most in nearly 30 years).
The Department of Commerce and the Department of Labor will host regional summits that will bring together stakeholders to discuss opportunities to align regional economic development strategies with the national supply chain strategy.
Creation of the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act, the United States Innovation and Competition Act (USICA) and President Biden's Build Back Better Agenda
The Biden-Harris Administration will also partner with North-American trading partners to prepare for future crises and mitigate resulting supply chain disruptions. Through the U.S.-Mexico High-Level Economic Dialogue, the United States and Mexico will establish a joint list of critical sectors involved in cross-border supply chains and create procedures to maintain continuity of supply chains in the times of crisis
We are feeling cautiously optimistic about the future of the United States Supply Chain. However in saying that, there is a back-up of product that will take some time to resolve. We have learned to be patient over the last year, and we are so appreciative that our clients have been so understanding.
Until next time,
Kelly O’Neil