Shipping is broken. Here’s how to fix it.

Holiday season shipping is making supply chain problems worse, but there’s hope for next year.

As of Friday morning, approximately 70 ships filled with cargo were anchored outside the ports of Los Angeles and Long Beach, which are the points of entry for more than 40 percent of US imports. This backlog is a clear reminder that there aren’t enough workers or facilities to take in all the products that are being shipped to the United States right now. But even as supply chain problems continue to pile up, experts say progress is possible.

The pandemic has exposed the fragility of the US logistics industry. Manufacturing bottlenecks and shipping delays have resulted in cargo piling up not only in port terminals but also in rail yards and warehouses. Critical equipment, like shipping containers and truck chassis, is unavailable, causing distribution centers to develop deep backlogs. Meanwhile, a surge in demand has strained the system even further.

The consequences of the logistics crunch are far-reaching. Shipping problems have made it harder to import medical supplies and export crops. Supply chain workers, including truck drivers and warehouse workers, are taking on grueling extra hours. Extra activity at the ports has driven up emissions and worsened the air quality for the communities that live in the surrounding areas. At the same time, small businesses are worried that, without supplies, they’ll lose critical holiday season sales to larger retailers like Home Depot and Walmart, which have chartered private cargo ships. There’s also growing concern that logistics issues are driving up prices on all sorts of everyday products.

Right now, the main thing domestic logistics companies need is time to catch up to the pace of manufacturing, which may happen when the holiday season ends (consumers can help by buying less stuff). But there are other ways we could improve the country’s approach to shipping and delivering products, like boosting conditions for supply chain workers and building a little more slack into the system. Even changing the US Department of Transportation’s age- and drug-testing rules for truck drivers could make taking these jobs easier.

Recode asked more than a dozen supply chain leaders and experts how to fix US logistics in the coming months. While they don’t all agree on the details, they said that the country’s ongoing shipping problems are far from intractable. Here’s how it could start.

Unclog the ports and free up shipping equipment

We need to unclog the ports. The global logistics network is running low on shipping containers because hundreds of thousands of them are stuck on ships waiting to dock. Even more shipping containers are stacked in storage areas across the Long Beach-Long Angeles port complex, which intakes much of US shipments coming from Asia. The same problems have shown up elsewhere, including at the Port of Savannah, where there are more than 20 ships at anchor. A shortage of chassis, the load-bearing metal frame with wheels that truck drivers use to transport shipping containers, has made this problem worse.

In a bid to get cargo moving more quickly, the Long Angeles and Long Beach ports now plan to charge shipping companies a $100 fee for every container that isn’t unloaded after eight days, and the fee will increase by $100 for every day after that. The new policy follows a collaboration between retailers, shipping companies, and port workers to keep the Port of Los Angeles operating on a 24/7 basis.

Patrick T. Fallon/Bloomberg via Getty Images

But there may be better ideas. Some supply chain experts have suggested rerouting more cargo to other ports on the West Coast, like the Port of Oakland, Port of Vancouver, and Port of Manzanillo, though companies would need to find drivers to pick their cargo up in a new location. Several ports, including the Port of Oakland and the Port of Jacksonville, have even volunteered to take in more cargo. Another proposal is to facilitate truck drivers entering port terminals who can pick up a new container and drop off an empty one at the same time. Others think the ports should put a hold on loading new cargo and focus first on loading empty containers onto ships that are returning to Asia.

“I think somebody needs to prioritize and say: ‘Empty ship? You’re going first,’” Robert DeFrancesco, the attorney for the Coalition of American Chassis Manufacturers, told Recode.

The chassis shortage is somewhat of a different story. Almost half of the chassis at the Los Angeles-Long Beach port complex are operated by private leasing companies. These companies only keep enough chassis to support average shipping volume, and not, as DeFrancesco puts it, “Easter Sunday.” Chassis are also at the center of a bitter trade dispute between American manufacturers and China International Marine Containers (CIMC), a Chinese chassis company based in Shenzhen. Federal trade authorities issued a tariff on chassis produced in China last year after US manufacturers accused CIMC, which is the world’s largest chassis-maker, of unfairly selling chassis below the market rate.

Now trucking operators as well as the Port of Los Angeles are arguing that President ***** should rescind this tax and exclude chassis from tariffs in order to alleviate ongoing shipping issues. US manufacturers insist they can make more chassis by themselves, especially if the government steps in by offering tax incentive programs and speeding up work visa processing times, among other forms of assistance. Still, both sides seem to agree that making more chassis available would help.

The warehouse shortage is a labor problem

The unloading of cargo ships is only the first step on a complex route that carries products from ports to stores and storage facilities. But right now, those facilities are packed to the brim, in part because of an ongoing challenge to find workers.

“The reason containers are piling up at the port terminals is because of the warehouses and the distribution centers,” said Noel Hacegaba, the deputy executive director and chief operating officer at the Port of Long Beach. “It’s the backlog that begins in the interior of the supply chain.”

Expanding space in storage facilities is pivotal to clearing up these supply chain backlogs. Right now, warehouse vacancy rates are just 0.7 percent throughout the Inland Empire, the group of California cities within 100 miles of the Port of Los Angeles that serve as the country’s largest distribution center. Retailers have also stockpiled inventory and reserved extra storage because of the recent surge in consumer demand, which has restricted the overall supply of warehouse space.

Part of the solution involves finding more room for cargo. Last month, California Governor Newsom issued an executive order directing the state’s agencies to find temporary spaces to store cargo on both public and private land. The Transportation Department has also offered California an up to $5 billion loan to improve its logistics infrastructure, including building more warehouses.

Bloomberg via Getty Images

Still, one of the easiest ways to increase warehouse capacity is to move these facilities to a 24/7 schedule, which would help the ports offload even more cargo. To make that happen, each of these warehouses needs to hire enough workers to staff an entire additional shift. Improving the quality of and pay for warehouse jobs should also help, as would making the jobs easier to find.

Right now, these jobs are primarily seasonal and involve a high level of turnover, as well as long hours, a lot of manual labor, and the risk of injury, including the risk of catching Covid-19. At the same time, many of the areas throughout the Inland Empire have already hired a record number of people for warehousing jobs, and there may not be a huge supply of new workers in the surrounding area left to hire.

“Part of the conversation for some of these types of facilities is really, ‘Do we need to start thinking about slightly different locations that make it easier to get labor?’” said Jason Miller, a supply chain management professor at Michigan State University. “One of the first steps with this is for the logistics field to stop complaining about labor shortages and start figuring out what to actually do about it to make work attractive and to attract people.”

Make it easier to be a truck driver

Truck drivers are crucial to US shipping. They transport goods between ports, warehouses, rail yards, distribution centers, and retailers, and carry more than 70 percent of cargo traveling throughout the country. But right now, the country may be short as many as 80,000 drivers, according to the American Trucking Association, a trade body for the industry. Even lower estimates still put the shortage in the tens of thousands. One way to fix this problem would be to make it easier to become and be a truck driver. While truck driver pay has gone up, bonuses and increased salaries haven’t been enough to woo workers to take on an otherwise very difficult job.

One step to address the labor shortage would be to change the federal government’s approach to drug testing truck drivers. Right now, Department of Transportation regulations don’t allow commercial truck drivers to use cannabis, even if those drivers use the drug in their off-hours and live in states where it’s legal. Most of the tens of thousands of drivers who have lost access to their commercial driver’s licenses over the past two years have tested positive for cannabis, which is why some supply chain experts think it’s time to relax the rules.

Some experts think younger drivers could also help, especially as older truck drivers retire in record numbers. Right now, federal law forbids people between 18 and 20 years old from driving commercial vehicles across state lines, even if they have a commercial driver’s license. Now, federal lawmakers are pushing the Department of Transportation to approve a pilot program that would allow up to 3,000 younger drivers to drive tractor-trailers interstate at any one time if they complete extra apprenticeship training.

“We let them fight wars,” Willy Shih, a management professor at Harvard Business School, said. “Anything that will relieve the labor crunch at this point I think will help.”

Luke Sharrett/Bloomberg via Getty Images

Still, there are other ways to make truck driving easier, like adding more parking for drivers and making it easier for them to use the restroom during pick-up and drop-offs. Critically, truck driving would also be more appealing if more truck drivers who are paid by the mile or per delivery were compensated for the time they spend waiting to pick up cargo, which amounts to these drivers giving up free labor. This approach to compensation has also made it harder to move operations to a 24/7 basis. After all, truck drivers aren’t incentivized to pick up cargo on a new, late-night shift if their drop-off locations don’t open until the morning.

There’s a role the federal government could play, too. A Wednesday letter from more than 97 supply chain trade associations urged the president to continue an ongoing hours of service relief program, which includes a temporary exemption on federal restrictions for how many hours commercial truck drivers can drive. To help deal with the shortage, the trade groups also say the Transportation and Labor Departments should do more to promote careers in trucking.

“Being a professional driver is not a low-education, low-skilled job,” explained Tra Williams, the president and CEO of FleetForce, a driving school based in Florida. “It takes a collaborative effort by leaders in the industry to reframe that narrative … and make sure that there’s opportunities for folks to rise up into the middle class and beyond.”

The pandemic won’t be the only supply chain disruption

Logistics improvements need to happen simultaneously in order for everyday people to see real progress. Building more warehouse space won’t improve delivery times if people don’t want jobs in those facilities; hiring more truck drivers won’t free up shipping containers if there aren’t chassis to carry them. To fix these shortages and delays, companies across the supply chain need to work together, and the government needs to step in where it can.

Whether that collaboration will actually happen is unclear. The US logistics industry comprises many different companies that focus on maximizing their own individual profits, not the supply chain’s overall efficiency. Those firms may not purchase more equipment or add more capacity if it’s easier to pass higher costs onto the next leg of the network and, eventually, to consumers.

But that may not be the best approach in the long run. If Covid-19 has taught us anything, it’s that preparing for the worst is often worth the time and money. After all, the pandemic isn’t the first supply chain disruption ever, and it probably won’t be the last.

via Vox – Recode

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