The global supply chain is slowing down at the very moment when Americans are demanding that it go into overdrive.
Americans are settling into a new phase of the pandemic economy, in which GDP is growing but we’re also suffering from a dearth of a shocking array of things—test kits, car parts, semiconductors, ships, shipping containers, workers. This is the Everything Shortage.
The coronavirus pandemic has snarled global supply chains in several ways. Pandemic checks sent hundreds of billions of dollars to cabin-fevered Americans during a fallow period in the service sector. A lot of that cash has flowed to hard goods, especially home goods such as furniture and home-improvement materials. Many of these materials have to be imported from or travel through East Asia. But that region is dealing with the Delta variant, which has been considerably more deadly than previous iterations of the virus. Delta has caused several shutdowns at semiconductor factories across Asia just as demand for cars and electronics has started to pick up. As a result, these stops along the supply chain are slowing down at the very moment when Americans are demanding that they work in overdrive.
The most dramatic expression of this snarl is the purgatory of loaded cargo containers stacked on ships bobbing off the coast of Los Angeles and Long Beach. Just as a normal traffic jam consists of too many drivers trying to use too few lanes, the traffic jam at California ports has been exacerbated by extravagant consumer demand slamming into a shortage of trucks, truckers, and port workers. Because ships can’t be unloaded, not enough empty containers are in transit to carry all of the stuff that consumers are trying to buy. So the world is getting a lesson in Econ 101: High demand plus limited supply equals prices spiraling to the moon. Before the pandemic, reserving a container that holds roughly 35,000 books cost $2,500. Now it costs $25,000.
The container situation is even weirder than it looks. With demand surging in the United States, shipping a parcel from Shanghai to Los Angeles is currently six times more expensive than shipping one from L.A. to Shanghai. J.P. Morgan’s Michael Cembalest wrote that this has created strong incentives for container owners to ship containers to China—even if they are mostly empty—to expedite the packing and shipping of freights in Shanghai to travel east. But when containers leave Los Angeles and Long Beach empty, American-made goods that were supposed to be sent across the Pacific Ocean end up sitting around in railcars parked at West Coast ports. Since the packed railcars can’t unload their goods, they can’t go back and collect more stuff from filled warehouses in the American interior.
And what about the truckers who are needed to drive materials between warehouses, ports, stores, and houses? They’re dealing with a multidimensional shortage too. Supply-chain woes have backed up orders for parts, such as resin for roof caps and vinyl for seats. But there’s also a crucial lack of people to actually drive the rigs. The Minnesota Trucking Association estimates that the country has a shortage of about 60,000 drivers, due to longtime recruitment issues, early retirements, and COVID-canceled driving-school classes.
In short, supply chains depend on containers, ports, railroads, warehouses, and trucks. Every stage of this international assembly line is breaking down in its own unique way. When the global supply chain works, it’s like a beautifully invisible system of dominoes clicking forward. Today’s omnishambles is a reminder that dominoes can fall backwards too.
And then there’s the labor market. In the U.S., job openings have hit record highs in restaurants, hotels, and other leisure and hospitality sectors. But companies are struggling to keep businesses operating at full capacity when Delta infections roll through.
From workers’ perspective, unemployment insurance and several rounds of stimulus have allowed laid-off workers to be picky about jobs, instead of desperately lunging for the first paycheck available. That doesn’t sound like such a bad thing. But from many employers’ perspective, government programs have exacerbated a terrible labor shortage. Staffing up a business has become difficult. The result, from consumers’ perspective, is more of the same Everything Shortage. Since finding, hiring, and training hundreds of thousands of people in new roles at the same time is hard during a pandemic, we should all expect a bit of slowness across the service sector for a while—a bit more time for that cappuccino, a bit longer of a wait for that appetizer, a bit of confusion at the convenience store when you ask where the nail-polish remover is and the new employee who had to Zoom in for her training program needs a moment to remember the aisle numbers.
Finally, as if those slowdowns weren’t enough, there’s the mail. As of this month, the U.S. Postal Service is reducing its use of air transportation to save money. The USPS estimates that deliveries outside your local area will likely be delayed by one or two days. But as we’ve seen, relying on rail and truck means leaning on systems that are dealing with their own mess.
How will the Everything Shortage be resolved?
The best solution to the Everything Shortage is to have a policy to make more of just about everything. Containers, which carry more than 90 percent of the world’s traded goods, are overwhelmingly manufactured in China. Why doesn’t America make more? Car parts, semiconductors, and home goods have been offshored, making the U.S. sorely reliant on overseas factories.
For decades, many U.S. companies moved manufacturing overseas, taking advantage of cheaper labor and cheaper materials across the oceans. In normal times, America benefits from global trade, and the price of offshoring is borne by the unlucky few in deindustrialized regions. But the pandemic and the supply-chain breakdowns are a reminder that the decline of manufacturing can be felt more broadly during a crisis when we run out of, well, damn near everything. That’s why Joe Biden's Build Back Better plan includes billions of dollars to reshore manufacturing, invest in basic research, and beef up domestic supply chains.
Our dearth of manufactured parts and containers is part of a broader crisis of manufactured scarcity in America. One lesson of the Everything Shortage is: You cannot redistribute what isn’t created in the first place. The best equality agenda begins with an abundance agenda.
Decades from now, we might look at the legacy of the pandemic, and see that it took a global crisis of choke points to teach us that real progress begins by removing the choke points at home.