Q: Supply chain issues have made headlines with increasing prominence over the last two years. What’s an example of a current supply chain issue, and how is it incorporated into classroom learning for WSB students?
A: In a logistics course I teach, we have been following the container traffic jam off the coast of California. At the beginning of a recent class, I displayed a marine traffic GPS image of the ports of Los Angeles and Long Beach. We could see 50 cargo ships anchored just outside the ports and another 18 adrift nearby.
Under normal, pre-pandemic conditions few if any container ships would need to anchor in San Pedro Bay unless all berths became full. Seeing one or two ships anchored would not be unusual, or as many as four or five ships during peaks, but nowhere close to what is occurring today.
A notable trend is that empty, exported container volume is up 17% at the Port of Los Angeles versus last year. As strange as this sounds, a growing number of containers is being shipped back empty from U.S. ports to manufacturing locations overseas. This is due to a transportation price imbalance. For example, the price of shipping a 40-foot container from China to the U.S. has skyrocketed to about $20,000, while the price of shipping from the U.S. to China is about $3,000. Ocean carriers are not waiting for U.S. cargo to ship overseas but instead turning around once they get empties to pick up more profitable cargo loads overseas. Transportation economics and market forces are driving this behavior.
It is important to point out that the issue cannot simply be solved by ports expanding working hours, which has already occurred. Every link in the supply chain—from U.S. ports to consumers—is stretched thin, including port terminal and warehouse operators, truck and rail carriers, and even shortages of truck-trailer chassis that carry the containers.
A Wisconsin MBA student in the course, Suvesh Singh (BBA ’23), summed up the situation as follows: “The problem isn’t that there is a global container shortage; it’s that the containers are just in the wrong spots.”
Logistics managers at companies are taking more aggressive countermeasures. Big box retailers have begun chartering their own container ships. Others are pivoting from ocean to air transportation and taking a hit on margins to provide better customer service. Although the ports are moving record volumes of cargo, the back-up is unfortunately continuing to grow. Ships continue to be arriving faster than they can be unloaded. Even with all hands on deck, it will be a while until this traffic jam clears.
—Peter Lukszys is a senior lecturer with the Grainger Center for Supply Chain Management and the Department of Operations and Information Management at the Wisconsin School of Business.
Listen to Wisconsin Public Radio’s interview with Lukszys, “What’s Up with the Supply Chain Shortage?”