Cargo ships are piling up at ports. What’s clogging the supply chain, and should you order holiday gifts now?

Written by Amy Ta, produced by Bennett Purser

Cargo ships sit idle off the coast of Long Beach, California, as a person rides a bike along the beach path. Photo by Howard Freshman/Shutterstock.

LA and Long Beach ports are so clogged that some cargo ships can be seen as far north as Dockweiler Beach. Most crews have to wait more than a week before they can dock their ships, which means that all the goods they’re carrying are in short supply on land.

The U.S. has a spike in demand plus a labor shortage, says Nick Vyas, executive director of the Kendrick Global Supply Chain Institute at USC Marshall School of Business. 

“We do not have enough manpower available to not only unload the vessels, but once the vessels are unloaded ... we need the trucks, we need the transportation capabilities, we need drivers, we need distribution space, the workers … to unload those and put away. So all of this activity requires a tremendous labor participation. We just don't have that yet,” he explains.

He notes that the U.S. has not recuperated from the COVID pandemic, which started some 18 months ago. But consumers are now spending more due to stimulus checks and other benefits. 

Panic buying also adds to the problem. “Folks are getting nervous about it. ‘Hey, I'm seeing the shortages, I don't see those vessels being unloaded, should I just start buying things that I may need some time in the future?’”

This week, Gene Seroka, the executive director of the Port of Los Angeles, advised consumers to order holiday gifts now

But Vyas explains that if you purchase early, there’s the problem of inventory. He says to think of the inventory to sales ratio, which is the number of days when you have inventory versus the sales you anticipate. Before COVID, the U.S. would have about 50 days worth of inventory to meet demand, but now there’s less than 30 days of inventory. “So we are bone-dry in the pipeline of having inventory to support the demand.”

He says it’s accurate to wait more than two months now to receive your overseas orders. “The lead times have doubled, the cost has gone up almost 500%. We are truly just dealing with this imbalance of supply and demand, and this system continuing to be in shock.”

Vyas says we’ve already seen inflation in day-to-day goods, and it’s likely to continue. 

Maybe the answer is people should buy less? “One would have expected that through this pandemic of the century, their consumption would have gone down. I think we have actually proven [the] other way around.”

Credits

Guest:

  • Nick Vyas - executive director of the Kendrick Global Supply Chain Institute at USC Marshall School of Business