From stranded cargo ships to empty grocery shelves, suddenly everyone cares about supply logistics. We talk to a UT expert to understand what’s going on.
by jesse fox mayshark • October 18, 2021
A NASA satellite image taken on Oct. 10 shows dozens of cargo ships waiting to unload at the ports of los angeles and long beach. (Photo by NAsa)
Type the words “supply chain” into your favorite search engine, and the headlines that pop up will tell the story.
The pandemic's seesaws have unbalanced already fragile global systems.
“What’s causing America’s massive supply-chain disruptions?” asks ABC News. “U.S. supply chain too snarled for Biden Christmas fix,” says Reuters. “Prices rise from groceries to car rentals due to supply chain problems,” adds the Washington Post.
Google Trends shows that searches for the phrase have doubled just since the beginning of September.
For Ted Stank, the surge of interest means that his phone has been ringing a lot. Stank holds the Bruce Chair of Excellence at the University of Tennessee’s Haslam College of Business, where he is a professor of supply chain management.
“We’ve done probably 10 interviews this week,” Stank said Friday of himself and his colleagues. A friend in the accounting department told him, “You guys are rock stars.” Stank responded, “You’d be rock stars if the accounting system just completely broke down.”
UT Knoxville has long had one of the top supply-chain management programs in the country. In the most recent U.S. News and World Report college rankings, it moved up to number 3 nationally.
So Stank is well positioned to shed light on the global tangle that has unbalanced supply-and-demand equations everywhere, leading to a backlog of cargo ships waiting offshore at major ports, and popular goods and brands suddenly scarce on supermarket shelves.
“What is happening today is an acceleration of a lot of the weaknesses in the supply chain that were inherent prior to COVID,” Stank said. “But we could patch them over in quote-unquote ‘normal’ circumstances. COVID put an extreme shock on the system, and areas that were rusting before broke.”
Before the Pandemic
First, it’s worth defining what “supply-chain management” means. People tend to think of it — to the degree most people think of it at all — as revolving around transportation. That was the focus of UT’s program when it started in the 1930s. It was originally viewed as an arm of marketing.
“If marketing is about product, price, promotion and place, transportation was the ‘place’ part — how do you get the product out to people,” Stank said. “And then through the ’70s, ’80s, ’90s, it expanded into warehousing and inventory management. And today it's a recognition that you have to manage all that stuff, but you also have to manage your sourcing and your vendors — and are those going to be in the United States, are they going to be in Asia, are they going to be in South America.”
Students in UT’s program learn to think about the supply chain as extending “from the time you dig a molecule out of the ground as a food product or a mineral” all the way to a finished product in the hands of the end user.
With that view, Stank traces the roots of the current disruptions to the last great global shock, the recession that hit in 2008.
“It comes down to the notion that supply chains operate based on massive capital expenditures,” he said. “Manufacturing plants, ocean ships, aircraft, warehouses, all the automation that goes into all those things. And you can’t change those quickly. If you make wrong decisions, you have a lot of wasted capital — you have excess — or you have a lot of wasted opportunity in the market because you don’t have enough.”
During the Great Recession, global shipping companies were among those that got caught out on the excess side. Many had invested in new container ships during the early 2000s, which meant they had a lot of unused, expensive capacity when the slowdown hit.
“Those companies lost billions and billions of dollars,” Stank said. “It was really a financial disaster in that industry. It resulted in a lot of consolidation, lots of companies buying smaller companies. So today there's only four or five major ocean shipping conglomerates, and they got a lot smarter about attuning their ocean shipping capacity to their projections of demand.”
This leaner approach has bolstered profits, but it has left those companies — and the global markets they serve — without a lot of wiggle room when their projections don’t match reality.
At the same time all of that was happening on the oceans, consumers on land were becoming accustomed to an increasingly responsive marketplace in which nearly any good could be ordered and delivered to their doorsteps within days.
And on the manufacturing side, industries moved toward a “just in time” strategy, ordering materials only as needed to fulfill demand — a system that relies on being able to get what you need when you need it.
Stank breaks the experience of the last two years into three distinct phases. The first was on the supply side, as the initial coronavirus outbreak swept through China and brought much of its manufacturing capacity to a standstill.
By itself, even if COVID-19 had not spread to the rest of the world, those few months would have had a rolling impact on global markets because China supplies so much of the world. According to the United Nations, China accounted for nearly 30 percent of global manufacturing in 2019.
But of course, the virus did spread. By the time China largely reopened its operations in the late spring of 2020, the United States and Europe were in varying states of shutdown as they also tried to contend with COVID-19.
“So all this cargo started coming to the U.S. (from China) at a time when we were sending everybody home and shutting down and demand got completely shut off,” Stank said.
Over the remainder of 2020, during the second phase of the virus, the U.S. saw seesawing demand for goods and services, with hospitality industries hammered while home goods and construction soared on the back of stimulus payments and diverted spending — people canceled travel plans but decided to add a new back deck or redo the kitchen.
This year, with the dawn of vaccines and attempts to return to some kind of normal, manufacturers and shippers have been trying to catch up to pent-up demand. But parts of the supply chain have still not recovered from the disruptions — ports and trucking companies are struggling to find enough workers and drivers to absorb the influx.
“That lack of capacity in the ocean shipping environment because they were trying to synchronize capacity to the old demand has been completely thrown off,” Stank said. “There's no excess capacity that we can use, and demand is 20 to 30 percent above even 2019 normal demand. So there’s no extra ships to throw at it, there’s no extra ports to handle the ships.”
The twin ports of Los Angeles and Long Beach, which together receive 40 percent of incoming cargo in the United States, are actually handling more freight than they ever have in their history. But in recent weeks there have been more than 80 massive container ships at a time waiting offshore to unload.
And even when they do unload, Stank said, there is limited capacity to store the containers until their goods can be picked up by a limited number of trucks and drivers.
“The ports have to limit the ships that they bring in, because they can’t offload them and put it anywhere,” he said. “So it's just causing this domino effect of all these different kinds of things. And then we continue to have different shocks to the system, like the Evergreen container ship that got stuck in the Suez Canal.”
There are limited short-term solutions, Stank said. Gov. Ron DeSantis of Florida recently made a pitch for ships to come to the port of Miami instead, which has capacity. But even taking into account the logistics and time of getting ships from the West Coast to the Gulf of Mexico, Stank said Florida presents its own offloading and distribution bottleneck for truckers.
“You can’t just address one part of the system and expect that it’s going to have a major impact,” he said.
No Quick Fix
In the longer run, Stank said, the experience of 2020 and 2021 will cause many industries to rethink their supply chain models, building in redundancies and reducing their reliance on any one geographic area or transmission route.
“I think companies are getting much, much smarter about how they manage their portfolios of where products come from,” he said. “I know for a fact, every company we work with is doing global network redesign calculations. Much less naive cost models about, let's not just look at labor costs in China but let's look at transportation costs, inventory cost, cost of disruptions, tariff costs, and using that to make what I think are smarter decisions.”
He cautioned that while that will probably lead to some greater investment in domestic capacity, it won’t signal a large-scale return of offshored manufacturing jobs.
“A factory that employed 2,000 people 20 years ago that got offshored to China, some of that might come back with 200 people and a lot of automation,” Stank said.
But for now, he said, consumers should expect disruptions to continue at least through the holiday season. It will be early 2022 at a minimum before all the supply networks have a chance to catch up and restore something like usual service.
“The situation is going to get worse,” Stank said. “Already companies are paying drivers more, investing more in transportation and capacity to be able to move more product. That will help somewhat, but I think the situation is going to stay at least the same if not a little worse for the next three to six months.”
Meanwhile, all the attention to supply-chain management bodes well for UT’s program. Even before its rise to headline prominence, it had grown to become the largest major not just at the Haslam College of Business but at UT Knoxville overall. It graduates about 430 students a year and has 1,500 enrolled from freshmen to seniors. Since Stank joined in 2003, its faculty has tripled from eight to 24.
“I think because of our reputation and because of the companies that work with us and hire our students, a lot of folks are saying, 'OK,we'll send you to college but you better make sure you have a job coming out, and we hear about this supply chain stuff that's really popular,’” Stank said.