Are Supply Chains Broken … Forever?

How good do consumers have it in the 21st century? Pick virtually any item you want, no matter how obscure. Find it online. Point-click-ship.

Whatever you want, whenever you want it, whisked to your door in no time … like you’re some kind of fancy aristocrat.

Unless it’s toilet paper in 2020.

Or basically anything with a computer chip in it in 2021.

Or baby formula in 2022.

Oh no … Did we lose the Cold War?

[OPENING SEQUENCE]

Which 20th century invention did the most to change the lives of everyday people? The television? The personal computer?

Actually, there’s a good chance that it was this big, stupid box.

For pretty much all of human history it was incredibly expensive and time-consuming to ship products around the world. Even as late as the middle of the 20th century, it still took scores of people to move goods manually on and off of ships, trains, and trucks — which was so costly that it didn’t make much economic sense to sell most items overseas.

That all changed, however, in 1956, when an entrepreneur named Malcom McLean created what we now know as the shipping container — one simple device that would allow goods to be moved seamlessly around the world. The result: a revolution.

When a team of analysts working with McLean ran the numbers, they discovered that using containers rather than all that labor lowered the costs of one of their shipments from New York City to Miami … by 94 percent.ⁱ It’s no exaggeration to say that that math changed the world.

In 1965, you could load 1.7 metric tons of cargo per hour onto a ship. Only five years later, as the use of containers expanded, you could get 30 metric tons per hour.ⁱⁱ One study estimated that the introduction of containers boosted trade between countries by 900 percent in its first 15 years.ⁱⁱⁱ

Because it got a lot cheaper and faster to move items around the world, we did a lot more of it. And because we did a lot more of it, we created incredibly complicated supply chains, in which the products we buy utilize components sourced from all over the world.

The supply chain Apple utilizes for products like the iPhone, for instance, includes over 40 countries. ^iv These trade patterns are now so central to our economy that one recent study estimated that 37 percent of American jobs are supply-chain related.^v

Now, there’s a weird paradox at work here. On the one hand, the complexity, sophistication, and efficiency of the global supply chain makes it arguably one of humanity’s most impressive accomplishments. On the other hand … it’s incredibly boring — at least until it stops working.

That’s something we started to see a lot of in the wake of the COVID pandemic. 11 million fewer vehicles being produced in 2021 because of a shortage of microchips.^vi Over 100 ships stuck off the California coast, waiting to access the port of Los Angeles.^vii Being warned that to get Christmas gifts on time, we should do our shopping … in the summer. ^viii

So, what exactly happened? Is this the new normal?

Well, thankfully the answer is no … but also kinda yes.

Here’s what we mean. A lot of what’s gone wrong with supply chains in recent years are the results of the once-in-a-lifetime disruptions of COVID: consumers stuck at home wanting to buy more goods, while producers didn’t have the labor to provide them. Supply just couldn’t keep up with demand.

At the same time, however, those delays also exposed a lot of pre-existing problems that won’t go away with the pandemic; problems that could not only make life miserable for consumers but could also hurt America’s economic competitiveness. Foremost among them: Our infrastructure kinda sucks.

When the World Bank ranked the world’s ports by how efficient they are, the port of New York and New Jersey — the nation’s second largest — ranked #251.^ix The ports of Long Beach and Los Angeles — the only American ports bigger than New York — came in dead last … in the world!^x

Why are we so far behind? A big part of the story is technology.

Many of the world’s most advanced ports rely on automation, because computer-driven systems can move cargo in and out of ports much faster than systems that rely entirely on physical labor. But America’s ports are badly behind on that front.

One analysis of the port in Rotterdam, in the Netherlands, estimated that its use of automation allowed it to move 80 percent more cargo than the non-automated American port in Oakland in the same amount of time.^xi Now, sure, there are concerns about whether automation would cost workers their jobs but, it doesn’t necessarily end up that way. In fact, as of 2022, that automated port in Rotterdam had 8,000 job openings it was struggling to fill.^xii

Another problem: To make our ports deep enough to handle the largest ships, we have to dredge them. But — and we swear we’re not making this up — a series of laws passed over 100 years ago to stimulate the shipping industry in the wake of World War I limits the number of ships eligible to do that work. As a result, while China built over 200 dredging vessels during the last decade, the U.S. had … four.^xiii

Even things as basic as local zoning laws can get in the way. Part of the reason California had that huge traffic jam of ships … was because the city of Long Beach prohibited the port from stacking more than two shipping containers on top of each other.^xiv Yeah, ‘cause who’d want to spoil this view?

Now, sure, this all means we have to wait longer for PlayStations and sofas, but the real-world consequences go beyond that. The limits on shipping goods by water has actually pushed far more cargo onto trucks and railroads.^xv That, in turn, generates higher carbon emissions than using boats.^xvi And, as the World Bank’s analysts warned, over the long-term inefficient ports lead to “slower economic growth, less employment, and higher costs for importers and exporters.”^xvii

Not a great outlook. But also, not an inevitable one. With some relatively modest reforms, we can still turn this around. And we should be optimistic that we will.

After all, we’re a country of innovators. A country of strivers. And, remember…

…We’re the country that invented the big stupid box.