Disruption Report #9: Delivery Times Are the Worst Since 1951

The Backup in L.A. Eases While the Port of Oakland Becomes the New Trouble Spot

To this point, most of the news regarding port backups has been coming out of Los Angeles. A Bloomberg article by Brendan Murray, “Oakland Tops L.A. Area as Waves of Ships Inundate World’s Ports,” reports that the conditions in Los Angeles are improving, but Oakland is the new trouble spot.

Congestion in the Port of Los Angeles peaked in February with forty ships waiting off-shore. That backup is now down to twenty-one. One way to reduce congestion in L.A. was to encourage container ships to off-load up north, which meant either Oakland or SeaTac. As a result, Oakland is over-matched by the number of ships wanting and waiting to unload.

Why are there backups?

Many gateways of seaborne trade aren’t designed for flexibility, having neither sufficient labor nor the infrastructure — from costly cranes to extra land for container storage — to handle unnatural surges in volume.

From what I am reading and hearing, things are not going to clear up for quite a while.

Product Shortages

The good news is that we are seeing unprecedented demand for consumer goods. The bad news is that there is not enough product to satisfy that demand. That’s according to a Politico article by Victoria Guida, “Post-pandemic boom poised to get smacked with severe shortages.”

I found surprising and even shocking that with all the technology we have today, the Federal Reserve is saying that delivery times are the worst they have been since 1951.

The article states the reason are diverse both in cause and geography. The coronavirus pandemic is, of course, global, as is the chip shortage, but those frigid temperatures in Texas and the backup at the Suez Can in Egypt all had an impact. Throw in unprecedented demand, and you can see why there are shortages.

What can be done? Price increases are likely to be the solution. As the Politico article puts it:

“This supply disruption is getting to the breaking point where we’re going to have to start raising prices, and we’re going to see inflation,” said Jim Bianco, head of financial analysis firm Bianco Research.

Price of Plastic Will Remain High

Most plastic is made from petroleum, so this article may be solemn news for the toy industry: “Historic Oil Glut Amassed During the Pandemic Has Almost Gone.” The use of petroleum collapsed during the pandemic, so petroleum had to be stockpiled—some of it in ships that have been parked waiting for demand to surge so they could unload.

Now that the surplus is about to end, the result is that petroleum prices that had been going up are going to stay that way until OPEC starts pumping more or demand recedes. Both are unlikely at this time.

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