The Supply Chain Patience Demanded by An Economic Tsunami

By Mike Jacob, Vice President & General Counsel

In the old adage to describe the ebb and flow of the economy, it is taken as a fundamental truth that a rising tide raises all boats. But in these extraordinary times, the analogy truly fails to capture what happens when the tidal forces at work in the economy are a literal tsunami.

And there is no doubt that we have experienced an unprecedented economy-wide shock of tsunami proportions in 2020: the US GDP contracted by 5% in Q1 and by an additional 31.4% GDP contraction in Q2, followed by a 33.1% growth in GDP in Q3. The whiplash is truly seismic in nature when compared to the regular quarterly growth over the last several years, as shown by this chart from the US Bureau of Economic Analysis:

As the COVID crisis first unfolded in the early months of 2020 and then intensified, the severity of the contraction was replicated in the supply chain. Even as we were being called upon to move critical goods in the face of the pandemic as an essential component of the global economy, demand for goods movement across-the-board began to drop precipitously. Vessels were laid up, trucks were idled and the rail network slowed.

One of the most disturbing trends of the broken pandemic supply chain manifested itself in a personnel crisis where crewmembers were stranded on ships for months with no reasonable way to get home because there were few ports to take the vessels and no obvious way to restaff these ships. It was an absolute low point which characterized the dramatic reduction in demand for the services of vessels.

The economic contraction was a retreat from normalcy and regular workings of the supply chain – just as the first sign of a tsunami draws a tidal retreat of water dramatically away from the shore and dramatically laying bare the seafloor.

And, then just as dramatically, when the water comes rushing back there is no way to constrain the inundation resulting from the shockwave. This whipsaw growth and demand we are experiencing now is just as clearly creating a similar inundation. We are trying desperately to keep up with short-term demand spikes across the globe while simultaneously trying to get ships back up and running, re-establishing supply chains, and getting equipment, chassis, and containers to the places where they are in highest demand while also minimizing the effects of a lack of equipment, chassis, and containers.

In short, we are overwhelmed by the dramatic reduction of business followed by a dramatic increase of business. While our annual volumes for 2020 are likely going to be on par with previous years, this same year saw the slowest and busiest months ever at our west coast ports. We are running out of space for containers on-terminal but container demand has never been higher, while chassis are also unavailable and significantly constrained. The demand for waterfront labor is so great that it needs to be metered and ships are waiting for berth availability. This is a surge like no other, a literal tidal wave of business.

When this wave passes and we begin to find our way to a new baseline of normalcy, PMSA members are working overtime trying to expedite as many transactions as possible for as many customers as possible. However unprecedented and unmanageable, we are all better off with the swift growth of the economy after the initial downturn. We may not know how, when, and where the extent of the inundation will last, but when it does finally subside it will be incumbent on all of us to rebuild a resilient supply chain together, to facilitate the very best of global intermodalism, and create a new baseline in support of West Coast port competitiveness.