Riverside County Takes a Closer Look at the Supply Chain Disruption
November 23, 2021
Last year, it was the pandemic that kept shoppers away from stores. This year, retailer’s doors are open, but consumers are still facing challenges getting what they need. Supply chain disruptions are delaying the delivery of products, parts and other essential items.
The cargo crisis at the Ports of Los Angeles and Long Beach is at the epicenter of the problem. The bottleneck has become so infamous, it has nearly eclipsed news about the pandemic, and last month the White House had to step in. Riverside County—one of the most important links in the supply chain—has an insider look at the challenges, the solutions and why even this cloud has a silver lining.
Behind the Bottleneck
First, these aren’t your average ports. Ranked ninth in the world for cargo volume, the Los Angeles and Long Beach port system receives more than 40% of all shipping containers that arrive to the US, representing more than $250 billion in value. It’s big—and when this link in the supply chain is disrupted, it impacts businesses across the country.
The bottleneck in San Pedro Bay started last year when cargo volumes at the two ports increased 66% as people sheltered in place and shopped online. While an amalgam of events has led us to this situation, ecommerce is the biggest culprit. Online retail sales grew 32.4% in 2020, and online shopping was up another 27.6% through the first half of 2021.
More goods meant longer dwell times—the time a container stays on the dock—and by September 2020, 21% of cargo containers were sitting on the dock for more than five days. To put that in perspective, only 2% of dwell times were longer than five days before the pandemic.
The problem compounded over the last year as cargo volumes continued to increase and more ships arrived. By peak shipping season in September 2021—when holiday goods start to arrive—the containers were piling up with 32% sitting on the dock for longer than five days. It caused a massive oceanic traffic jam. At the height of the problem in October, there was a line of more than 100 ships waiting off of the coast to unload. According to Palbinder Badesha, the owner of Riverside-based Express Employment Professionals, ships were waiting as long as five weeks to unload containers, and the cost of freight increased from $5,000 per 40-foot container to $15,000 to $20,000 per container.
Thankfully the bottleneck and the cost of freight has improved since those dark days in October. This month, containers dwelling at the port are down 25%, helping to clear up the gridlock of ships, and freight costs fell 50%.
It’s The Whole Supply Chain
Labor shortages are exacerbating the global supply chain woes. According to a CNN report, the US has a shortage of 80,000 truck drivers, and the problem is getting worse. During the pandemic, the labor shortage increased 30%, and the American Trucking Association estimates that the country will be down 160,000 drivers by 2030.
Warehouses are the next link in the supply chain, and again, there is a shortage. The Inland Empire, which directly supports the Southern California port system, has the lowest availability of warehouse space in the nation with only 2.2% of the supply up for grabs. It’s not for lack of trying. There is 23 million square feet of industrial space under construction in the region, and it is still not enough to keep up with the voracious demand. The Inland Empire has become the most sought-after market for warehouses and distribution in the country, thanks to its proximity to the ports, availability of land and easy trucking-route access to the rest of the country.
COVID restrictions in both the US and Asia are also causing delays processing goods, particularly for manufacturers that rely on factories in Vietnam, which had reinstated its lock downs in response to rising COVID cases earlier this year.
Companies are finding solutions. Robert Sinor, marketing manager at Trademark Plastics, Inc., is working with Norco Community College to attract new talent. “TPI is tapping into the LAUNCH apprenticeship program, alongside the abundance of alumni seeking career opportunities,” says Sinor.
Riverside Businesses Feel the Pressure
The ships waiting in San Pedro are hauling more than retail goods. Local manufacturers are also having trouble getting parts and materials. “Products that have arrived consistently for decades unexpectedly stop showing up one day,” says Blake Quinn, VP of AC PRO, an HVAC distributor.
Phenix Technology, a manufacturer of firefighter helmets, is experiencing the same challenge. “As a manufacturer who imports little to no product, even we are seeing external challenges. Suppliers who have previously been reliable and consistent for decades are now either unable to provide us with necessary components for our products or are extending lead times by months,” says Angel Sanchez, Jr., director of global operations.
It isn’t only shipping delays. Manufacturers are seeing markedly higher prices for goods and materials. According to Badesha, the price for raw materials like steel and pipe has increased four times, and Sanchez says that some of the essential components Phenix needs have increased a staggering 300% from just last year. “Without necessary relief, I fear that this supply chain breakdown for companies in our region who import and source domestically will have devastating financial implications,” he says.
It could also mean higher price tags for consumers. In a study done by First Insight and the Baker Retailing Center at the Wharton School of the University of Pennsylvania, 59% of retailers nationally said they would pass increased costs onto the consumer.
You’ll Get Almost Everything On Your Holiday List
Although the California State Assembly said it was time to “sound the alarm and expect more empty shelves at your neighborhood store,” many major retailers claim to have enough inventory to make it through the holiday season. Ulta Beauty, Best Buy, Target and several clothing retailers including Michael Kors have all reported healthy inventory levels that exceed 2020 counts.
Retailers generally start receiving holiday goods in August and September, and many of those goods, although delayed, have already made it to retailer warehouses for the holiday season. Based on data from the US Census Bureau, CBRE expects retail sales to increase 8.4% year-over-year to $800 billion with the average consumer spending $998. Shoppers will also return to in-person shopping this year, supporting an 8% increase in brick-and-mortar sales.
Electronics will be the most challenging gifts to give this year due to the supply chain issues, while clothing and accessories have the best inventory levels. Gift card sales are also expected to be strong. According to CBRE research, 55% of shoppers plan to gift a digital gift card.
It might ease concerns to remember that port congestion was also elevated last September, yet retail sales during the holiday season were up 8.3% even as the pandemic wore on. This year, if expectations hold, holiday spending will be the highest on record—showing that supply chain issues aren’t slowing consumers down. Shoppers are ready to put the pandemic in the rearview mirror, and many are willing to wait just a little longer for their purchases if it means resuming normal life.
And that is really the silver lining. Port congestion isn’t unprecedented. It happens when there is a sudden surge in demand, and it often portends of an economic expansion. With increasing interest from suppliers, distributors and ecommerce companies, Riverside County will continue to play a key role in the supply chain—helping to move goods from the ports to their final destination.
Now, that’s a reason to get in the holiday spirit.