Most customer conversations lately include one question: “How much longer will capacity constraints continue to hamstring the freight industry?” Truth is, the shipping bottlenecks driving today’s capacity shortages are expected to persist well into 2022. Between slow capacity growth, a shortage of containers and truckers, and the ongoing semiconductor chip crunch, which has severely limited new truck production, market volatility is showing no signs of slowing. In this post, we’ll take a closer look at what’s causing it.
While US truck and trailer orders are currently soaring, this doesn’t mean new capacity will come online any time soon. In fact, the Journal of Commerce Online predicts these orders won’t translate into available capacity well into 2022 due to shortage of many vital components like semiconductors. According to FreightWaves, rolling 12-month orders averaged 437,000 units, well beyond the industry’s build capacity. These manufacturing delays point to there being a gradual return of capacity that won’t affect availability and rates quickly enough to make a real difference.
The pandemic-fueled onslaught of online purchasing is evident at nearly every single port in the US. Skyscraper-esque towers of shipping containers have taken over the ports as they sit, waiting for trucks to arrive and haul them away. But where are the trucks? There’s the rub. A shortage of equipment and drivers due to the pandemic, amplified by a speedy recovery in demand, has clogged seaports and airports and led transportation costs to skyrocket.
The supply chain is global and inter-connected, and the ongoing presence of COVID-19 has exposed a lack of investment in the US infrastructure that would have allowed us to flex throughput more expeditiously. We are simply not equipped to handle the nation’s seemingly never ending blizzard of consumer cargo. Roger Guenther, executive director of the port of Houston reports they have as many as five to 10 ships sitting outside waiting for a berth, and that their container cargo is up 16% in 2021 over 2020. What’s more, without enough trucks to carry cargo out of the yard, the port is running out of space to temporarily store containers that continue to arrive on ships.
In other areas, like two of the nation’s largest ports in Los Angeles and Long Beach, California, which receive 40% of shipping containers entering the US, things are even uglier. They’re seeing more than 100 ships anchored in San Pedro Bay off the California coastline waiting for a dockside berth. To add to the stress, port authorities are threatening to fine shipping companies if their containers dwell there for too long. And with more and more containers arriving each day with the ongoing holiday purchasing spree, these capacity constraints are turning into a lose-lose for all parties involved.
Labor shortages have plagued the supply chain industry for years, but the pandemic has exacerbated the issue. Many workers are voluntarily quitting jobs in an economy where workers are significantly more scarce than in previous years, making it much more difficult for the supply chain to operate at or above normal capacity. Employers everywhere are making drastic changes to how they operate in order to improve employee retention.
- Starbucks is responding to the staffing shortage by reducing hours in certain locations to ensure that employees aren’t overworked. They say they will continue to make the necessary investments to remain an attractive employer moving forward.
- Almost 40% of Popeyes locations have been forced to curtail operations as a result of the labor shortage sweeping the industry, forcing the restaurant chain to close dining rooms and rely instead on drive-through, delivery, and takeout.
- Harris Teeter cut back the hours of operation for its stores nationwide in September to alleviate staffing shortages.
So, where have all the workers gone? According to a recent Forbes article, “The answer has a lot to do with shifting attitudes among Americans coming out of the pandemic and the restrictions some workers are still facing.” Many workers are still worried about health risks and wondering if it is safe to go back to work even if the pay has gone up. LinkedIn’s data finds that jobs offering remote work are getting 2.5 times the share of applications compared with those requiring on-site employees. Since most supply chain jobs cannot be done remotely, it makes sense it’s one of the industries being hardest hit by the current labor shortage.
Although many companies like Amazon, Walmart, and UPS, have raised starting wages to all time highs, it’s worth noting that compensation hasn’t increased across the board, so low wages for supply chain jobs might also be contributing to a labor shortage. The federal minimum wage of $7.25 per hour has been in place since 2009, and real wages, which factor in the effect of inflation, are actually down 0.5% year over year. Burnout, early retirement, and the fact that women’s participation in the workforce remains low since the pandemic are also leading to hiring challenges.
When it comes to predicting when the current labor shortage will start to dissipate, experts say it depends on a number of factors, but most prominently is the course of the ongoing pandemic. New concerns about the Omicron variant are likely to add strain to the current shortages over the coming months.
The SemiCab Take
With capacity constraints and volatility top of mind, we gathered insight from Ajesh Kapoor, SemiCab’s Founder and CEO, who says, “Capacity will definitely remain tight well into 2022, and we cannot wait on adding more trucks and drivers to address the current challenges. We have to focus on utilizing the resources we have more efficiently.”
Fact is 25-30% of the miles driven annually are empty. Kapoor explains, “The transportation industry lacks the transparency it needs to maximize utilization of the resources we have. It’s going to take a whole new level of collaboration to smooth out the volatility we experience time and time again. Adding excessive trucking capacity will actually backfire down the road as demand stabilizes. Prices will crash and small carriers and owner-operators will go out of business as a result.” We’ve all witnessed that cycle, and we’re all well aware that it’s not sustainable.
Eliminating Capacity Constraints in 2022 & Beyond
The pandemic has shone light on a long-standing problem, and we need to address it with long-term, sustainable solutions, not with knee-jerk reactions that add unnecessary capacity into the system. The only way to address this inefficiency is for shippers and carriers to join a collaborative ecosystem, like SemiCab, that works to optimize the imbalances inherent in individual supply chains. If you’re ready to be part of the change, join our Collaborative Transportation Network. Together, we can build greater resilience to withstand the kinds of shocks the transportation industry experiences year in and year out, whether they are due to a pandemic, extreme weather, fuel shortages, or other disruptions.