Tomorrow’s Economic Headlines Today

Port of Long Beach, California. Photo by Charles Csavossy, Public domain, via Wikimedia Commons

Things — especially when it comes to economics — don’t happen in a vacuum; they happen in a sequence. This here story is the sequence leading up to the headlines you will be reading in a few weeks/months:

Washington Post:

Fresh coronavirus outbreaks are forcing factory shutdowns in countries such as Vietnam and Bangladesh, aggravating supply chain disruptions that could leave some U.S. retailers with empty shelves as consumers begin their back-to-school shopping.

The overseas work stoppages are just the latest twist in almost 18 months of pandemic-related manufacturing and transportation woes. The new infections come as two of the largest U.S. railroads last week restricted shipments from West Coast seaports to Chicago, where a surge of shipping containers has clogged rail yards.

Supply headaches stretching from Asian factory towns to the American Midwest are intensifying as the economic recovery tries to outrun the highly infectious delta variant. Aftershocks from earlier limits on a major Chinese port following a rash of covid-19 cases are expected later this month to worsen backlogs at U.S. West Coast facilities.

Chronic shipping delays also are feeding inflation, just as consumers prepare to stock up for the coming school year. Spot shortages of clothing and footwear could appear within weeks, and popular toys may be scarce during the holiday season. Even as the U.S. economy is slated to enjoy its fastest growth since 1984, supply lines now are expected to remain snarled through the first half of next year or longer, according to corporate executives.

“Whatever the new normal is, it will happen a lot later than people assume,” Marc Bitzer, chief executive of Whirlpool, told analysts Thursday. “Everybody hopes for [the] new normal to be next quarter. It’s not going to be.”

The pandemic has exposed fragile global supply chains across multiple continents. No sooner did the recent reopening of southern China’s Yantian port solve one problem than the closure of Bangladeshi factories until Aug. 5 created another. White House economists say interruptions in the supply of semiconductors and home building materials are contributing to the highest inflation in 13 years. The president earlier this month signed an executive order designed to increase competition and lower prices in the shipping and freight rail markets, but any impact will be felt only in the long run.

Corporations such as Levi Strauss, Harley-Davidson and Unilever are among those rewiring their supply lines or raising prices to offset higher input costs.

But the Biden administration has parried industry calls to help companies financially by eliminating import tariffs on Chinese products or to use the National Guard to physically clear the cargo jam.

“There are things that could be done if they took it seriously as a crisis,” said Rick Woldenberg, chief executive of Learning Resources, a maker of educational toys. The interruption of Chinese manufacturing at the pandemic’s outset toppled the first of several dominoes leading to today’s global supply chain pileup. While Chinese factories quickly returned to normal operations, an unexpected increase in American demand for goods during the work-from-home era discombobulated traditional trade patterns.

As a result, ocean-spanning supply chains, the distinguishing characteristic of the age of globalization, are failing at multiple points. The massive cargo carriers that arrive off the coast of Southern California, some bearing more than 15,000 metal shipping containers, often must wait at anchor for days before disgorging their cargo. Once on land, containers frequently idle in temporary storage while awaiting space on an outbound truck or train, incurring additional costs.

Inland rail yards have emerged as the latest pain point for companies trying to move goods internationally. Trains full of clothing, computers, furniture and appliances have been streaming for months into Midwestern hubs. When the system works as designed, containers are lifted from arriving trains and placed directly onto a wheeled chassis, which is then hauled away by a local driver. The chassis is quickly unloaded by the final customer and returned to the rail yard. But this year’s flood of cargo has overwhelmed the system, leaving the yards without enough chassis. So containers have piled up by the thousands.

Rather than a single movement from train to truck, containers now are lifted off, placed in storage and then moved a second or even third time before eventually exiting the yard, according to Lawrence Gross, a transportation consultant in Durango, Colo. “Once you fall behind, it’s really hard to dig your way out,” Gross said. “The system has gotten out of whack.”

Rail freight has long been watched carefully as an indicator of economic activity, since a vast majority of basic materials, goods, and parts move by rail. Logistics and transportation is not only the enabler of economic activity, it is a major economic sector in and of itself. Every backlog/stoppage/delay in the intermodal system is a ripple that carries through the larger economy as a whole. And the real ripples from the Covid-19 pandemic are only now starting to make their way across the fruited plain. Unlike the toilet paper shortages of last winter and the Colonial Pipeline gas shortages of this spring, which were both caused by panic buying and overloading the consumer side of the supply chain, the potential for true shortages in everyday products is very likely in the near future. If there is another round of consumer panic to go along with those supply chain delays when/if they come, expect chaos in the store aisles once again.

The truth is, there is very little the United States government can do in the short term to affect the global supply chain issues that are going on, and the potential for knee-jerk reaction that could have long-term negative consequences is far from zero. How the Biden Administration handles the coming ripples and waves of economic uncertainty will be a huge factory not just for the country heading into what was supposed to be a “returning to normal” school year, but for the looming 2022 midterm elections. It’s still the economy, stupid, and the economy is an increasingly squeaky wheel begging to be paid attention too.