Supply-chain experts to Reuters: No really, cancel Christmas

(AP Photo/Warner Bros.)

Too little, too late. That’s the verdict coming from experts about Joe Biden’s proposed moves to get supply chains operating at normal capacity, especially in time for the fast-approaching Christmas holidays. They tell Reuters that Biden’s solutions are perhaps not even too little and more non-sequiturs, but Reuters manages to make the story about Republicans first:

President Joe Biden is pushing to ease supply shortages and tame rising prices in time for Christmas, but unsnarling U.S. supply lines could take far longer, experts told Reuters. …

As his Republican opposition seizes on possible Christmas shortages to connect Biden’s economic policies to inflation, and try to stall a multitrillion-dollar spending bill in Congress in coming weeks, the White House’s message Wednesday was that a solution is in sight.

Yes, the big story here is that Republicans are seizing! And likely pouncing too, although Reuters spares us the double-stuff. But that’s only a momentary concession to their liberal bias, while the rest of the story dismantles Joe Biden’s incremental-at-best tweaks to a system in nearly full seizure. Their experts give credit to Biden for night shifts at the biggest retailers, but scoff that it’s going to provide meaningful improvement to the supply chains:

“This is an across-the-board commitment to going to 24/7,” said Biden, a Democrat. The port opening, and a promise from retailers like Target and Walmart to move more goods at night are a “big first step,” he said. Now, he said, “we need the rest of the private sector chain to step us as well.”

While more cooperation among the often competing, secretive players in the U.S. supply chain business is a plus, the White House’s impact may be incremental at best, logistics experts, economists and labor unions warned.

“What the president’s doing isn’t going to really hurt. But at the end of the day, it doesn’t solve the problem,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities.

It’s not going to help much at all, as the Washington Post’s David Lynch explained in detail yesterday. Extra shifts at the dock will only provide momentary relief if truckers aren’t around to move the material off the docks. And they can’t move it without having enough of the right containers, and they can’t move it if warehouse capacity doesn’t exist to store it, and so on. The warehouse issue is likely the biggest problem, and needless to say, Southern California isn’t exactly known for its wide-open spaces or its friendly nature to commercial construction.

Reuters redeems itself for the “seizing” reference by providing the best analogy for this debacle and the Biden response:

“You don’t build a church for Christmas and Easter; you build it for a regular Sunday service,” he said. “With the unprecedented influx of cargo, it’s like Christmas and Easter on the docks every single day, with more ships coming in and the pews have been full for months, and there’s nowhere left to sit – or stand.”

Can I get an amen?

This brings us to a point made by my friend Olivier Knox on this morning’s Hugh Hewitt Show. One of the main structural problems in this crisis is the Just In Time manufacturing/shipping model adopted in the mid-1980s by American businesses. They moved away from standing inventory and warehouses to spot-ordering materials from manufacturers and relying on rapid-response logistics. That saved businesses a fortune on inventory and warehouse costs, and those warehouses eventually disappeared — and with it their capacity to absorb shocks to the supply-chain system.

The pandemic has shown that the JIT model is brittle in ways that no one calculated. Biden’s response yesterday demonstrates a serious lack of grasp of those dynamics. His plans assume a logistics system that hasn’t existed in nearly 40 years in any real sense, not to mention the decline in truckers that has been happening for a couple of decades as that old system faded from view.

This analogy speaks to the problem now, and the lack of awareness Biden demonstrates in his incremental approach:

“The analogy would be the boa constrictor that ate the mouse. There’s a lump in it and the lump is the constraint in the throughput of the supply chain, and it moves along each time you solve for a constraint,” said Joe Dunlap global head of the supply chain advisory team at CBRE Group (CBRE.N), a commercial real estate services firm.

Moving the lump from the ships to the dock is only one step. And it’s not even really the most critical step. Biden may not grasp that by Christmas at this rate, let alone solve it by the holiday season.

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