What Is the Root Cause of Our Supply Chain Problems?

3

Americans across the nation are feeling the effects of an unprecedented supply chain crisis. Prices for everyday essentials like milk and gas have skyrocketed and public officials are warning people to start buying their Christmas gifts now.

But what is causing all of these supply chain issues? And how do we get out of this crisis? Heritage Foundation research fellow Joel Griffith talks about the different factors affecting the supply chain, from organized labor to COVID-19 shutdowns to government policies.

Griffith joins “The Daily Signal Podcast” to discuss all this and offer some commonsense solutions to get America back on track.

We also cover these stories:

  • Attorney General Merrick Garland testifies before the House Judiciary Committee on a memo he sent out regarding school board meetings and domestic terrorism.
  • Former President Donald Trump announces he’s planning on launching a new social media platform called TRUTH.
  • Following comments by Boston Celtics center Enes Kanter critical of the Chinese Communist Party and supporting Tibetan independence, videos featuring the team are wiped from Chinese social media.

Listen to the podcast below or read the lightly edited transcript.

Doug Blair: Our guest today is Joel Griffith, a research fellow for the Institute for Economic Freedom and Opportunity at The Heritage Foundation. Joel, welcome to the show.

Joel Griffith: Thanks for having me.

Blair: So Joel, if there is one thing that is dominating the news cycle right now, it is that there are massive supply chain issues. Americans are seeing images of empty store shelves and prices for things like electronics and gasoline have just completely shot through the roof. With all of this in mind, what exactly is the problem with the supply chain right now?

Griffith: Well, we have unprecedented demands placed on that supply chain. We talk about that chain—when we go to our grocery store, fill up our cars, we’re often not thinking of that process by which we actually get that merchandise. But in our interconnected global economy, which gives us a lot of benefits, we have a much higher standard of living now than we did a few generations ago, but we also really rely immensely on the ability to transport goods from point A to point B. And actually, in between point A and point B, you have a multitude of destination points.

You could be importing a suit from, let’s say, Vietnam. And from Vietnam, you have to go ahead, load it on a ship, get it to LA, to get it from LA all across the country. And if just one part of that process goes awry, you can be talking about delays for months on end. Because even prior to getting that finished product, you have a whole manufacturing product that also has its own supply chain. So one weak link in that chain can mean we don’t see the merchandise that we are in demand of.

Blair: So a lot of different explanations have been given for what the supply chain root cause is, what the root cause of these issues with the supply chain is. Are these basically COVID problems left over from the pandemic? Is this government policy? Is it both? Where are we seeing the root causes of this problem?

Griffith: Well, there’s a multitude of root causes to this problem. Going back the past 18 months, on the manufacturing side, we have many restrictions that were put in place that impacted even the ability to run a factory—distancing restrictions, shutdowns on occasion. And then to get that merchandise transported, there were a lot of restrictions that were placed on not just the cargo shipping sector, but also in the trucking sector as well.

If you back up a year ago, year and a half ago, truckers, especially in places like California, faced so much difficulty in even operating their profession—from not being able to get a shower, not being able to get food. You had instances in which those that wanted to get CDL licenses to drive couldn’t because those facilities were closed. And during that downtime, you had a lot of truckers retire. So we’re paying for those repercussions now.

But in the immediate term, even though the United States has largely reopened from COVID, that’s not the case across the entire world. You see, even in China, most recently in August, you had the world’s third-largest port that was in effect shut down for two weeks because of one single COVID case. And you multiply that across all of China and across Southeast Asia where you’ve had these ports that were shut down on occasion or you had capacity restrictions in place, well, that really compounded that, really made it difficult to ship the same number of items as we did just a year ago prior to the pandemic.

And even here in the United States, in the port of New Jersey, New York, New Jersey ports, we had a lot of COVID restrictions in terms of social distancing guidelines that were in place even throughout much of the summer. And we’re still dealing with the consequences of that. So that’s just the COVID aspects of these shutdowns. But we can get into the detail about some of the other government actions that have really exacerbated this problem.

Blair: You’ve mentioned a little bit about the COVID issues and that there were other root causes. I’d like to go in-depth a little bit more on the specific government policies that are to blame for this issue. Obviously, the government does have a role to play in the supply chain crisis. What are some of the policies that have been exacerbating this problem?

Griffith: Oh, well, on the COVID front itself, social distancing restrictions that were put in place both in California but also across New Jersey, that really impacted the number of workers that could be on-site at any one time. And then restrictions too in terms of the testing, the quarantine impact on number of workers that you would have on-site. And now, of course, we’re facing a possible vaccine mandate, which is discouraging quite a few, possibly upwards of 10%, of that workforce from participating.

But if you go back to during the shutdown component of this, for quite a time, up until late this summer, you had the federal government that was providing massive unemployment bonuses to individuals. And a lot of warehouse workers, a lot of dockhands, a lot of truck drivers found that when you’re dealing with all of these hassles to actually earning a living, for them it was more personally worthwhile to just be unemployed and take those unemployment benefits, which might have been personally the right decision for them but, of course, that created a further backlog because you have to be able to transport that merchandise once you actually get it into the shipping, the dock facility. So that was a big issue.

On top of that, we had government putting in policies that were suppressing the supply of goods, but that were increasing massively the demand for goods. If you look at the retail sales numbers right now, we see that our retail sales are at all-time highs. Our retail sales are actually around 15% higher now than they were prior to the pandemic. So we have immense demand for goods, and that is contributing to that backlog.

But that immense demand for goods isn’t really spurred by the free market at this point, that’s spurred in large part by the federal government borrowing and printing hundreds of billions of dollars and juicing up demand. So we see this artificial pressure put on that supply chain as well, which, once again, … the government [is] responsible for.

Blair: Do labor unions in any way, shape, or form have anything to do with this? I know we’ve talked a little bit about how labor and employment shortages are affecting these supply chain issues like dockhands and retail workers. Do unions have any part in this problem as well?

Griffith: Well, organized labor has played a significant role in the delays in relation to the ports in California in particular. Now, usually you have a maximum of one or two cargo ships that are stranded off the Port of Los Angeles. And I say stranded, waiting, waiting to unload the merchandise. And we saw those numbers increase to over 70 just several weeks ago. And that was due in large part to the organized labor groups refusing to expand their work hours and work on weekends.

So this delay was growing and growing. And about last week, the ports in Florida, they offered to jump in and start taking in some of that excess shipping demand. And I think that’s why you saw those labor leaders finally bend just a few days ago and say, “OK,” they’re going to agree to run those ports 24/7 for the time being in order to catch up.

Blair: We’ve discussed some of the implications of the supply chain issues in terms of massive hikes in common consumer goods and services, price hikes on those certain things as well. What are some of the other implications of the supply chain issues that you see if this isn’t tamped down on?

Griffith: Yeah, well, you mentioned that price. I think it is important to underscore just how much those prices have risen for the shipping side. You’ve seen cargo costs to ship a big container have increased from around $1,500 back in 2017, it’s gone up 1,000%, to about $25,000 today. And those cargo ships, even though most of us have never visited a port in LA or New Jersey, [account] for over 10% of all global trade, just the container ships themselves. So there’s a lot riding on this.

So if these supply chain disruptions continue, that’s going to have a real impact on us as a country, both in terms of the price of goods continuing to rise, which we’ve all noticed, also, just the very ability to gain access to these goods, which I think too we’ve noticed. It’s harder to get shipments in on time with Amazon Prime. You go to Costco, go to your grocery store, oftentimes items are out of stock. So that’s another repercussion.

But something that might not be as evident is the fact that we have a number of manufactured goods that are relying on shipments, on components to finish those processes. And when you see a delay in that, well, that can cause an entire assembly plant to close, which can result in labor disruptions and layoffs.

Those are all big economic concerns, but there’s also a national security component as well. Our military relies on a lot of shipments as well from across the world, just-in-time inventory, lean inventory standards, where they don’t want to have a lot of stockpile on hand, it’s more efficient to ship these items in and have them just in the nick of time.

So I think this is going to really be something the military will have to focus on and ultimately have to reassure Congress that our national security interests aren’t being threatened by the possibility of continued disruptions.

Blair: In order to maybe tamp down on some of these problems, recently, President Joe Biden announced that he was going to be keeping the Port of LA open 24/7. Do you find that this is going to be maybe an effective government response? And if this is something that we should be doing, what else should the government be doing to maybe fix this problem?

Griffith: Sure. Well, the ports being open 24/7, that’s a commonsense measure. This should have been something that was really dealt with months ago. And I think it’s important to note that our secretary of transportation, Pete Buttigieg, has been pretty much off the job for two months. He is a new father and has taken paternity leave. But two months off the job in the midst of the biggest transportation crisis of most of our lifetimes and generations, that’s something we should not be applauding.

So I’m glad they’re open 24/7, but longer term, other measures are going to have to be taken because in California, where we rely on a lot of the shipping, there are a number of issues that are going to threaten our supply chains going forward.

One of these is an outright ban the state has proposed through Assembly Bill 5, an outright ban on independent owner-operators of trucks. And these are business owners. People work hard to be able to buy a truck and earn a living off that. And there’s a lot of special interests involved that want to deny the right of these independent truckers to operate.

The Legislature in California has already passed that bill, it’s hung up in court right now. But if the court decides that that doesn’t violate the California Constitution, you’re going to see a crisis in the trucking sector nationwide, because a lot of folks won’t be able to operate in California. Second of all, you have California moving to outright ban diesel trucks in the coming years, that too is going to impact supply chains, going to impact our prices.

So my hope is that, if California doesn’t wake up and stop passing such absurd legislation, my hope is that places such as Alabama, in Mobile; Savannah, Georgia; Texas; and Florida, which have far more sane policies, my hope is that the ports there over the coming years will be able to pick up the slack. But that is going to take time. You can’t just dredge a bigger harbor and build a new railway system overnight. That takes time. And we are going to be dealing, I think, with the consequences of a lot of this California legislation in the coming years, separate and apart from the pandemic.

Blair: I do want to follow up on that. Switching gears slightly, I read a report in ABC News that says we probably won’t be seeing the end of these supply chain issues for a while. In your opinion, how long do you think this could last? And to maybe quote a phrase from the vice president, do parents need to start buying Christmas gifts for their kids now?

Griffith: It’s tough to prognosticate, but there is a substantial backlog and we still see these disruptions continuing across parts of the world, particularly in China with these rolling COVID shutdowns. So this is going to be something that’s going to take months to resolve.

But on the bright side, I’ve heard a number of retailers, including Best Buy today, talk about how they were working in advance to stock the shelves in time for Christmas. And Best Buy was saying that they’re actually running ahead of prior years in terms of the merchandise that they have stockpiled ready for Christmas. So that’s a positive.

On the negative side … there’s a real important ratio called inventory to sales that measures how much inventory you have on hand relative to your average monthly sales. And those numbers are still near all-time lows or at least generational lows, suggesting we’re not quite out of the woods yet.

Blair: I want to focus on something that I’ve been curious about about these issues. It seems like we’ve been talking about this in the U.S. for quite a while now. Are these issues something that the rest of the world is experiencing as badly as we are? I know you mentioned the ports in China that got closed down due to one case of COVID. But are other countries experiencing supply chain issues just as badly as we are?

Griffith: Yes, we are not alone in this. I don’t know if that should give us comfort. But other parts of the world are struggling with this as well. And in fact, other parts of the world are still struggling with lockdown measures, which are an absolute affront to human liberty. So in that respect, at least we are outperforming because we do have, in most of the country, a greater respect for human dignity and basic of human rights.

Also … with some of these other countries that rely more on the export side, their economies are really being hammered on that because they are much more reliant on manufacturing for the employment of their populace.

Blair: Now, moving back to the domestic side, is this supply chain issue something that affects rural and urban Americans equally, or is this affecting one segment of the population more than another segment of the population?

Griffith: That is a great question, Doug, that I don’t know that I have an answer to. I do know this, that regardless of where you are living, if you are looking to buy a new washer, dryer, vehicle, clothing, so much of that is reliant on imports. Even if it’s manufactured here, it’s reliant on components that come from overseas. And you’re facing some either mild inconvenience—for instance, if your washer machine goes out, you might have to wait a week or two, maybe that’s a modest inconvenience. But let’s say you need a new vehicle, spending 30% more, 40% more for a car compared to a year ago, that’s a major problem, especially for a middle-class family.

So these issues, they really do impact rural areas, urban areas as well. If you’re looking to buy food, all of us, whether we live in the countryside or whether we live in a big city, unless we’re growing our own food, and 98% of us aren’t, well, a lot of that food comes from across the border as well, whether Mexico, Canada, or even overseas for a lot of our vegetables, and those have been increasing double digits, too. So that’s impacting all of us. We are, not to use that phrase, but we are all in this together.

Blair: In a way it’s kind of refreshing that this is something that Americans are going to have to deal with together. So on that topic, what can the American government do, if anything, to help end the supply chain crisis? I know we talked briefly about you were in favor of President Biden’s announcement that he was going to be keeping the Port of LA open 24/7. You mentioned it was a commonsense measure. What are some of the other things that the government can be doing to help end the supply chain crisis?

Griffith: Yeah, and to be clear, with those ports, President Biden can’t just flip the on/off switch on that, but he did encourage them to do that. And I think that should be applauded.

But something that government could do is roll back some of these remaining onerous COVID restrictions that aren’t really grounded in science. And No. 2, this is a real big one, the Biden administration has proposed a vaccine mandate for employees at companies larger than 100. That’s 80 million people that are impacted by that. And there are possibly 5%, 10%, maybe even more, of individuals that have indicated they would rather not work than be subjected to those vaccine mandates.

Now, 10% of the workforce might not sound like a lot, but that’s millions of individuals. And many of them do work in the transportation sectors, whether they are truck drivers or they work at docks. Well, that’s going to not just be a burden on their families if they find themselves required to no longer work because of this mandate, that’s going to impact all of us. Even if a few percentage points of people decide to sit at home, that work in these vital sectors, that’s going to impact all of us. So the administration could also forego it’s unconstitutional, unlawful vaccine mandate.

Thirdly, and this is a big one, the federal government should stop juicing demand artificially. We have a supply problem. We need to have more items produced, need to have more items shipped. The last thing we need right now, and really ever, is for the government to be printing and borrowing more money and artificially simulating demand at a time especially when supply just simply is constricted because of all these delays and restrictions.

So that’s three things right there the federal government could do to alleviate this problem.

And I want to add one more thing going forward, states have a role to play here longer term. With California looking to impose even more onerous restrictions on people in the shipping industry and in the trucking industry and diesel requirements, well, this gives opportunities for other states—we mentioned Alabama, Florida, Georgia, Texas in particular—to go ahead and pick up the slack. It’ll benefit their state economies. It’ll also benefit the country as well.

Blair: Well, Joel, those are some really good pieces of advice. I think as we start to run down the interview, I want to give you the opportunity to maybe promote something for our listeners who, if they want to learn more about these supply chain issues and some effective government responses to them, where should they go? What should they look for?

Griffith: I would go to heritage.org. And we have a number of experts that have really been focusing on these supply chain issues. I think the easiest way, if you’re listening to the podcast, just go to heritage.org and in our search bar type in “supply chain.” And you’re going to find some very solid information about the problems that we have currently and about solutions going forward.

Blair: Excellent advice. Well, that was Joel Griffith, a research fellow for the Institute for Economic Freedom and Opportunity at The Heritage Foundation. Joel, it’s always a pleasure to speak with you.

Griffith: You as well. Thank you.

Have an opinion about this article? To sound off, please email [email protected] and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the URL or headline of the article plus your name and town and/or state.

View original post