The complex global system that transports products largely worked -- until the pandemic. Now the system needs to change.
If you bought a lot of items online over last 20 months, you're not alone. Stuck at home during the COVID-19 pandemic, perhaps you shopped for home workout equipment. Or maybe it was patio furniture, cookware or board games. Because when you're not spending money on trips, concerts and theater, you spend it on making yourself comfortable.
Millions of others did the same. But as more people shopped and each of them bought more stuff, manufacturers, retailers and the shipping companies that connect it all struggled to keep up while keeping their workers safe. It was a challenge the supply chain that circles the globe had never seen before. And as consumers fumed over delivery delays, empty shelves and "sold out" signs, they didn't stop shopping.
"The biggest issue has been the unprecedented demand that we've seen from people sitting at home and not being able to travel or go to the movies, to basically saying, 'OK, I'll spend my money on buying things,'" says Andrew Hwang, the manager of business development with the Port of Oakland. "Maybe it was to make themselves happy or to buy things that they'd put off for years, but it created a big strain on the supply chain globally."
Over the last 50 years, a complex orchestra of vessels, vehicles and aircraft efficiently moved the things we ordered around the planet. Packed into shipping containers or the bellies of cargo planes, they traveled quickly to our doorstep. It's how we got our iPhones, household goods, cars and clothing, whether they're made abroad or just across town. But as it did with so many things, the pandemic walloped the global supply chain and every link in it. Worker shortages, COVID-19 workplace restrictions and an explosive demand for stuff — online shopping grew 20% between 2019 and 2020, according to Mastercard — quickly congested the entire process, leaving ships to wait a week to be unloaded and goods to pile up at ports and other transit points. A system built on globalization but with fixed resources — you can't expand a port overnight — suddenly became a global problem. Even if the shopping spree eventually wanes, a new kind of supply chain, like one that covers shorter distances, is likely to develop.
"Sometimes in our lives, we forget how big the world is," Hwang adds. "We forget how tied and interconnected we are. And for the things that we like and we want to have, much of it comes from other places thousands of miles away."
Coming up on two years since the first coronavirus cases were reported in China, the congestion continues. Online freight marketplace Freightos says ocean freight from Asia to the United States now takes an average of 69 days, or almost double what it took a year ago. And according to Drewy, a maritime consulting firm, the cost of shipping a 40-foot container from Shanghai to Los Angeles is now $12,172, triple what it cost last year. As new variants make it difficult to forecast working conditions or consumer behavior, the global supply chain is expected to remain in flux for months to come.
It's enough of a problem that the federal government has noticed. In February, President Joe Biden issued an executive order asking the secretary of commerce to identify supply chain risks for critical items like semiconductors and electric vehicle batteries, both of which are in short supply. Biden's goal: to get more goods — though admittedly not all — made in America. And in July, the White House appointed a special envoy on port congestion to its previously announced Supply Chain Disruptions Task Force.
"[So we're] looking to identify very specific gaps and figuring out the best way to go about creating resilient supply chains," Celeste Drake, the administration's Made in America director, told CNET's Connie Guglielmo and Maggie Reardon last month. "This is not about bringing every far-flung supply chain to the United States."
Bill Reinsch, a senior adviser at the Center for Strategic and International Studies, sees Biden's policies aligning with industry trends toward simplifying and shortening supply chains and building redundancies into them. "The argument is not just, 'You know, we want to make it here because it's nice,'" he says. "We want to make it here because these areas are critical to our security. And we need to have confidence that we can have adequate amounts of this stuff, like batteries and critical minerals, when we need them."
Though the logistics of shipping goods across the ocean are massive, it's long been worth the lower cost of making products outside the US (as my colleague Ian Sherr reports about why Apple builds the iPhone in China). For consumers, the delivery truck that comes to their door is that system's most visible part. But before that handoff happens and you gleefully tear into the box, your new treasures may have traveled in every mode of transport from halfway around the world. Trucks, trains, planes and ships all play a role, but it's the world's oceans that are the main avenues for most global trade.
"Most people don't realize that almost everything around them that's not made in the United States, generally comes through a port," Hwang says. "If you're in Northern California and you're looking at your favorite pair of jeans, the smartphone that you're using or the chair you're sitting on, there's a very good chance it came through the Port of Oakland."
In 2020, Oakland handled 2.46 million 20-foot equivalent units (abbreviated as TEUs, it's a measure of cargo capacity based on a container 20 feet long). It was the eighth US busiest port in 2020, and when combined with the Ports of Los Angeles and Long Beach, the country's first and third busiest, almost half of the nation's container cargo volume passes through California.
To get the best idea of how it all works, you need to visit the docks. Hidden behind freeways and warehouses are vast terminals where the immense ships that carry 80% of global trade call. On every day of the year in ports like Oakland, Los Angeles, Seattle, Houston, New York and Savannah, Georgia, ships as long as the Empire State Building is tall arrive to offload thousands of containers packed with everything from computers to furniture to perishable goods.
If you can get up close, it's an impressive sight to watch the towering cranes move in a choreographed dance to pluck the containers off the ship one by one. Back in the days when I used to commute regularly from my home in Oakland to CNET's San Francisco office, the ferry route would pass by a long row of ships either just arrived or preparing to sail. I never failed to look up from my book, especially on one day three years ago when a ship was unloading a container full of belongings my husband and I had moved back from London. Elsewhere in the port are piles with containers stacked four units high like a giant's Lego set.
It's a noisy, dynamic process and one that Bob Watters, the senior vice president of SSA Marine, knows well. The Seattle-based company operates the Oakland International Container Terminal, unloading and loading about 100 ships per month and managing the transfer of cargo in and out of the port. Watters says that before a ship sails through the Golden Gate, SSA Marine knows exactly what's on it, which of the containers need to be unloaded and in what order. It may look like chaos, but it's all carefully organized.
"We will plan the vessel," Watters says. "We'll have a schedule for how many [people] we're going to have working and how many cranes we're going to use to get the containers off as quickly as we can."
As big as the cranes are — SSA Marine's newest Oakland cranes tower 174 feet above the dock — they're operated by only one person working in a 4-hour shift (the full support crew for each crane is about 23 people). Looking down through a glass floor, the crane driver uses a joystick to lock a spreader bar onto each container. After they're lifted out of the ship's hold, they're placed on trucks waiting below and are driven to another section of the terminal where they wait to be picked up.
How long the long process takes depends on the size of the vessel and how many containers need to be offloaded. Though the unloading sequence is planned by computer, each crane is still operated manually. "It takes a lot of skill, Hwang says. "I liken it to flying an unmanned aircraft."
For loading a ship, the process is reversed. Empty containers headed back to China for new goods or containers loaded with exports — given its proximity to the productive farms in California's Central Valley, Oakland is the country's main departure point for foods like fruits and vegetables, nuts, rice, tomato paste and beef — arrive at the port and are driven to the dock. The crane picks each one up and drops it back in the ship's hold, usually at the same time that it's unloading.
In either direction, it's a mammoth operation that makes our consumer economy possible. The largest ships can carry more than 23,000 TEUs apiece.
"Without the ports, you don't have those products, or they're very expensive, because you have to fly them in," Hwang says. "And if you're an exporter, and you're trying to get your products overseas globally, your products are most likely also transiting through a port."
Ships, of course, can't sail on land, which means containers need to travel to and from ports on the back of trucks and railcars. The former play an especially massive role, both overseas between the factory and the origin port, and after the cargo arrives in the US. As CNET's Laura Michelle Davis reports in her Made in America story, Trucking in America, all imports ride on a truck at some point. We might curse at a smoke-belching big rig blocking the freeway, but it and others like it carry 72% of all the goods we consume, or 11 billion tons of goods every year.
The domestic journey starts when a truck arrives at a port and collects the container from the stack where it's stored. US Customs has already cleared the shipment at this point, but it still needs to be scanned by a radiation portal to check the goods inside for any problems like hazardous materials. Finding one container in a port crowded with thousands may sound like a needle in a haystack task, but Watters says digital records (every container has a unique number for tracking) make it easy.
"We know who the trucking company is, who the truck driver itself is and which container they're picking up," he says. "Everything gets checked from a security standpoint. Then at the [exit] gate, it's checked again."
Trucks then carry containers directly to distribution centers run by manufacturers and retailers or to intermodal yards — intermodal means to involve two or more different modes of transportation — where they're loaded onto freight trains for a longer journey inland. On the coasts, you'll typically find these sprawling facilities both right next to ports (Oakland's is basically across the street) and at the edges of large urban centers (such as the Inland Empire region of Southern California). But others, including Union Pacific's LATC Intermodal Terminal in Los Angeles, are practically right downtown.
The country's biggest intermodal yards stretch in a line down the center of the country from Chicago to Houston. There, imports are transferred back to trucks for the rest of their journey to the hands of consumers. It's a river of freight that never stops -- according to a 2019 report from the Department of Transportation, railroads carry 40% of all US freight as measured by the length and weight it travels.
John Gray, the senior vice president of policy with the Association of American Railroads, says keeping it flowing smoothly is critical. The goal is to get rail freight from a port to an inland terminal in 48 to 72 hours. And once it arrives there, it needs to be on its way in 24 hours.
"They try to get it off the dock as quickly as possible. Because if they don't, they run out of room to work," Gray says. "Then you have to keep it moving. It can't sit around in the rail yard or you won't be able to use the rail yard because it backs up very quickly."
It's a system that's designed to handle large loads, but running out of room at docks and intermodal yards became all too common when the pandemic hit. At first, though, the consumer supply chain suffered from the opposite problem: As COVID-19 swept China, factories suspended production due to lockdowns and sick workers. That created a slowdown at US ports that lasted through the first four months of 2020. By April of 2020, imports into Oakland had dropped by 40%.
Around the same time, Gray says, the nation's railroads were carrying about 215,000 containers per week, a drop from about 270,000 per week pre-pandemic. But once Asian factories came back online and consumer demand began to balloon, the number shot up to around 310,000 containers by the start of the third quarter of 2020.
"When people couldn't spend money on services, they did one or two things: They saved money or spent it on goods," Gray says. "The acceleration of the expenditures on goods started to create huge orders, and these started to appear in our system."
It wasn't just the country's rail network that had to adapt to that surge in orders — all parts of the supply chain eventually began to feel it. By July of last year, Hwang says volumes had rebounded. So far this year, import volume into Oakland has increased 14% over the same period in 2020. The port has seen a large boost in furniture and carpets, appliances, kitchenware and the things like monitors, computers and tablets that people needed to outfit new home offices.
"[The strain on the supply chain] was everywhere from the factories trying to make products, to the raw material suppliers for those factories, to the ships and to the ports," Hwang says. "It was all the way where cargo had to transit through the domestic system, which was the warehouses, the railroads and the truckers."
Once manufacturers resumed production overseas, it took time to ramp up to meet the increased demand. At the same time, recurring COVID-19 outbreaks at factories and at the Asian ports where exports are loaded onto ships could interrupt the flow of goods. Outbreaks in Malaysia have cut into the already tenuous global supply of chips, affecting everything from cars to medical devices. And in August, container terminals in Shanghai and Ningbo, China, the world's busiest and fourth busiest ports respectively, closed completely to get outbreaks from the delta variant under control.
Cargo ship capacity also became constrained to the point where Home Depot reportedly contracted a container ship for its exclusive use. (Home Depot declined to discuss specifics with me.) The congestion then rippled across the ocean to US ports, which also had to implement new policies to keep workers healthy. As more ships arrived at already jammed ports, they could wait days for an empty unloading berth -- a situation not too different from when your flight arrives at a busy airport and has to wait for a free gate. In February as many as 40 container ships were anchored outside Los Angeles Harbor. Last week, that number had increased to 63 ships. The anchor from of those ships may have caused a massive oil spill off the Southern California cost this week.
Such scenes were repeated across the country, including in Oakland, where ships waited to unload in San Francisco Bay. "You can only put so much capacity through a marine terminal that has a finite amount of space," Hwang says. "The terminals and labor were working very hard, but we're having a difficult time keeping up with the demand for loading containers on and off the ships."
Some places suffered also from a shortage of containers, and US exporters felt the crimp as well. "Because ports around the world are congested, vessels are off schedule," he says. "That meant on the export side they are having a very difficult time targeting the right ships to be able to make it to the markets."
But securing cranes and a dock was only part of the problem. Even after a ship was unloaded, the containers couldn't be removed from the port fast enough. And with no room to store a newly arrived ship's cargo, it would have to wait to unload even if a berth was available.
"The terminals were unloading the ships," Watters says. "But there wasn't enough capacity in the logistics system to take the containers off the terminal in a timely fashion."
Further down the line, every point in this interconnected chain hit capacity walls. Outside of occasional equipment shortages, moving a container to its destination wasn't the problem once a container was on a truck or train. Rather, it was the transfer between truck and train (or the opposite) that became the weak point. Much like the ports, intermodal yards and retailer warehouses and distribution centers could simply run out of room. Railroads prevented trains from entering a yard when there was no space. Things got so acute in June that Union Pacific had to suspend service between the West Coast and its giant yard near Chicago for a week to clear a freight backlog.
"Downstream from us are the trucks that get it to the warehouses," Gray says. "When that system was backing up, we started having problems getting the containers out of the intermodal yard. There was nowhere to take them."
Like the ports, other US workplaces had to navigate the ongoing effects of the pandemic including social distancing measures and caring for sick workers, both of which could lead to staff shortages. And on the retailer side, a longtime reliance on "just in time" manufacturing — where businesses keep inventories low to avoid overproduction and keep costs low — became unworkable.
"And at the same time e-commerce sales went up significantly, retailers were allowing their inventory to draw down," Watters says. "So what happened was, all of a sudden, everybody's trying to order more inventory at one time to catch up. And they didn't have enough space in warehouses."
As the ocean-to-land supply chain slowed, the one flying above it was able to benefit. Long used to deliver iPhones, pharmaceuticals and other high-value goods, air freight carriers like UPS and FedEx were able to ride the e-commerce wave. Though the speed of sending something by a 747 instead of a cargo ship was a bonus, Reinsch says the motivation to go by air was more about uncertainty than speed.
"If exporters knew when their merchandise would be unloaded and knew when it would arrive at its final destination, they could plan accordingly," Reinsch says. "Not being able to plan pushes them to air freight."
In a typical year, air freight carries $6 trillion worth of goods or 35% of world trade, according to the International Air Transport Association. And in these atypical times, demand for air freight has increased 9%. "The COVID-19 pandemic accelerated many e-commerce trends faster than expected, including the dramatic growth of purchases in both traditional and non-traditional categories," Jim Mayer, a UPS spokesman, said in an email.
Passenger airlines, which normally carry about 50% of air freight, also saw a cargo bump. It came at a welcome time when demand for passenger flights plummeted. Roger Samways, the vice president of the Cargo Commercial at American Airlines, says that instead of parking some of its unused aircraft, American was able to redeploy them to fly freight.
"Ocean freight was having huge, huge challenges," he says. "That had a consequential effect on air freight. As customers are unable to get access to ocean freight capacity, they're trying to get access to air freight just to get their products to market. It's been incredible."
Though American doesn't operate designated freighters, it used the cargo holds of otherwise empty passenger aircraft early in the pandemic to carry a wide variety of goods including iPhones and laptops, clothing, food, personal protective equipment (at least early in the pandemic) and now vaccines. Particularly for vaccines, speed was key.
"There was a need to get the product to its destination very, very quickly," Samways says. "And that's where freight comes into its own. So that represented a huge amount of what he did in the early weeks and months of the pandemic."
When things could return to "normal" or whether there's even a normal to return to are questions everyone involved in the supply chain is asking. Though the Commerce Department reported that consumer spending dropped by 1.1% in July, congestion in some areas endures. Ports in Southern California and the Northeast are predicting that backups could last through 2022 and the continued grip of the delta variant could make for empty holiday shelves.
Gray says the supply chain hasn't adapted to changed circumstances — at least not yet. While some consumer spending will shift back to entertainment and services, when that will happen and to what extent is impossible to predict.
"Is the reversion going to take place over a few months? Or is it going to be something that goes on for a year or two?" he asks. "That uncertainty is a problem for everybody, because uncertainty doesn't give you the basis for really changing the infrastructure."
Oakland had worked through its backup by early this month, but Hwang says managing the flow of goods will remain a challenge. "I do feel that what we were used to, or what we call normal prior to COVID, will never come back," he says. "There will be something of a new normal — a permanent transfer of spending from entertainment, eating out and travel to buying products."
However consumers behave, fundamental change to how the supply chain works will likely come. One option, of course, is to make more things in America, a process called "reshoring." The Biden administration would like that to happen for what it identifies as "critical products" in particular. The February's executive order identified six such areas including information and communications technology, national defense, health care and medicines that have "risks posed by supply chains' reliance on digital products that may be vulnerable to failures or exploitation, and risks resulting from the elimination of or failure to develop domestically."
"This is one piece of the president's ambitious agenda that is really going to end up making sure that we never again are caught in a crisis like the COVID-19 pandemic, and without access to really critical goods," Drake told CNET. "Because we've let supply chains not only go overseas, but become concentrated in one place where they're not resilient."
A push to reshore or "nearshore" (making things in other countries in the Americas that don't need to be shipped over the ocean) could also come from manufacturers. Their reasons could be what Reinsch describes as offensive — nearshoring is cheaper or more efficient — or defensive, meaning they're unhappy where they are (due, say, to concerns over Chinese government policies or the ways Beijing is treating foreign companies).
"One [reason] now, particularly with the container ship shortage problem and port backups, is ocean shipping is becoming more uncertain than it used to be," he says. "So they're looking for places where they don't have to worry, where they don't have to depend on ocean freight, is a more serious consideration."
As for lessons to take forward, Reinsch also predicts a shift away from just-in-time manufacturing. He pointed to the problems with securing masks and PPE early in the pandemic as a problem no one wants to repeat.
"I think we're heading back to inventories and stockpiling in some cases," he says. "There are a lot of issues there that deserve further investigation, beginning with the degree of competition in the ocean shipping industry. But the way that manufacturers respond to all that is through inventory."
But most of all, everyone I spoke with hopes that consumers will now take notice of the global supply chain and its complexities. They're not asking you to buy less, but to understand that once you click the purchase button, your products don't just magically appear at your door. It involves thousands of miles and thousands of people and everything from trains and planes and to monstrous ships and countless trucks. And if something goes wrong, like when the cargo ship Ever Given blocked the vital Suez Canal last year, all of global trade is affected.
"I don't think people understand how complex the whole system is, and how dynamic it is," Watters says. "People see ships at anchor in the ports and think that something's happening at the port that's not efficient. When in fact, it's not the port or the marine terminal operators, it's the rest of the logistics system."