Supply chain problems likely to last after the holidays

Speaker 1: The world supply chain is in crisis. COVID 19 has caused an unprecedented amount of shopping, especially in the United States, but all of that online shopping is severely straining the entire industry from ships to ports, to trains, to trucks, to airplanes. But what really can we do about it? Joining me now is Dr. V Schreiber, this founder and CEO, O of Freightos a digital booking platform that connects freight forwarders, shippers and importers exporters. Uh, well thank you for joining me, Dr. Schreiber. Really appreciate [00:00:30] it. Um, so we're talking about the supply chain. Of course, big story right now is the supply chain is extremely backed up around the world. Uh, ships are waiting to unload outside ports and many places. Uh, can you tell me from your perspective, what is really going on here? Well, Speaker 2: Really it's, it's quite simple what happened and nobody expected this, but what happened is that during COVID, uh, people, particularly in America started buying more stuff. And it's kind of interesting, cuz if, uh, if you'd have asked me or a hundred other people in the industry in May, 2020, what's gonna happen to, to retail [00:01:00] during COVID, you know, a hundred people would've told you there's a recession coming, people are gonna are gonna be shopping less. A lot of stores are closed. Um, so that was the expectation, but the reality was quite different. You know, a couple of things happened, first of all, people spent less money on services, less money and restaurants, less money on travel and they compensated by spending more money on goods. And at the same time, of course, there was all this financial stimulus, a lot of, uh, money being printed. So, um, a lot of people did have, uh, disposable [00:01:30] income despite the, the recession. Speaker 2: And what happened is that American retail, uh, broke records, um, Americans are now buying 15% more goods, more imported goods. Most of it is imported way, uh, than they were pre COVID and the whole international supply chain, the shipping, the ports, the trains, the trucks just didn't have that kind of slack, uh, built in. It was never designed. It was designed to grow two or 3% a year. Nobody ever expected a 15% jump. [00:02:00] And when that happened, when people started buying more stuff than of before, uh, you found many parts of that chain collapsing and you've got bottlenecks in the ports and the cranes, the physical containers themselves, the, the train hubs and the whole, the whole system, uh, came under terrible Speaker 1: Stress. So it sounds like, uh, from what you're saying, the, the, the industry just didn't, you know, they thought it would grow at a smaller rate. It came up this huge boost, this, this sort of ballooning in, in people buying things, uh, [00:02:30] you know, I've, I've seen some PE get a little pushback where saying, well, you know, shouldn't the, shouldn't the industries have suspect suspected this, you know, they were just, they were trying to get by on the cheap, they were, they weren't investing in things. Um, but it, it really seemed to be more that this is just, this is, I mean, people use the word unprecedented a lot to describe COVID, but this really was something that nobody understood the effects of what the pandemic would do. Is that right? Speaker 2: Yeah, I think that's right. I mean, it's not just the pandemic, but I don't think, you know, retailers ever jumped that much. Um, and you [00:03:00] know, to be fair to the shipping lines and the ports, this is expensive capital, you know, nobody buys a ship, you buy a ship, which has got 5% more capacity than what you expect, but nobody can afford, it's a competitive industry. Nobody can afford to say, I'm gonna have, you know, 15% spare capacity, no port say, you know, can afford to have all those extra cranes sitting, oddly, just in case there's an unexpected jump in retail. So you've gotta understand that, uh, that nobody expected this. And even when the, when the pandemic [00:03:30] came, nobody expected, I don't know, a single person who predicted that the pandemic would lead to a jump in, in, um, imports. So no expected the pandemic, nobody expected this consequence of the pandemic and nobody was, was gonna invest in, in the ports and trains and ships and cranes and aircraft just in case this unexpected jump happened. And then when it happened, uh, we were caught short, you know, right along the supply chain, uh, were Speaker 1: There, were there other effects about, uh, especially, you know, when the pandemic started, [00:04:00] uh, you know, the, their factories and, and then this is still going on. Of course, factories were closing down temporarily in, in Asia and the ports were closing down in Asia temporarily because people were getting sick because they're trying to keep their workers safe. What kind of effect has that had as well? Speaker 2: So you're quite right, Ken, there, there were a number of secondary issues all related to COVID. Um, there were poor like the in south China partially closed for a while. Uh, the airport in Shanghai just last month was partially closed. Um, there [00:04:30] are other cases where there've been COVID related closures. There's also, um, a rolling blackout in China. So there are, there are factories being closed because there's not enough electricity, not enough power in China. Uh, so, so there are a number of other factors. Uh, I do believe though those are all secondary. I mean, most of the factories have been open almost all the time. Most of the vast majority of the ports have been open almost all the time. Um, so there's been a bit of that, but I do believe that the main issue is on the demand side, [00:05:00] you know, more stuff being imported. And it's only a secondary issue that the, uh, suppliers been interrupted Speaker 1: You when I was re I, you know, of course I went to your, uh, been your website a few times to look at your index and seeing the, seeing the amount of, uh, money that has, or amount of money, it costs to ship things from place to place and how much that has grown. What are some of the biggest, what are some of the biggest transit route that you've seen the largest increase? Speaker 2: Well, the biggest, um, the biggest roots and the, and the most, uh, expensive route are always out of Asia because still most of the manufacturing is in China and [00:05:30] other parts of Southeast Asia. Um, so the, the roots where the, the, which were anywhere the most expensive, but also which have gone up by many hundreds of percent are sort of China and east Asia to the us, China and east Asia to Europe. Um, tho those roots have gone up hundreds of percent in some cases, a thousand percent. Speaker 1: And then, uh, you know, one thing we're seeing a lot right now, of course, and I was just down, uh, in Southern California and a lot of pay pay, a lot of, uh, news reports there about, uh, you know, all the ships off the [00:06:00] coast, you know, a ship in anchor, maybe even cost an oil, oil pipeline to burst off orange county. Uh, can you talk a little about what's going on, uh, off the coast of California right now and those ships waiting load and really what, what is, what's the reason there? Speaker 2: Yeah, it's, it's quite a disaster because long beach and the nearby pod of LA are the biggest sports in the United States or in north America in general. So that's a, a very, very important, uh, entry point for goods coming into the us. Uh, and of course, most of the goods are coming from Asia. So it's quite natural. [00:06:30] They should come to the west coast, a smaller number will go through the Panama canal and come into Houston or, or New York. And what's happening is that they're not coping with the, um, either the port is not hop either just the port or the cranes are not coping with the number of ships or in many cases, it's actually downstream that the containing yards are falling. They've got nowhere to offload the containers because there's not enough trucks, the containers aren't getting quickly enough out of the port, then they can't offload more ports. Speaker 2: So a lot of in a, in many cases, actually the, the cranes are sitting there [00:07:00] idly, uh, and that's why the, um, the executive order, um, for the port to work 24 hours a day, doesn't necessarily help if the bottleneck is actually not in the port and the cranes, but it's in the container yards or the truck or the, or the rail hub in Chicago was getting, uh, you know, overloaded. Um, so, so there's multiple bottlenecks here. Uh, as a result, as you said, there are lost. I saw at least 70 massive container ships just anchored outside, uh, LA, um, LA [00:07:30] and long beach, uh, with hundreds of thousands of containers on them. Each container is the size of a, of a room, you know, 40 foot, long room. So that's a huge amount of goods, which is not, which are not getting offloaded on time. Speaker 2: Uh, but, but what's worth thinking about for a second is the, uh, awful knock on effect from that because while the ships are anchored. So, so the obvious thing is you, you've got, you know, hundreds of thousands of containers, which are not getting offloaded, not getting onto the, onto the shelves in the stores, but also those [00:08:00] ships are not sailing back to, to, um, to Asia to get the next load. Um, so, um, there's a, there's a terrible cascading effect where not just those goods are, are, um, not getting offloaded, but the containers themselves are not getting recycled. So you've got a shortage and containers, cuz you've got hundreds of thousands of containers that could see, and you can be sure that the next sailing is not gonna be on time because the, the ship isn't sending back to Asia to take, to take the next load, Speaker 1: It sounds like it's really hard to clear that out then. Cause it seems like there is an issue of just, uh, [00:08:30] it, isn't just an issue where it's not really an issue. People just aren't working hard enough at the porch. There's just not enough space, uh, correct. Along all links of the chain. Is that right? Speaker 2: That is largely correct. Yes. Speaker 1: So, um, what, uh, what at this point, uh, from your perspective, what do you think can really be done? I mean, I've talked to a couple people and they said that the problem with this is we don't, we can't understand consumer behavior for the next couple years. Are they gonna keep buying? Are they not? And it's really, it's really hard when you have that uncertainty. It's really hard to make decisions about what can [00:09:00] change. Um, and as you said, it's also, you can't just buy a crane overnight and ship it over and install it. So what, what do you think can really be done here? Yeah. Speaker 2: And the irony is to, in order to buy a crane or a new container ship, a lot of shipping has to go into that. So there's a whole supply chain for building a crane or building a ship. So that's also non-trivial to do right now. Um, but nonetheless that is happening. Uh, the shipping lines are ordering more ships. I assume that people are ordering more trucks and cranes and there's more capacity being, uh, ordered [00:09:30] at every, uh, step of the way that will take time. Uh, without a doubt, you can't, it doesn't, you can't build a container ship in, in a day or even in a year. So, so there is more infrastructure being ordered across the whole supply chain, but that will take time. Um, so the only thing that can give us relief in the shorter term is indeed if consumers maybe are maybe after the holidays, do calm down a little bit with their shopping. I dunno if that will happen or not. But I think that it's the only thing that can, uh, restore normal within a few months. Uh, [00:10:00] otherwise it will take more like a year or two to really, uh, build out the infrastructure. Speaker 1: You mentioned the, uh, executive order that, uh, president Biden put out, uh, asking a port to work 24 hours a day. Uh, you, he's also avoided, uh, a, president's also appointed a port a special about, uh, uh, the supply chain. But do, do you think governments really have, um, can they really do anything here? I mean, they'll get the blame probably, but from consumers, but can they really do anything? Speaker 2: Um, it seems that maybe they can, uh, [00:10:30] I dunno why, I mean, you would think the port of is a, is a commercial, um, you know, organiz and you would think they would move to 24 hours a day for pure, uh, you know, for just, just for profit. So I'm not sure why I took an executive order. Uh, you would've expected that the, uh, the normal profit motive, would've motivated them to find a way to move to 24 hours anyway. Um, but it, but, but it didn't. So, and now we'll see if the, if the executive order helps or not. Like, I, I'm not sure the bottleneck is the port itself. It may be [00:11:00] downstream from the port, the container yards, the trains, the trucks. So it may or may not help. Um, but, but I think, I think in an unusual situation like this, um, then it could be that the governments can help. It is an extreme situation. It is a threat to the economy, uh, when you can't get the goods, so on the shelves, um, and it is a pretty extreme case. So it could well be that sensible government intervention could help here in the short term. Speaker 1: I, I I've, I've also read a couple stories that say that, uh, in the us specifically the supply, the [00:11:30] industry isn't, or the entire supply chain industry from ports to shipping companies to trains, to TRUS, uh, there's just not enough coordination between them about landing and saying, okay, yeah, this is all coming in and needs to go here and so forth. Do you think that's, uh, and, uh, I think, I think it was Washington post brought up a story about, uh, how con contrasted it with Europe, where they said that, um, they alleged that it was a little more connected. Do you think there's anything to that, that they can, the industry also change and, um, rely and, and better communicate data to each other? Speaker 2: Yeah, I [00:12:00] mean, that's a big issue, uh, throughout the world is that the, um, air cargo and ocean, uh, freights, uh, industries have been very so to digitalize. So there's still a hell of a lot of phone calls and, uh, emails and human interaction. That's where we come in in Freightos, we're, we're creating a platform where, uh, the, the importers and exporters can book electronically with the freight forwarders on a website. And then the freight forwarders who are like the travel agents, you know, the freight forwarders who are organizing everything can book with the airlines and the ocean liners [00:12:30] digitally. Uh, I must say we've much, much more rapid progress with air cargo, uh, air cargo, digital bookings on our, uh, what it's called web cargo, the platform that we run freight, that's grown thousands of percent in the last year. Uh, so that's been digitalizing very rapidly with the air cargo. Unfortunately, most goods still come by ocean and, and ocean has been slower to digitalize, but we are seeing progress in that just, just creating electronic connections so that you can get instant rates and instant bookings. [00:13:00] So that is happening first in air and, and more slowly in ocean. Uh, but that will be a part of making the whole coordination a lot more efficient. Speaker 1: You mentioned cargo, has that, uh, have you seen, uh, has that, has that industry benefited from, uh, sort of the, the what's going on on the ocean? Have you, is there getting more? Are they, Speaker 2: Well, yes and no. I mean, air cargo's actually much more affected in a negative way from COVID because a lot of cargo goes on passenger flights. People don't always realize that, but when you fly on a plane, there's cargo, you know, [00:13:30] in the lower deck, uh, beneath your feet, and of course passenger flights have been great. You reduced during COVID, uh, starting to come back now as things open up. Um, but so unlike an ocean where the capacity was almost a, you know, a full capacity, but an air, a lot of the CAPA, a lot of the passenger flights were canceled and that reduced the capacity for air cargo. Uh, it is coming back two way. First of all, passenger flights are, um, coming back towards new normal, let's say at the same time, also the airlines took the initiative to convert some passenger planes [00:14:00] into cargo planes. In some cases, they literally took out all the seats and, and turned it into a, a, into a freighter, a dedicated cargo plane. Um, so, uh, so certainly the, the airline industry has benefited from, uh, more demand for a cargo prices for a cargo up a lot. Um, but overall the S have had a rough time because they've lost, lost out in pasture. And even in cargo, they have reduced capacity. Speaker 1: Um, yeah, last couple things. So there's, uh, there is speculation of course, that this, uh, crisis, [00:14:30] if we want to call it, that is gonna lead companies to, uh, you know, maybe manufacture things differently, put them a, and manufacture things to different places. I mean, we've heard about offshoring and nearshoring for years and years and resharing. I, is this, do you see this as something that could really, uh, change that dynamic in a way? Speaker 2: Yeah. I mean, it's, to some extent it will create pressure to, um, to initial some of the manufacturing, but, but it's a very, very tough process, especially for complex, uh, goods. So simpler goods, for example, apparel, [00:15:00] a lot of it's moved already from China to other places like Bangladesh and, and sometimes to, um, you know, to, to the Americas, uh, that's already happened. That's a little bit easier, but, but when you're manufacturing, um, electronics, it's much, much harder if you you're manufacturing, you know, a, a, a cell phone, um, there are thousands of components, and I can tell you if you are producing electronics in or south China, you drive up and down the road and you source all of those thousand components, uh, all the, the transistors and the integrated [00:15:30] circuits, the, the special glass it's all there. Uh, so there's quite a, we talked about the supply chain in terms of the steps in shipping, but there's also supply chain where your, your, your electronic, uh, you know, um, cell phone has got a thousand components. Speaker 2: Some of those have got sub components and materials and Silicon, and, um, so there's a whole supply chain, um, which in south China is, is, is all there. Uh, you try to do electronics anywhere else. And you're stuck saying, okay, I can, I can, I can create an [00:16:00] assembly plant in California or, or, or, you know, Minnesota or wherever, but now I've gotta import all, all of the components from China. So, so what have I really gained? So there will be some prep sure. But for complex goods, it's, it's a multiyear process, if not a multi decade process to really, uh, move the whole supply chain onshore or initial, Speaker 1: What do you think the outlook then for, uh, in the next, maybe six months, and then, um, over the next couple years, uh, do we see any relief as soon, or [00:16:30] is it just gonna be a while Speaker 2: I'm nervous to be predict the future because, uh, nobody predicted this would happen and neither did I, and so take whatever I say with a grain of salt. Um, having said that it's hard to see anything getting better before the holidays. Uh, but for, for the holidays, we've got some backlogs which may actually cascade and get worse. Uh, after the holidays, if we see, um, consumers, you know, reducing their spend, uh, and also the prices are going up, so you've got inflation. So that can be a factor. [00:17:00] So if inflation on other factors, um, and scarcity, you know, cause people to shop less, then you could see things starting to get back, to get, get back to normal fairly rapidly. After the holidays, I believe if a consumers continue to spend at an elevated, uh, on goods at an elevated rate, then it will take many months if not a year or two to get back to normal, because then we have to wait for infrastructure changes and that that's a slow process. Speaker 1: Thanks for your time, Dr. Schreiber, this is an immense problem, and I don't think they're [00:17:30] easy solutions for more on the supply chain crisis, and how you, you can navigate it for your holiday shopping, go to cnet.com.