Over the past decade, rising trade barriers, labor shortages, natural disasters and a host of other challenges have created an era of relentless supply chain disruptions. The Port Strike is only one among many.
Background: On October 1st, the International Longshoremen’s Association, representing dockworkers at most U.S. ports on the East and Gulf Coasts, is set to strike. These ports account for approximately 50% of U.S. oceanic trade. Even if West Coast ports can increase their throughput, this will still leave a significant gap in US trade. JP Morgan estimates a 6% drop in U.S. economic activity for the duration of the strike, while others warn that if the strike lasts two weeks, the repercussions could be felt well into early 2025.
The Big Picture: The drivers of increased disruptions are manifold. Among others:
Trade restrictions are up 15x: Increased by 15x since the early 2010s according to the IMF.
Armed conflict intensity is up 6x: Global deaths from armed conflicts up by 6x since the early 2000s (Uppsala Conflict Data Program). Surprisingly, the Ukraine War, while significant, has contributed less than from interstate civil wars.
Weather disasters is up 3x: Weather-related disasters of over a $1 billion (adjusted for inflation) are up by 3x since the late 2000s National Oceanic and Atmospheric Administration).
Labor:
Strike intensity is up 10x: The number of workers affected by strikes in the US has increased by over 10x since the early 2000s (Bloomberg Law labor data).
Persistent labor shortages: The shortage began prior to the Pandemic in 2016. There was a labor surplus in the early 2000’s (even prior to 2008). (US BLS)
Skilled labor shortages: Construction of new manufacturing plants for high-tech products up by over 10x from the typical level of the past decade, but the number skilled tradespeople to build them remains flat. For example, the number of welders has increased by at most 5% (US BLS).
Cybercrime growing exponentially: It barely existed in the early 2000s but cost US industry $10.3 billion in 2022 (US FBI).
AI Computing Power is up 20x: The number of the processors that train and use AI (GPUs) are up by 20x since 2017 (author estimate).
Activist Government Policy: Since 2018, US policy has reversed course, increasing tariffs, outright bans, restrictions on what’s considered domestic content, and passing subsidy acts such as the Inflation Reduction Act. All current US Presidential candidates have promised to continue more active intervention.
Future Trends: New sources of disruption are becoming important as well.
Electric power demand increases: Demand on the US power-grid will rapidly increase due to AI, electric vehicles, and the electrification of production facilities. Estimates vary wildly, but the 2024 forecast for demand in 2030 in Texas made by its grid administrator (ERCOT) increased 100% from the 2020 forecast for 2030.
China demographics collapse: The working age populations of China will shrink by 70 million working-age people, greater than the number of working-age people in all Vietnam (PopulationPyramid.net).
Bottom Line
Supply managers continue to think that the global landscape will return to the normal of the 2010s and they can return to 2010s policies just-in-time inventory management. But it won’t work. Switching to “just-in-case” inventory and production management is a good first step, but it’s not enough to cope with the new normal.
Supply chain managers need to recognize the change and leverage new product design, on-shoring, scenario planning, and ones not even thought of yet.
On the plus side, the new normal presents a window of opportunity. Firms that can make the switch to the new normal can grab market share and profits from firms that won’t adapt.