Guest Contribution Written By: Waylon Cunningham
It took a single COVID-19 case among the dockworkers for China to partly shut the world’s third-busiest container port for two weeks this month. Analysts say it could take up to two months for the port to return to normal operations.
As millions of tons of ocean freight were stopped or diverted, strain was put on an already stressed global supply chain. Supply and demand have rubberbanded and backlogs have grown, frustrating American manufacturers who rely on materials arriving in timely, predictable shipments.
Some manufacturers in San Antonio have taken the port’s partial closure as the latest bellwether showing that, in the global supply chain, winds are blowing back home.
“I saw it after the Suez Canal,” said Douglas Carlberg, president and CEO of M2 Global, a Department of Defense supplier, referring to the blocking of the Suez Canal for six days this year. “Instead of waiting to run out of materials, I’m out there running to get them. I’m not taking the risk.”
Spooked by the chronic stoppages and breakdowns, and already concerned by rapidly rising prices and delayed delivery times, Carlberg has in recent months begun to buy materials far in advance of when he might need them.
Although he buys raw materials from domestic sources, China still looms large in his production calculus because the country makes many of his shop supplies: grinding disks, gloves, personal protective equipment.
He’s not the only one making changes.
“The whole supply chain is in a real state of flux right now,” said Steve Ottemann, chief operating officer at PSI, which produces tire pressure systems for long-haul trucks. Though the business has boomed in recent months, PSI has struggled with longer lead times and more unpredictability with far-flung suppliers.
In response, PSI has begun to stockpile inventory, from six to eight weeks’ worth of supplies to about three to four months. Like many manufacturers, it has shifted from long-dominant ocean freight to more expensive air freight and swapped some foreign suppliers for domestic ones.
The troubles threaten the widespread prevalence of “just-in-time” approaches to inventory, in which manufacturers order raw materials only as they are needed for their production schedules. The approach is also known as the Toyota Production System after Toyota adopted the system in the 1970s.
Already, the distorted car market — plagued by microchip shortages — has given a preview of these new economics. Many car manufacturers such as Ford were crippled in their production as microchip supplies ran dry. Others, including Toyota, fared better for longer because they foresaw the coming shortage and stockpiled microchips.
Still, supply disruptions have come to run so deep that even Toyota has begun to feel the sting. Production numbers at its San Antonio plant dipped to roughly 9,500 trucks in July, down from a peak of nearly 17,800 produced in March.
“While the situation remains fluid and complex, our manufacturing and supply chain teams have worked diligently to develop countermeasures to minimize the impact on production,” the company said in a statement.
Some manufacturers question whether the recent problems were truly the work of the pandemic or if it simply exposed an underlying fragility.
Ottemann said alarm bells rang for him in 2019 when the United States slapped 25% tariffs on select Chinese imports, targeting materials like telecommunications equipment, metal alloys, semiconductors, and electrical apparatuses.
Since then, supply lines have been shaken by the upheavals of the pandemic, and longstanding shortages have only compounded for raw materials and shipping containers. A lack of dockworkers to unload freight and truck drivers to transport it prompted a push in recent years to lower the age requirement for interstate truck drivers from 21 to 18.
That’s not to mention the recurring blockages at China’s ports, which tend to act as a bottleneck for world commerce. This summer, efforts to contain COVID-19 cases caused severe backlogs at China’s largest port, the Yantian International Container Terminal.
“I expect there to be more port closures,” said Rey Chavez, president of the San Antonio Manufacturers Association. Chavez has been following reports of Chinese port closures closely. The association has worked with manufacturers like Carlberg to develop new plans.
Nationally, more than a quarter of manufacturers could be planning to move some or all of their sourcing and manufacturing out of China, according to a survey this year from supply consultants Everstream Analytics.
The concerns of these manufacturers dovetail with a push in recent years to bring supply chains, outsourced in recent decades, back to the United States.
“Just-in-time supply chains are dangerous — if you’re sourcing from one source and it’s halfway around the world,” said Harry Moser, president of the Reshoring Initiative, a consulting firm aimed at bringing American manufacturers back to the United States. Moser said supply chains closer to home can preserve and enrich just-in-time deliveries.
Moser said manufacturers can lower their costs by as much as 30% by bringing operations back to the United States. His firm has an online calculator that is supposed to give companies an idea of whether they could save money.
The firm said that since 2010, more than 4,700 companies have brought back some or all of their manufacturing operations, creating nearly 1 million manufacturing jobs.
According to the firm, among the manufacturing facilities that have brought jobs back to San Antonio from abroad are Mission Solar, San Antonio Shoemakers, and, ironically, Canadian General-Tower.
The homeward shift has been a long time coming, says Bill Cox, president of Cox Manufacturing, a screw machine manufacturer.
For years his company had been buying a lead-based rivet on behalf of an aerospace client. But as that stock has come into short supply, he said the client was convinced to go with an alternative that is more readily available domestically. Cox, too, has dropped one of its few foreign suppliers in the wake of intolerable shipment delays.
“For a long time, we’ve wanted to get away from the long supply chain, and now we’ve finally got the pressure to make some decisions that needed to be made anyway,” he said.