These past 2 years have exposed Americans to the vulnerability of their nation’s supply chain. Between the havoc wrought by restrictions and labor shortages from COVID-19, and increased trade tensions with China, we have dealt with empty shelves and higher prices. China’s recent decision to lock down several cities will exacerbate the problem. As CNBC reports, about 75% of American exports originate from the ports of two of those locked-down cities—Shenzhen and Yantian. More recently, the Russian invasion of Ukraine, which brought swift sanctions, has helped raise the price of fuel.
These crises raise questions about how America’s supply chain can become more resilient and less reliant on geopolitics. Yet they are already being met with changes from the logistics industry that could generate long-term improvements—especially if governments get out of the way.
One major change that was happening before the pandemic, but which accelerated during it, was the explosion in e-commerce and industrial warehousing. The number of warehouses in the U.S. grew by 31% from 2009 to 2020, and the same is happening worldwide, helping drive the value of these assets up 7% per year. Warehousing employment has eclipsed employment in trucking, according to FreightWaves.
Growth of warehouses is expected to continue, according to Deloitte, since “from 2019 to 2023, our model estimates the demand for an additional 850 million square feet of industrial real estate in the United States—or, in practical terms, roughly the amount of industrial real estate space available in Atlanta and Salt Lake City put together.” Vacancy rates are very low, and have been for some time—just over 3% in late 2021.
Part of what is driving the growth is the last-mile problem, referring to the need to bring goods to customers directly. As PR Newswire writes, “the need for modern urban distribution centers for ensuring hassle-free last-mile deliveries, trade embargos, and geopolitical issues have been the driving factors for regional demand growth of warehousing and cold storage.”
Increasing warehouse locations near population centers could alleviate this last mile problem and improve supply chain resilience. That is, if there is more space across America for storage, then it is easier for U.S. companies to produce things domestically rather than relying on the ports and warehouses of China.
But in order for this warehouse increase to happen, regions with high consumer demand will have to change their zoning laws. As I wrote last summer, companies like Amazon and others have encountered legal opposition to building new warehouses.
Several innovations are likewise underway for transportation. As we wrote last week, freight trucks are slowly but surely moving forward with automation, although some project full automation is still a decade or more away. Either way, the labor shortage has propelled further interest in automation.
But the industry is not waiting for truck automation to take advantage of such technologies elsewhere. Several warehouses are partially automated: robots are being deployed to move goods, load trucks, and improve worker productivity.
Freight rail is also beginning to explore automation: a research and development firm called Parallel is developing a separable autonomous electric freight car. The cars are battery-powered and capable of splitting off from larger trainsets en route. This would potentially allow for trains to make shorter trips over branch lines that currently are too low-traffic to justify a whole train with a crew. At least one driverless freight train has been tested.
The increase of AI, IoT and autonomous functions into both trains and trucks will not only make logistics cheaper by reducing the need for workers. It will make the supply chain more resilient by reducing the threat of labor shortages during pandemics, worker unrest, etc.
A major aspect of the supply chain crisis has been delays in getting ships into ports. Ships have been left stranded outside West Coast ports in particular, and the issue doesn’t seem likely to disappear—as of early March, 40 ships remained delayed outside the Port of Los Angeles. The Global Port Tracker states that “imports at the nation’s major retail container ports are expected to be at near-record levels this spring and summer as consumer demand and supply chain challenges continue to result in congestion.”
Ports themselves are taking a variety of steps to improve operations, such as adopting automated operations of cranes, improved cargo routing, and expanded physical space. There is a growing push to automate yards just as there is to automate warehouses.
But some shippers are innovating themselves. Amazon has spent several years buying its own fleet of ships, leasing cargo jets, and constructing its own shipping containers. This helps the company improve its efficiency, for example bypassing the worst congestion by finding alternative ports. Other firms, including Walmart and Target, have followed suit with their respective shipping fleets. If the supply chain crisis gets too bad, one could imagine these companies building out their logistical networks even more, perhaps even lobbying to circumnavigate government ports by creating their own.
The above innovations have come from the private sector, but there are things policymakers can do to improve the supply chain.
For one, freight movement across the U.S. borders ought to be streamlined. The average delay for a truck crossing into the U.S. from Mexico at California’s Otay Mesa crossing is 1.5-2 hours, and this is a problem at other parts of the Mexican and Canadian borders. Another issue that will only become more urgent throughout the Russia-Ukraine war is fuel production; domestic production would free up more space at ports while alleviating reliance on foreign sources. A third policy would be for the federal and state governments to toll roads so that freight trucks deal with less congestion.
In any event, the supply chain will remain a salient issue in years ahead as the global economy recovers and new geopolitical issues rise. Using private sector innovation to ramp up domestic production and reduce reliance on foreign trade is the start of the answer.
This article featured additional reporting from Market Urbanism Report content staffer Ethan Finlan.