Severe congestion is impacting every stage of the global supply chain. Charles Armstrong, founding partner at Orion Advisors Group, explains how we came to this state of affairs.

Congestion at ports and inland terminals has brought global supply chains to a standstill. What’s going on?

The problem comes down to three key elements, says Armstrong: capacity, system constraints, and demand.

It didn’t arrive overnight, he notes. Carriers and shippers have experienced congestion at ports and inland points during previous peak seasons, in the lead-up to the holiday shopping surge. But 2020 also brought with it several unplanned events: COVID-19, which caused a shutdown of production in Asia; the blockage of the Suez Canal by the giant containership Ever Given, and the temporary closure of China’s Port of Yantian due to the pandemic. The impact of those events threw the entire system out of balance, and “took the utilization problem to the next level,” Armstrong says.

Vessels berthed offshore in Southern California and waiting to be unloaded are delayed for up to 21 days — the length of a voyage from Asia to the West Coast. “That means you not only extend lead times, but you just took capacity out of the network,” says Armstrong. “The vessels don’t get back to Asia in time to pick up for the next trip.”

The impact extends to intermodal transfer terminals and warehouses. Along with the resulting congestion comes a shortage of equipment — containers, trailers and chassis — as well drivers to move the loads over the road. “Domestic transportation can’t absorb that peak,” Armstrong says, adding that the situation is likely to continue into next year, even without the pandemic and random incidents like the Suez blockage.