Yesterday morning, the Biden administration came out swinging with a plan to stop the ever-worsening shipping issues in America.
Too bad the plan won’t do anything of the sort.
For better or worse, presidents cannot really do much about the economy in the short term, and this is a prime example.
Even if there is some progress, it will come with a steep cost elsewhere.
Here’s the situation…
The big part of the announcement was that a number of major players in the domestic shipping scene will be moving to 24/7 operations.
The Port of LA and the longshoreman unions are on board with the plan. Meanwhile, FedEx, UPS, Walmart, and others have pledged to expand their operations to more off-peak hours.
This is desperately needed. There are about 70 container ships at the ports in LA and Long Beach — which handle about 40% of imports — waiting to be unloaded.
All told, about 500,000 shipping containers are stuck at ports. That’s about 12 million metric tons of goods.
The problem is there is no good way to increase capacity. The ports are only operating at 60%–70% capacity now as a result of myriad issues.
There is already a significant labor shortage, and workers are already working extra hours. Nor is this the kind of work that can be easily picked up by anyone they bring in off the streets.
Plus, that expansion of hours is far from the kind of boost we’d see if these were 9-to-5 operations. The ports already run two shifts from 8 a.m.–3 a.m.. Five more hours could help in theory, but it’s capped at about a 20% boost.
This also assumes that shortage of containers and the trucks needed to haul them magically evaporates.
And that’s just step one of the domestic leg of shipped goods.
Even if port capacity surged, these goods need to go somewhere. That Walmart or Amazon Prime truck isn’t coming straight from the port. Goods need to be unloaded at warehouses, divided, and shipped inland to regional hubs, then local distribution points, and then on to stores or households.
About 98% of warehouses in Southern California are fully occupied. Across the entire Western U.S., the vacancy rate is just 3.6%.
Railroads were already pushed to max capacity on freight-heavy lines before all this happened, and delays are worsening around the critical rail hub in Chicago.
There aren’t enough truckers, and the erratic nature of the orders they’re receiving makes planning impossible and logistics inefficient.
Once the trucks finally get to where they need to be, there is still an existing labor shortage for last-mile delivery and retail going into the critical months where there is usually a surge of hiring for seasonal workers.
Addressing the beginning of the shipping crunch is worthless if there is an immediate and multi-tiered logjam everywhere else.
Another big announcement yesterday was year-over-year inflation for September. Estimates put it at 5.4%.
This matters quite a bit for what Biden and his task force attempt. Successfully pushing shipping companies to 24/7 operations will dramatically increase labor costs as oil prices are soaring to levels we haven’t seen in years.
This puts Biden between a rock and a hard place. Clearing the backlog will force dramatically higher operating costs on companies that have largely tried to avoid passing on the price increases they’ve experienced to consumers.
While inflation is soaring now, we also have a lot of future inflation baked into the system.
The shipping backlogs? The labor shortage across the nation? The international energy crunch? The lack of vehicles, machinery, warehouses, and rail capacity?
All of these are signs that we will face higher costs across the board in the future. Prices have to go up from here, and they will keep going up for years to come.
Either that or we live with what we have now and watch the whole thing crumble. There is no solution without repercussions, and a further increase in inflation is guaranteed.
It’s bad news all around for the Biden administration. It’s also bad news for the U.S. dollar and us.
Expect things to get worse and for it to become more and more clear that Biden is impotent when it comes to our struggling economy.
