A recent BBC report illustrates that there has been a record number of cargo ships stuck at the Long Beach California Port.
Over 65 cargo ships are being forced to queue outside America’s biggest ports, over 1000 containers of goods, produce, and services are stuck at sea. The BBC states that pre-pandemic it would be unusual for more than one cargo ship to be forced to wait. This disruption in the U.S’ supply chain has reportedly been attributed to a surge in demand for supplies from U.S businesses as a successful vaccine rollout has paved the way for an economic bounceback. With over half the U.S population fully vaccinated, (55.5%) consumers who previously were cautious of the health risks associated with the virus no longer have to fear as these vaccines protect those who are vulnerable from hospitalisation against the virus. This means that establishments which were previously empty due to the pandemic due to their enclosed spaces, such as restaurants, and cinemas have likely seen a resurgence in demand as a successful vaccine rollout combined with the lifting of lockdown measures has increased consumer confidence. Consequently, as consumer confidence rises, aggregate demand within the economy also increases. This leads to firms becoming busier and profitable as the increase in aggregate demand yields demand pull inflation. Therefore, as price levels rise at a faster rate within the economy, American firms and businesses are signalled and incentivised to increase their factor inputs. Hence, American firms have begun demanding more labour, as evidenced by a decreasing unemployment rate, as well as other factor inputs such as capital and land. However, suppliers and producers of some of these factor inputs have not sufficiently prepared for this spike in demand, consequently, a massive surge in demand from American firms has led to this supply chain disruption.
This is because during the COVID-19 pandemic, many shipping firms had various of their cargo ships scrapped for parts as their giant fleets were becoming increasingly wasteful as demand for shipping drastically dropped in the height of the pandemic.
Therefore, to ensure that these firms could stay afloat, many decided to scrap a portion of their fleets with the aim to sell the scraps in an effort to gain some cashflow. The BBC reports that “retailers and manufacturers have rushed to place orders and restock their inventories, but the global shipping system is struggling to keep up.”
Consequently, this has led to a slowdown in the ports of California, ports which account for 40% of the U.S’ total container intake. The supply chain issue has led to a shortage of childrens toys, timber, new clothes, and pet food, the BBC reports.
This shortage may also spread to other goods and services. If these container vessels are forced to wait at the port for much longer, any food which they are carrying will begin to age and possibly become inedible. Nevertheless, shortages of goods on these vessels will occur and the costs will be likely passed onto consumers through a higher rate of inflation as day to day products become scarcer and scarcer.
Written by Hubert Kucharski