In 2022, the Strategic Impact of Global Intermodal Supply Chain Gridlock on IT Supply Chain Remains High

02/10/2022 | Written by: Daniel Pereira

The OODA Loop Research Team has been tracking the impact on supply chains from the onset of the pandemic. As early as March of 2020, OODA’s Matt Devost and Bob Gourley included supply chain resiliency as a topic in an OODA Webinar on Managing Through COVID-19. Later in the pandemic, In August 2021, the OODA News Brief team caught this early item during their daily signals filtering process: COVID-19 infection halts Ningbo container terminal, further straining supply chain.

At that time, I had just joined the OODA Loop team and I was still at my childhood home–about ten long Southern California city blocks from the Ports of Long Beach and Los Angeles–pitching in to our family operation to keep my aging parents safe and sound from the virus. Most of my extended family (and a high percentage of my elementary and high school friends) make up the leadership and rank and file membership of the International Longshoreman and Warehousemen’s Union (ILWU), so logistics and supply chain are Thanksgiving dinner conversation in my family.

The following is an open-source analysis based on a unique level of exposure and access to the port operation over many years.

Aerial contrast between cargo in April 2021 vs. December 2021. (Photo by The Port of Los Angeles)

OSINT, Family Style

The ILWU and longshore workers are from a bygone era: high wage (port crane operators make mid-six figures), high skill blue-collar jobs with premium health insurance and pension plans, and a strong union with the flexibility of an old school hiring hall work structure. My father and mother, both now retired from the ILWU Local 63, still call the job dispatch hall twice daily – once on the dayside and again on the night side – to “see how many jobs there are.” The usual amount of work is 600 to 800 jobs. In August 2021, work had ballooned to over 1000 jobs available on the day and night side, and there were 30 cargo ships backlogged at the port. A quick personal anecdote: my parents would jump with glee at these job numbers and both proclaim that they retired too early and are thinking of going back to work. Both are in their 80’s. Me and my siblings would have to talk them down.

I was on the ground in Los Angeles from November 2020 through September 2021. Over the course of this period, there were more than a few signals the port operation provided on the pandemic:

The Threat Was Early and Real: My family is a stubborn lot. So when, by training, I was doing something similar to the early warning tracking the OODA Loop team was doing on the reality of this pandemic, I was worried about checking in with my family and having to herd cats who were resistant and/or in denial. I found quite the opposite situation. The rhythms and operational policies of the Ports of Los Angeles/Long Beach are deeply trusted and valid information in the community of my childhood. For my family, if the union leadership and port authorities were taking the arrival of Chinese vessels seriously (and the day-to-day operations at the port were already tangibly impacted – which they were) this virus – whatever it would prove to be – was already real. To my relief, they were taking the threat very seriously, very early.
Zero Federal Response: While I was home, I was concerned when I heard anecdotal reports that the President of the ILWU Local 13, by early 2021, had the Mayor of Los Angeles and the Governor of the State of California on speed dial on his cell phone. I would then figure out that these three-way conversations were the extent of the crisis preparedness and management for the growing troubles at the port. What I learned quickly is that a formal, structured Federal response to the pandemic did not exist when it came to the U.S. port operation responsible for 40% of the imports into the domestic U.S. This is a bipartisan reality and would have been true no matter who was in control of the executive branch.
An Interesting Metric: 100% of bikes in the U.S. are foreign manufactured and come in via container ship. I have always felt this one metric tells the whole story.
Early Vaccine Eligibility: In early 2021, pre-vaccination, superspreader conditions amongst the longshore workers were part of what the Mayor and the Governor were managing with the Union President. Consistent with the lack of a pandemic playbook a the state and federal level, the workers (of a variety of classifications) at the port were not ending up on formative “essential worker” lists for vaccination eligibility. Around the time of this headline in January – Longshore worker coronavirus cases rise, prompting vaccine status change request – the unions had written a letter to the state health officials and the Governor, which took on urgency over time and was eventually delivered to the White House and the Department of Labor. Similar lobbying efforts were going on nationwide at the ports in New Orleans and in the Tri-State area.
Port Workers are American Made: The whole process took through March and longshore workers were getting vaccinated (with a mandate) no later than March 2021. My informal, anecdotal metrics: the rate of vaccine resistance amongst port workers mirrored the percentages of behavioral psychology (vaccine resistance based on medical, personal, political, or religious grounds) of the general population nationwide.
Defense Production Act? Even in early March 2021, the whole situation felt like it was teetering and would require a “war effort” type response and a federalization of the entire port operation. For those of us in the know, the necessity for intervention at that scale would be a fool’s errand. Remember those high-wage, high-skill crane operators I mentioned? If they needed to be replaced at a high percentage rate (or if additional crane operators needed to scale up to meet increased volume) there is no such thing as a “crane operator reserve force” and the National Guard could not be trained to perform this function on anything resembling a “crisis” timeline.

Even with my “foresight strategy” training and the way I was tracking the issues at hand, I was shocked when (by November 2021) the entire situation ballooned up 1200 jobs available and over 100+ cargo vessels anchored at sea waiting to pick up or unload shipping containers. More surprising is the way ‘supply chains’ entered the national consciousness and, once back home in Boston, all conversations were consumed with anecdotes about frustrations with product availability – now at the end of the supply chain – in people’s daily lives.

October 2021: An aerial shot of the backlogged cargo vessels at the Port of Los Angeles/Long Beach, the largest port in the world by square footage and volume.

October 2021: The increased volume and bottleneck at the LA/LB Ports.

What Next?

This report on CNBC from January 27th of this year is the best source of up-to-date information on which to analyze the impacts of the global supply chain bottleneck on your business or organization. RBC: The backlog at ports is not an issue of labor shortages, but rather of consumer demand (cnbc.com).

Source: CNBC Global Exchange, January 27, 2022

In the interview, Michael Tran of RBC Capital Markets, Digital Intelligence Strategy does a great job of breaking down the time of turnaround at the ports relative to what is still very high consumer demand – even after improvements at the ports to deal with the increased volume for the 2021 holiday season. Moving forward, time of turnaround is the metric any business should be tracking for a real sense of the supply chain going back to pre-Covid efficiencies and demand volume.

Source: NBC News

Strategic Implications for the Global IT Supply Chain

The Supply Chain Roundtable: At the November 2021 Supply Chain Roundtable at the White House with President Biden, attendees included Best Buy, Samsung, Todos Supermarket, CVS Health, Walmart, Kroger, Qurate Retail Group, and Etsy. The November timing contributed to this bias towards consumer product company representation at the roundtable (going into the 2021 holiday season). From the transportation and logistics space, the ILWU, AFL-CIO, The Teamsters, FedEx, and UPS were represented.
High tech, manufacturing, and advanced manufacturing were simply not at the table. High tech and heavy and advanced manufacturing were not represented at this roundtable event (not even by Caterpillar, Inc.). What is troubling is large form factor machinery and high-tech component parts (crucial to the functioning of the economy) are manufactured overseas. At a more granular level, component parts of virtually everything – including consumer electronics products – are produced overseas.
A Baseline Metric for our Research: In January, we did an analysis of the ASML Holding’s factory fire and specialized manufacturing equipment for semiconductor production. In this analysis, we were able to determine the shipping size and provenance of the specialized semiconductor manufacturing equipment produced by ASML Holdings: The ASML Holding’s plant in Berlin is the sole provider of vital technology used to manufacture computer chips. The company is the largest supplier of photolithography systems and the only producer of extreme ultraviolet (EUV) lithography machines, which are used to etch circuits onto silicon wafers. The chips are later used by Apple, IBM, Samsung, and other tech giants. ASML Holding sold billions of dollars in equipment in just the third quarter of 2021 alone. For further context, according to Wired each machine is roughly the size of a bus. Shipping their components requires 40 freight containers, three cargo planes, and 20 trucks.
Continuing Consumer Goods Volume at the Ports vs. Everything Else: The mainstream media has a bias towards reporting the impact on consumer good availability. The increase in volume coming into the ports based on increased consumer demand translates into specialized manufacturing equipment, component parts, and semiconductor shipments experiencing delays based on the aggregate increased volume. A system does not exist for prioritizing container unloading based on their cargo. Nor does a system exist for generating metrics to determine their relative importance to overall economic productivity relative to a container filled with a shipment of, say, toilet paper. Strategically, this tension between the increase in the volume of consumer goods coming in to the port versus everything else that is coming in to the ports will become a growing problem.
Further Anecdotes or Quantitative Analysis: Please reach out to the OODA Loop team if you have any insights into the impacts of the supply chain bottlenecks on your specific industry metric. Also, we continue to look for specific quantitative data – like the shipping details of the ASML Holdings EUV lithography machines – which would assist in quantifying the high tech and advanced manufacturing shipping volume and subsequent delays relative to the more available information on the increased volume and demand of consumer products.

A Scenario

Based on the tracking and analysis we have been doing since our October Stratigame, we have been encouraged by the recent announcements of Intel’s plans for a massive new Ohio-based Chip Factory and Ford Motor Company’s commitment to a chip collaboration with GlobalFoundries, including the expansion of manufacturing in the domestic U.S.

This increase in manufacturing capacity will require raw materials, electronic components, and specialized manufacturing equipment that are manufactured overseas. If we take Covid-19 testing distribution by the federal government as a poorly handled “long lead time item” and poor strategic resource allocation for the predicted Omnicron surge around the holidays, then confidence is low that long lead time strategies are under consideration relative to domestic U.S. chip factory development in the next 3 to 5 years.

It will be more manageable to use the Defense Production Act to arrange a military airlift or naval shipping vessel for the transport of 10 EUV lithography machines (totaling 400 freight containers) from ASML Holding’s plant in Berlin, Germany – than it would be to activate the Defense Production Act to find the same machines as a needle in a haystack, untrackable in a global supply chain bottleneck with no end in sight. Apply this scenario to all the components and sub-components needed to build one Chip Fab while figuring out what materials and operational assets are American Made (and domestically available) and what is not. Again, the best analogy is the recent ‘too little too late’ distribution of Covid tests as a response to the severity of the Omnicron surge.

It is a question of foresight, strategic planning, decision-making, scale, and scope. The strategic impact of a long-lasting intermodal global supply chain bottleneck on U.S. national security and the future of competitiveness and technology innovation in the private sector is already clear.