Global supply chains were disrupted early in 2020 at the onset of the COVID-19 pandemic, and roughly two years later, we’re still coping with shortages and, more recently, soaring inflation. The Russian invasion of Ukraine only adds to the problem, with sanctions against Russia threatening to disrupt the flow of oil, metals, and other raw materials. So what exactly do economists and officials mean when they talk about bottlenecks, backlogs, and supply and demand? Here’s a guide for translating the jargon.
Supply Chain
A supply chain refers to the chain of events needed to get goods or services from producers to consumers. Take bread as an example. Wheat has to be planted and grown, then harvested and made into flour. Then the flour has to be brought to a baking plant and mixed with other ingredients. Once it’s baked, the bread has to be packaged and moved to a distributor. Eventually it gets trucked to the grocery store. When people refer to the supply chain crisis or disruptions, they are referring to the shortages triggered by the pandemic, both during lockdowns and then as the economy tried to absorb a sudden spike in demand from consumers. Supply chain mentions usually conjure up images of a manufacturing plant, but there are also supply chains for services. For example, to provide a shipping service, you need a supply of truck drivers and fuel.
Supply and Demand
Supply means how much of something is available for purchase. Demand means how much people are willing and able to buy. In classical economics, when buyers want more of something than producers can provide—whether it’s because demand is too high or supply is too low (or both)—there’s an imbalance that drives prices up. That’s a major reason inflation has been running rampant lately.
Bottleneck
A bottleneck is a point of congestion where the movement or production of goods and materials is restricted, causing holdups farther down the supply chain. A good example of a bottleneck is the floating traffic jam of container ships waiting to unload in California. Another is a shortage of computer chips that’s preventing carmakers and other manufacturers from building their products at full tilt. Bottlenecks are widespread right now, and business leaders say they’re a major reason for the red-hot inflation we’re experiencing.
Backlog
A backlog—short for a backlog of orders—refers to the quantity and dollar amount of customer orders that have been received and processed by a company but haven’t been fulfilled or shipped yet.
Inventory
Inventory refers to all the finished goods, parts, or raw materials that a company has in stock for use in its products or for sale to the customer.
Fulfillment Center
A fulfillment center, also called a distribution center, typically is a huge building that stores inventory in bulk for an extended period of time. The center is a “hub” that handles all the logistics processes needed for getting products from seller to customer in a timely manner—from picking out the orders and processing and packaging them to shipping them.
Shipping Container and Container Ships
A shipping container is a standardized steel box 20 feet or 40 feet long by 8 feet wide that can be loaded directly from a truck to a ship or train and vice-versa by crane—a single type of container that can move just about any product. The invention of shipping containers after World War II revolutionized international trade, and today, most imports to the U.S. arrive by container ships, which are vessels specially designed to carry those containers.
Drewry World Container Index
Drewry’s World Container Index (WCI) is a composite index tracking actual freight rates for 40-foot-long containers on eight primary shipping routes to and from the U.S., Europe, and Asia. The WCI, which is produced by the Drewry maritime research consultancy, is a leading source of independent data about shipping-container freight rates. The WCI’s average composite index has been over $9,000 per 40-foot container since July, compared to its a five-year average of roughly $3,000.
Labor Shortage
Nothing in the supply chain can get done without people to do it, which is why labor shortages—when employers can’t find enough qualified workers to do the jobs they need—have been such a big problem. Businesses of all kinds have had trouble hiring lately, especially during surges in COVID-19 cases, and difficulty hiring enough truck drivers has hit the supply chain particularly hard.
Intermodal Chassis
When a container is unloaded from a ship, it’s usually put right onto a trailer and hauled off by a semi-truck. These trailers, called container chassis or intermodal chassis, are a key link in the supply chain, and a chronic shortage of them is one reason the San Pedro Bay port complex in Southern California (see below) can’t unload ships fast enough and has become a bottleneck.
San Pedro Bay Port Complex
The San Pedro Bay port complex, the biggest seaport complex in the U. S., consists of the Port of Los Angeles and the adjacent Port of Long Beach, located in Southern California’s San Pedro Bay. Together the two ports handle about 40% of all U.S.-bound shipping containers, most of them originating in Asia. The daily number of container ships waiting to dock at the port complex has become a powerful indicator of the cargo bottlenecks and the port’s congestion stemming from the pandemic.
Imports
Imports are all the goods from abroad that are brought into a country. The U.S. is the largest importer in the world, and buys more from China than from any other country.Most of that freight arrives by sea, and ports haven’t been able to keep up with the record-breaking surge in imports this year due to ramped-up consumer demand for all kinds of things amid the pandemic. That has snarled the supply chain.
Exports
The opposite of imports, exports are what we ship to foriegn countries. We import far more than we export, a situation economists refer to as a trade deficit. The trade deficit reached a record $108 billion in January, according to data from the Census Bureau.
Logistics
Logistics is the art and science of organizing a complex operation such as a manufacturer’s supply chain, especially the part that deals with trucking, warehousing, and moving things from place to place. Maintaining inventory and filling orders is also important. Economists say businesses are dealing with major logistical problems these days.
Longshoreman
A longshoreman is a laborer who works at a seaport loading and unloading freight between cargo ships and the dock. Longshoremen, also known as stevedores, take on jobs that can range from operating a crane that unloads containers to driving a truck used to move containers around the port. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com or Glenn at ghunter@thebalance.com.
