How to fix a broken supply chain

By Beth Roessner

Amid increased demand and worker and equipment shortages, the global supply chain has been in a chaotic state for more than two years.

In the United States, the list of pandemic-induced product shortages is long and diverse, and it seems to change each month — headstones, tapioca pearls, garage doors, gold bars, microchips, and much more.

So, what's it going to take to patch these cracks, and what can be done now to ensure we're prepared if this happens again? One person with some of the answers is Kristin Decas, CEO at the Port of Hueneme, a niche port about a 90-minute drive northwest of Long Beach, Calif., that specializes in automotive and fresh commodities. Decas is speaking April 28 at the annual AICPA & CIMA CFO Conference at Loews Coronado Bay in the Greater San Diego area, which has a hybrid in-person and online format this year. Once there's an understanding of why the current strain on the supply chain happened, solutions can be created.

Congestion manifestation

Decas described the disruptions to traffic as "trying to take an eight-lane highway worth of cargo and put it through a straw."

The pandemic caused disruptions and challenges never seen before in the supply chain, she added.

"What ended up happening because of COVID was that consumer spending went through the roof in the United States. We didn't really have an economic downturn," Decas said. Online shopping skyrocketed in 2020 and hasn't let up. The continued increase in e-commerce and the decrease in service spending keeps driving disruptions.

"Imagine the flood of cargo coming from the Pacific through these ports to meet that tremendous surge in consumer demand. That surge in cargo began the supply chain disruption and once the domino impact happened, there was no way of picking up the dominoes," she said.

Ships were flooding into ports to pick up cargo, and ships were also stacking up at ports to drop off cargo. Compounded by worker, trucker, and equipment shortages, disruptions never let up and were further exacerbated by the Suez Canal blockage in June 2021.

"It just started to stockpile up. It wasn't just the ports, but that was the big visual," said Decas. "The warehouses couldn't handle it. They had cargo coming out the seams. And then the railroads had to embargo because they couldn't handle any more cargo."

Decas believes that things won't ease until the end of this year, and for now "it's a mess."

The Hueneme model

While it was affected, the Port of Hueneme "has performed well" — and other ports are trying to emulate some of its best practices to relieve congestion, Decas said.

Port of Hueneme is a public port authority and has direct contracts with ocean carriers and shippers. This gives the port more control. "If a shipper wants to come through here, we won't go into contract with them unless they have all pieces of supply chain in check — they have a trucker, they have a chassis, and they have a yard to take it to," Decas explained.

Port of Hueneme knows that when cargo comes in, it has reliable transport out. This is not always the case at "landlord ports" that lease space out to private operators and don't have the same safeguards in place. That's a reason congestion happened, Decas said.

"How do you move $11.4 billion worth of cargo through a port that's only 120 acres?" Decas asked. Hueneme is able to accomplish that because "we have all of these offshoots of the port through private terminals," she said.

Landlord ports have terminals on location, but the Port of Hueneme has terminals off-site. Once cargo comes to the Port of Hueneme, it is trucked to nearby facilities outside the port gates. It is inspected at these off-site, private terminals. These "inland ports" get cargo off premises quickly and make Port of Hueneme more efficient.

You won't find images of congestion at Hueneme "because we have set up all these terminals. There is no one massive chokepoint. We've spread it out, so it has become a very agile and fluid system," said Decas.

Creation of nearby terminals may not be possible at all ports because inland acreage is at a premium. But terminals could be created much further inland, and rail used to transport cargo there.

Landlord ports have instituted other short-term solutions such as instituting drop-off schedules or enacting rules that don't let ships idle in the ports. Long-term infrastructure and technology investment are what will help, said Decas, and that's already beginning to happen.

Shift in spending

Think of all the missed concerts, cruises, baseball games, flights, hotel stays, restaurant reservations, and more that have occurred in the past two years. This kind of service spending is slowly on the uptick and will help alleviate some supply chain pressures.

"It will take some shift in demand for the dust to settle," Decas said. "We'll see relief in the supply chain based on some reduced consumer demand on commodities."

Additional factors like the war in Ukraine and the current sanctions imposed on Russia, and a possible future recession, could also affect the supply chain and spending, said Decas. "Those are sort of the unknown factors," she added. But she's optimistic relief could be felt as early as December.

No easy fix

There is not a one-size-fits-all approach to fixing the supply chain, nor is there one easy, quick fix. But through ongoing infrastructure investments, increasing capacities, and embracing new technologies and processes, the supply chain could be improved should we ever be in this situation again.

"We need to really invest [in] infrastructure and we haven't done that in a long time," Decas said. "It's going to take time and increasing efficiency to get things back."

Editor's note: The AICPA & CIMA CFO Conference will be a hybrid event this year. Join us at the Loews Coronado Bay in the Greater San Diego area or online April 27–29 for sessions covering topics such as the supply chain, mergers and acquisitions, cybersecurity, and more.

— Beth Roessner is a content writer at the Association of International Certified Professional Accountants, representing AICPA & CIMA. To comment on this article, contact Courtney Vien at Courtney.Vien@aicpa-cima.com.

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