The endless skein of issues that has fed the ongoing supply chain disruptions was in the spotlight when Brad Jacobs, CEO of Greenwich-headquartered XPO Logistics, gave a recent virtual presentation for the Economic Club of New York.
Jacobs highlighted the different metrics used to measure the ebb and flow of the supply chain, and he noted all of these metrics continue to point to great challenges.
“In the supply chain, if you look at truckload rates ”” the price to transport a full truckload of freight from point A to point B ”” they”™re down 30%,” Jacobs said. “That tells you there”™s been a shift in supply and demand, where now suddenly there”™s significantly less demand and more supply. They”™re still elevated prices and it”™s still a healthy environment, but it”™s not as strong as it was 30 days ago.
“And another statistic that you look at would be the load-to-truck ratio ”” that”™s how many shipments are there for every truck that”™s available,” he added. “That was about 11:1 just a few months ago, and now that”™s down to 4:1, so there”™s only four shipments out there looking for a truck when there used to be 11 shipments looking for a truck.”
Jacobs also highlighted tender rejection rates, where shippers go down a routing guide list of alternate carriers if the preferred carrier declines a job.
“You can look at tender rejection rates to know how tight the market is,” he said. “Tender rejection rates are down by 11% year-over-year, and they were down only about 4% a few months ago.”
Jacobs noted that a few signs might be pointing to an improvement in the supply chain disruptions: the backlog of vessels outside of the Los Angeles-Long Beach area, the main West Coast port of entry, has declined from 100 in February to 33 earlier this month, while more people are applying for driver jobs. But with the latter metric, Jacobs warned that people should not “get too excited about that because it still is a severe labor shortage, just not as severe as it was.”
But the biggest headache impacting supply chain operations, Jacobs warned, was the shortage in semiconductor chips, simply because “truck manufacturers can”™t make the trucks that don”™t have chips.”
“They have other shortages with labor and equipment,” said Jacobs about the logistics firms, “but the chips are a big deal. That”™s going to get better because the government and the chip manufacturers are developing onshore here. But what happens if China takes Taiwan? In Taiwan, there is the preponderance of the smarter, more sophisticated chips in the world and that would be a huge, huge, huge disruption.”
Jacobs noted that he is not looking to Washington, D.C., for a solution to this situation.
“In my humble opinion, the best thing the government can do is being out of the situation and letting market forces correct themselves,” he said. “We know how we got into this situation ”” the government, maybe with all good intentions, overstimulated. The previous administration put in $2 trillion of stimulus and then the current administration doubled that. Europe also put in about $4 trillion of stimulus.
“We put in too much stimulus ”” way too much stimulus ”” and that contributed to inflation,” he continued. “And we have the hangover. Now, from all of the disruptions that happened, it”™s going take a while.”
But Jacobs also cautioned that the Federal Reserve could make a difficult situation more challenging, especially with its new focus on rate increases.
“The tricky part is that the Fed is late,” he said. “The Fed should have been raising rates by 25 basis points here, 25 basis points there a year ago. But inflation started rearing its ugly head and they waited. Now, with that disadvantage of heavy inflation, how fast do you raise rates? I would not want to have Jay Powell”™s job ”” that is a very tricky thing to do.”
Where will the supply chain problems wind up? Jacobs would not commit to a definitive answer.
“I could go on, but I”™ll give you the punch line ”” the punch line is nobody knows,” he said. “Because we don”™t know what Putin is going to do. We don”™t know if the government”™s going to give more stimulus. We don”™t know how quick and how much Jay Powell is going to raise rates. We don”™t know if China is going to take Taiwan. We don”™t know if oil is going to go up or go down.
“And depending on the answers to each one of those things, you could have a much better or much worse economy, and a much smoother supply chain and a less expensive supply chain, or the opposite. So, it”™s an uncertain time right now.”
