Organizations are Advocating for Measures that Would Ease Congestion and Tariffs

By Tim O'Connor

After a year of wondering when the supply chain will get better, the situation only seems worse. Earlier this fall, members of the North American Association of Food Equipment Manufacturers (NAFEM) reported increased shipping delays across all major forms of transportation compared to the start of 2021. More than 80 percent said they’ve been negatively impacted by ocean freight delays while 90 percent said their business has suffered from delayed truck deliveries.

Organizations such as NAFEM, the National Association of Wholesaler-Distributors (NAW) and the U.S. Chamber of Commerce are pushing for policy changes and initiatives that would help the supply chain run more smoothly. John Drake, vice president of supply chain policy for the U.S. Chamber of Commerce, knows it will be difficult to generate momentum for those changes.

“There are many players in this space,” he says. “Each one of them has some control but not total control.”

Port Congestion

For much of the past year, the ports of Los Angeles and Long Beach have been ground zero for the country’s supply chain problems. At one point in October, there were 100 ships waiting to unload at the neighboring ports, when under normal operations cargo ships would not have to wait to anchor. At least some of that backlog can be attributed to the heightened demand for goods caused by the COVID-19 pandemic shutdown. Through October, the two ports are importing on average nearly 1.3 million containers each month. Compare that to 2019, the last full year before the pandemic, when the ports imported an average of 1.1 million per month. The result is longer waits to unload containers and longer lead times for the rest of the supply chain.

“It’s an example of just one segment of the supply chain, but that one segment is creating huge problems for everybody else,” Drake says.

To alleviate that congestion, the Biden administration worked with port officials and the International Longshore and Warehouse Union to allow for 24/7 operation at all port terminals. California Gov. Gavin Newsom also signed an executive order directing state agencies to identify state-owned properties that could serve as short-term storage for goods unloaded from ships and to determine whether any priority freight routes could receive a temporary exemption to gross vehicle limits, allowing larger trucks to use them. Additionally, the city of Long Beach waived an ordinance prohibiting stacking containers more than two high to preserve the scenic look of the coastline. Containers can now be stacked four high or even five with special approval from fire officials. There is some evidence those measures are working, as the number of containers waiting to anchor in the San Pedro Bay Port Complex fell to 75 as of mid-November.

Another step being considered is the issuance of a $100 per day fee to carriers for each container that has been sitting on the dock for at least three days – although the Chamber has pushed to delay enforcement. “What we’ve been advocating for is everyone needs to be at the table,” Drake says. “They need to be sitting down together. They need to be figuring out these problems all in one. When you put new fees on, when you put fines and the like, it undermines that spirit of doing it all together.”

Still, Drake says the ports and local governments could do more to get goods moving. “Something that is really being underreported is our West Coast ports really need to figure out how to move stuff more quickly,” he explains.

Although it’s true that the Ports of Los Angeles and Long Beach are among the busiest in the world – and are responsible for about 40 percent of all imports into the United States – they lag behind their international counterparts when it comes to efficiency. A report from the World Bank and HIS Markit ranked the Port of Los Angeles 328 and the Port of Long Beach 333 for performance among the world’s 351 total container ports. The highest-ranking U.S. port was the Port of Virginia at 85. “We’ve got third-world countries that have better-operating ports than the United States does,” Drake says. “It’s embarrassing and frankly there’s no reason it should be that bad.”

The slow pace at which U.S. ports are offloading goods puts the country at an economic disadvantage compared to competitors into Southeast Asia, including China, Drake says. Part of the problem is that American ports have been reluctant to embrace technological innovations such as automation because of a historic concern for replacing jobs. “We need to take this opportunity and figure out how to get through these impasses,” Drake adds. “Ports are national assets in that our economic competitiveness a lot of times is going to rest in the strength of the ports themselves.”

Developing those long-term solutions to improving port performance will require collaboration between states, agencies, businesses and supply chain partners. The $1.2 trillion bipartisan infrastructure bill President Joe Biden signed into law in November earmarked $17 billion for port infrastructure, but it also emphasized multimodal planning and state freight advisory committees, which are made up of transportation system users like railroad and trucking companies and businesses such as Walmart that rely on those routes. State freight advisory committees will use their influence and expertise to ensure federal dollars are steered toward critical projects. “This legislation continues to invest in those voices to inform investment decisions,” Drake says.

Trucking Shortages

One of the reasons that containers have been piling up at ports is that they have nowhere to go once they are unloaded. Normally, truck drivers would pick up a container and transfer it to the next link in the supply chain, but the driver shortage that was already hurting the trucking industry before COVID-19 has only gotten worse in the past two years. In an October report, Moody’s said the lack of truck drivers was “perhaps the weakest link of the supply chain.” That same month, Chris Spear, president and CEO of the American Trucking Associations (ATA), revealed that the industry was short 80,000 drivers – an increase of nearly 20,000 since the start of 2020.

The shortage is only expected to grow. With the average age of truck drivers exceeding 45 years, the industry is poised to lose workers to retirements and a desire to spend more time at home. The ATA estimates the industry will need to recruit 1 million new drivers over the next decade to replace those leaving the industry and to accommodate growth. “It’s an aging workforce and it’s a workforce that’s going to have to be replaced by younger drivers,” Drake says.

Fortunately, a key piece of the infrastructure bill could expand the availability of truck drivers while also attracting fresh people into the industry. Currently, commercial truck drivers aged 18 to 21 are prohibited from working across state lines and participating in interstate commerce. The federal law is at odds with state regulations, as 49 states and Washington D.C. already allow individuals under age 21 to obtain a commercial driver’s license.

“This means a 20-year-old driver in El Paso can drive across the entire state of Texas, but can’t make the 30-mile trip into New Mexico,” says Seth Waugh, associate vice president of government relations for NAW.

For the past several years, the DRIVE Safe Coalition, a group of 70 trade organizations, including FEDA and NAW, have advocated passing the DRIVE-Safe Act, which seeks to create an apprenticeship process to train young drivers for interstate commerce. The process would include 400 hours of on-duty driving alongside an experienced driver. Pieces of the DRIVE Safe Act were eventually added to the infrastructure bill as a pilot program. “Upon the pilot program’s completion, the data that is collected will hopefully provide the basis for a long-term program or full passage of the DRIVE Safe Act,” Waugh explains.

The hope is that allowing younger drivers to cross state lines and earn more money will help attract them to an industry that skews older. “It’s one of the few jobs in the U.S. where you can have a middle-class income and lifestyle without a college degree,” Drake points out.

Rising Costs and Tariffs

Even if young people start flocking to the truck industry, they may find those middle-class salaries don’t go as far as they used to. The Consumer Price Index jumped 6.2 percent year-over-year in October, a sign of rising costs throughout the economy. Foodservice equipment distributors have seen the same kinds of rapid price increases in equipment.

Some of that can be attributed to the higher costs of materials and components needed for manufacturing. Aluminum and stainless steel are near all-time highs, at $2.87 and $1.84 per pound respectively. A September 2021 study from NAFEM found that 75 percent of member companies were experiencing metal shortages, impacting their ability to compete, grow and control costs. Computer chips have also become scarcer, with more people working from home and the trend toward internet-connected devices and equipment increasing demand. Alleviating the high cost of those products will require a reexamination of the trade policies enacted during the Trump administration.

Organizations such as NAFEM and the U.S. Chamber have pushed the Biden administration to repeal Section 232 tariffs on steel and aluminum imports, which imposes a 25 percent import tax on steel and 10 percent on aluminum. The Chamber credits the Section 232 for contributing to a U.S. manufacturing recession in 2019. Further, while research from the Peterson Institute for International Economics shows that overcapacity of steel production in China is behind the issues affecting the steel market, the Chamber points out that Chinese exports account for less than 2 percent of U.S. steel imports. Rather than maintaining the tariffs, the Chamber urged the Biden administration to address steel overcapacity by reviving the Global Forum on Steel Excess Capacity, a group created by G20 member countries in 2016 to address systemic issues and trade distortions negatively impacting the steel industry.

Businesses saw some relief in October when the United States and European Union reached a deal to replace Section 232 with a tariff rate quota, allowing European steel and aluminum to enter the country below a certain level of imports as long as that steel was produced entirely within the European Union. In return, the European Union agreed to suspend retaliatory duties on American exports such as bourbon and motorcycles.

Another piece of trade policy harming manufacturers is the Section 301 tariffs on more than $300 billion worth of annual imports from China. In a white paper entitled Supply Chain Disruptions Affect Viability of U.S. Manufacturing Sector, NAFEM and aligned associations said that the Section 301 tariffs on imports from China are causing a lack of supply and higher prices for substitute components; a lack of time and resources to find new sources, and; multiple companies competing to source from the same pool of non-Chinese alternate suppliers. The U.S. Trade Representative is currently reviewing the possible reinstatement of 549 previously-extended excluded products under Section 301, such as certain electric motors, pump parts and hydraulic valve components.

The impact of tariffs has become more pronounced over the past year as freight costs, in general, have risen. A transport container from China to the United States cost about $3,000 a year ago, Drake says, but can now cost as much as $35,000 because of global higher demand for shipping capacity. When the container itself might only have $30,000 to $40,000 worth of goods in it, that cost increase has an immense impact on smaller manufacturers and distributors. “Businesses just can’t survive long in this type of environment,” Drake says. “They have to make up those prices.”

Solving the supply chain challenges will take time, but reducing the burden of tariffs is one way the Biden administration could make an immediate difference. Nearly 40 percent of NAFEM manufacturers said removing the Section 232 metal traffics would provide relief while 56 percent said the same of removing the Section 301 tariffs. “When U.S. businesses are already struggling with these increased transportation costs and they have to pay a tariff on top of getting goods into and out of specific countries, it’s just unreasonable,” Drake says.

The Consequences of Decoupling

As the frustration over the trade conflict with China continues to grow, some have called for the United States to further untangle its economy from the rival superpower, commonly referred to as “decoupling.” However, in a report titled Understanding U.S.-China Decoupling: Macro Trends and Industry Impacts, the U.S. Chamber’s China Center warns that there would be significant economic consequences.

If 25 percent tariffs were expanded to cover all two-way trade, the United States would lose $190 billion in GDP annually by 2025, the China Center found. U.S. manufacturers would largely lose access to a market of 1.4 billion consumers, leading to lost economies of scale and diminished competitiveness. Further, decoupling would prompt the sale of half the U.S. foreign direct investment stock in China, causing U.S. investors to lose $25 billion in capital gains. The move would also trigger a one-time GDP loss of up to $500 billion. Finally, already scarce components would become even more difficult for the foodservice equipment industry and others to source. Without China trade, the U.S. semiconductor industry would realize lower economies of scale and R&D spending and some foreign firms may “de-Americanize” their semiconductor activities, putting more than 100,000 American jobs at risk.

Despite President Biden’s recent outreach to China, the report reminds us that over the past decade, China made moves to limit market access and alter regulatory restrictions to bolster the competitiveness of their domestic companies and reduce dependence on foreign technology and expertise. By the mid-2010s, many leaders in the United States had shifted their view of China from an economic partner to a competitor and rival. That perspective accelerated during the Trump administration, leading to the current trade policies that are hampering businesses and supply chains.

A shift back to the cooperative model seems unlikely in the near future, the U.S. Chamber said in the report. “Going forward, there is bipartisan support for a more forceful approach to China, as well as growing public concern over Beijing’s policies. In this environment, the Biden administration is likely to face political backlash if it tries to retu rn to the previous policy of engagement with China.”

Still, the Chamber’s China Center believes officials should take care to weigh the economic impact before taking further measures to decouple from China. “An approach to decoupling that is targeted and fact-based will be more appealing for U.S. allies and therefore have a better chance of success in the long run,” it wrote in the report.

“The Biden administration may adopt a less strident tone with China and is likely to prioritize working with allies,” the Chamber continued. “This, in and of itself, will mean a shift in policy toward China. But in many important respects, including the emphasis on competition and a broad view of the challenges China poses across economic, political, technology and security dimensions, there is likely to be continuity.”

Infrastructure Bill Brings Hope

Even if the Biden administration altered the country’s trade strategy and 80,000 zoomers applied for a commercial truck license tomorrow, it would still take some time for the supply chain to reorient and return to pre-pandemic operations. “It’s not going away anytime soon,” Drake says. “Everyone is going to be hurt this holiday shopping season. But nobody should think for a second that once Christmas is over this problem goes away. We’re going to be dealing with this into the next year.”

But there is hope in sight. The $1.2 trillion infrastructure bill aims to fund vital projects that will ease many of the problems facing the supply chain, from logistics support facilities at the Port of Los Angeles to new parking areas and rest stops for truck drivers. “The bipartisan infrastructure framework that was signed into law (Nov. 15) will invest billions of dollars into modernizing our ports, railways, airports and highways,” Waugh says. “Not only will these improvements bring jobs to all parts of the country, once completed, they will greatly alleviate many of the pressures that are hindering our supply chain.”

Highlights of the bill include:

  • $110 billion to repair aging highways, bridges and roads
  • $39 billion to expand public transportation systems and provide funding for state and local governments to purchase zero- and low-emission buses
  • $66 billion to improve Amtrak’s rail service
  • $65 billion to improve internet services for rural areas, low-income families and tribal communities
  • $65 billion to improve the reliability of the electric grid
  • $25 billion to improve airports
  • $55 billion on water and wastewater infrastructure
  • $7.5 billion for electric vehicle charging stations
  • $17 billion for ports

Drake explains that each of the 297 members of Congress that voted for the bipartisan bill was someone the U.S. Chamber worked with to get it passed. “I think it brings a level of investment in our infrastructure that we haven’t seen for over 20 years,” he says. “We have to continue investing in our infrastructure at a similar level going forward. It’s about investing in our nation’s economic competitiveness and success.”