• A tweetstorm about the congestion at LA’s ports has focused attention on the supply chain crisis.
  • COVID-19 played a big role in creating the disruption that is dragging on the global economy.
  • Governments in the US and other countries are stepping up efforts to remove the bottlenecks.

Flexport founder Ryan Petersen rented a boat in October 2021 and took a close look at the logjam choking the two busiest container ports in the US – Los Angeles and Long Beach. After a three-hour tour, he lit up Twitter with ideas to clear the bottleneck that’s disrupting America’s supply chain.

The main problem he found was the port terminals had no room for new containers in their yards. As a result, more than 70 ships carrying a total of 500,000 containers were left idling in San Pedro Bay, waiting for space to open up. And the back-up was only going to get worse, he said.

a diagram showing some of the many shops which were stranded outside Los Angeles in October
More than 70 ships carrying a total of 500,000 containers were stranded outside Los Angeles in October.
Image: Reuters

Port congestion in Los Angeles

With the docks so crowded, truckers couldn’t return empty containers and pick up loaded ones scheduled for delivery within the US. Petersen called the situation a “negative feedback loop that is rapidly cycling out of control”.

Petersen offered five fixes designed to get containers moving again, and his tweets went viral – a sign of how urgently the world needs to get its supply chains back on track. Long Beach responded to one of his proposals and raised its limit on how high containers can be stacked by logistics companies outside the port. A Bloomberg Opinion columnist said Petersen’s ideas “could be the tweetstorm that saves Christmas”.

COVID economic impact

The effects of the global supply-chain crisis are visible everywhere you look, from half-empty shelves in grocery stores to soaring fuel prices at the pump. COVID-19 has played a big role in creating the problems we see today. Economies contracted sharply in 2020 as many countries went into lockdown, shutting factories and cutting the supply of available goods. As we rebuild from the pandemic, demand is soaring and suppliers and logistics companies are struggling to keep up.

Governments are trying to alleviate the strain, as when US President Joe Biden announced in mid-October 2021 that the Port of Los Angeles would join Long Beach in starting to work around the clock. Biden also called on private companies to step up, because the goal “is not only to get through this immediate bottleneck but to address the longstanding weaknesses in our transportation supply chain that this pandemic has exposed”.

a chart showing that supply chain disruptions have returned in 2021
After the spike in 2020, global supply chain disruptions have now returned.
Image: Statista

Snarled supply chains

The disruptions to supply chains have sent freight costs and delivery times soaring, causing a major challenge for the global economy, according to Parisa Kamali, an economist in the External Policy Division at the International Monetary Fund.

a chart showing the disruptions in supply chains from 2010 to 2021
Suppliers’ delivery times in the US and EU have slowed considerably amid the shipping crisis.
Image: IMF

When the number of new COVID-19 cases begins to decrease, this should ease capacity and labour shortages and relieve some pressure on the global supply chain, Kamali writes in an article on the World Economic Forum website. Yet some experts aren’t convinced this will happen.

“Elevated demand during the holiday season in some of the world’s largest economies, another wave of new COVID-19 cases and extreme weather events, if they materialize, could cause supply-chain disruptions,” Kamali writes.

Impact on developing economies

While the delays at US ports underscore the importance of predictable supply chains for global economic stability, disruptions like these aren’t unique, according to William Petty, head of the Global Alliance for Trade Facilitation.

“Poor infrastructure and bureaucratic red tape mean that high costs and long delays can be the norm in developing economies,” Petty says. “They put the brakes on economic growth in countries that need it the most.”

What is the World Economic Forum doing on trade facilitation?

The Global Alliance for Trade Facilitation is a collaboration of international organisations, governments and businesses led by the Center for International Private Enterprise, the International Chamber of Commerce and the World Economic Forum, in cooperation with Gesellschaft für Internationale Zusammenarbeit.

It aims to help governments in developing and least developed countries implement the World Trade Organization’s Trade Facilitation Agreement by bringing together governments and businesses to identify opportunities to address delays and unnecessary red-tape at borders.

For example, in Colombia, the Alliance worked with the National Food and Drug Surveillance Institute and business to introduce a risk management system that can facilitate trade while protecting public health, cutting the average rate of physical inspections of food and beverages by 30% and delivering $8.8 million in savings for importers in the first 18 months of operation.

The Alliance is a public-private partnership for trade-led growth that supports governments in developing economies to implement trade reforms. It’s co-led by the World Economic Forum and funded by the governments of Canada, Denmark, Germany and the US.