Executive Insights is a series by Shipping and Freight Resource, that brings you unique perspectives and thoughtful analysis of what is happening in the world of maritime, shipping, freight, logistics, supply chain, and trade – directly from industry experts..
The US supply chains have been facing several disruptions since the onset of the pandemic leading to global disruptions characterised by port congestion leading to long queues, extended container dwell, burgeoning ocean freight rates, choked warehouses and intermodal issues..
In an exclusive interview, I caught up with Retd. General Stephen R. Lyons (SL), White House Port and Supply Chain Envoy within the US Supply Chain Disruption Task Force to discuss the various issues surrounding the supply chain disruptions and their impact on the US market..
Role of the White House Port Envoy
Commenting on the role of the relatively new position of the Port Envoy, General Lyons commended the incredible job done by the 1st Port Envoy Mr. John Pocari in collaborating across a broad spectrum of stakeholders in the industry..
The role of the port envoy underscores the Administration’s emphasis, priority, and understanding of the critical impact that port congestion has on broader macroeconomic factors like inflation..
“We all know the disruptive impacts of the pandemic in so many areas including supply chains. While the market will eventually self-correct, our job at the task force is to try to help accelerate that correction,” said Lyons..
“I think the port envoy position is more of a temporary position to try to accelerate a market correction,” said Lyons responding to whether the Port Envoy position will be a permanent position irrespective of the Administration..
“This important work will inform the creation of a new Congressionally mandated Assistant Secretary for Multi-modal operations within DOT,” added Lyons
US Supply Chain gridlock
Responding to a question on his views on the gridlock in US supply chains, General Lyons said “The good news is that record volumes of freight did move, the bad news is record volumes of freight did move, and right now warehouses are full and we’re still feeling the bullwhip effect of that period of time. There are limited levels of resiliency in supply chains, but none of us anticipated the scale and scope of a pandemic.
Supply chains are expensive and largely designed to be lean. When record volumes of freight started flowing supply chains responded in a quite predictable fashion. It is Little’s Law at work, a classic queueing problem. When supply chains approached maximum capacity queues or backlogs, began to climb at a non-linear rate. That is what we saw at the Ports of LA and Long Beach last year.”
“Congestion at terminals is the number one impediment to solving the supply chain disruption issues in the near term. It is all about fluidity at terminals. The theory of success is relatively simple. Freight in motion has to stay in motion until it reaches the shipper, and transportation conveyances must cycle constantly,” added Lyons..
The Plan of Action
The plan of action in the near term is to accelerate market correction by attacking critical path congestion at ocean and inland terminals.. To do this, enhanced collaboration amongst stakeholders is required to improve transparency and accountability, something that is lacking in this largely opaque industry..
General Lyons has involved Beneficial Cargo Owners (shippers) in discussions to better understand the impacts of supply chain congestion and seek their support in rapidly clearing their cargo from terminals to mitigate congestion.. While he acknowledged that in some cases shippers were doing this very well, in other instances some were not and using the terminals as storage space..
He was quick to point out that any savings gained by storing cargo at terminals are dwarfed by the enormous costs incurred at the macro level by retailers, manufacturers, builders, and ultimately consumers..
Supply chain congestion, volatility, and longer delivery times lead to increased costs in inventory, shifts to premium freight, and missed market opportunities.. And most costly of all are the impacts to reputational excellence..
Impact of OSRA
On the impact that the Ocean Shipping Reform Act (OSRA) will have on the future of US supply chains, General Lyons was of the view that the OSRA represents opportunities for regulatory agencies like the FMC to enact rules that are designed to improve fluidity at terminals and also improve transparency.
While refraining from commenting on the American Ports and Access Privileges Act, General Lyons highlighted that he remains a strong advocate of the US Flag maritime industry..
“I just would say from my own perspective, given my military background, I just remain a very strong advocate for our US flag industry as well as our maritime crews which are so critical to the maritime ecosystem.
While it is of course about commerce and American prosperity, it is also about playing a key role in our National Defense as an auxiliary fleet,” said Lyons..
US Port productivity rankings
When queried about the rankings that LA and Long Beach got in the World Bank’s Port Productivity Index, General Lyons was highly complimentary of the work done by the longshoremen in the US ports
“When you look at the San Pedro Bay Port complex, unquestionably the largest complex United States processing record volumes of cargo, you have to give Labor a lot of credit, particularly for working through the pandemic despite the lack of PPE, COVID test kits, and vaccines. The work that they’re doing provides a vital artery, the lifeline, really, to the American economy,” said Lyons..
While the General attributed a lot of the problems in the US supply chains to the pandemic, he also acknowledged that there are enormous inefficiencies across the supply chain resulting in low scores but was excited about the Bipartisan Infrastructure Law which provides $1.2 trillion for infrastructure development..
“This is about our kids and our grandkids. This is a once-in-a-generation opportunity, really, to link together and knit together our infrastructure to support American prosperity,” said an excited Lyons..
Automation in US Ports
On the topic of automation in US ports, General Lyons was of the view that automation should be part of the port modernization strategy and essential to enhanced port productivity..
But General Lyons was very clear in his views about promoting and evolving the labor force across the industry.. “We have to take a very comprehensive approach to modernize AND, not OR, AND advance the livelihoods of our incredible longshoremen and all the people that work so hard to keep our economy running.
This should be a win-win scenario, not an either-or scenario so the answer is yes, there is a place for automation, there must be, we live in a digital world, but we also must develop our workforce to meet future needs.”
On the topic of the US flag maritime industry, General Lyons said “The United States is a maritime nation. Our livelihood, and our American prosperity depend on it, and so we need to behave like that. It really is important that we have a viable US flag industry with competent mariners that can sail that fleet. The US maritime ecosystem is under pressure.”
The Port Envoy’s North Star and term goals
When queried about the critical issues that he was addressing as the 2nd Port Envoy, General Lyons said “Every day when I wake up, I think of what’s our North Star. And that is to restore consumer confidence in our supply chains and reduce costs to our consumers.”
He will follow a tiered approach to the critical supply chain issues that need handling
- Enhance collaboration between all stakeholders
- Improve transparency and accountability across supply chains
- Accelerate market correction in the freight market
- Attack critical path congestion at terminals
- Improve data sharing as part of the Freight Logistics Optimization Works (FLOW) initiative.. FLOW is a grassroots initiative facilitated by DOT aimed at establishing macroeconomic supply chain indicators.
- Leverage the once-in-a-generation Bipartisan Infrastructure Law to shape the future of American supply chains.
You can read the full interview or listen to the interview..