Just-in-time supply chains are breaking everyhere

Container ship at port

Just-in-time supply chains are a quaint utopian libertarian concept that assumes markets will always operate efficiently. Thus, goods can be and should be manufactured, shipped, and delivered exactly when needed, and not before.

It should be achingly obvious by now that this is not just a silly idea, which posits a magic of the marketplace that doesn’t exist, it is also dangerous. Just-in-time supply chains are the opposite of resilient. There is no redundancy built into the systems, no backup plans for when things go wrong.

Like during our current global pandemic. Shelves in stores are not fully stocked now. That’s because manufacturing and shipping have been hit hard by COVID. Los Angeles and Long Beach harbors are the poster child for this. Container ships are anchored for days offshore waiting to unload. There aren’t enough drivers at the ports, or warehouses to store goods in. Railroads have little room to unload containers after picking them up at ports. They is a huge shortage of truckers.

Container ships are going to Asia with empty containers because rates from Asia to U.S. are 10x normal. That means less containers available here.

And, oh yeah, European energy markets are breaking too.

In short, supply chains depend on containers, ports, railroads, warehouses, and trucks. Every stage of this international assembly line is breaking down in its own unique way. When the global supply chain works, it’s like a beautifully invisible system of dominoes clicking forward. Today’s omnishambles is a reminder that dominoes can fall backwards too.

International supply chains that assume goods will arrive just-in-time are a major part of the problem. Instead, we need a big push towards onshoring (building things here), supply chain redundancy, and robustness.

If we’re right, the scale of the upcoming wave of onshoring will likely surpass the flight from the cities we observed after Covid, at least as measured by economic impact. America is going to learn to build stuff again. It is going to understand that robustness matters at least as much as short-term efficiency. That ensuring your suppliers can also earn their cost of capital is a good thing. That co-creating value and sharing it with partners is shrewd, not gullible. Companies will do these things because they must.

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