June 1, 2021
Have you experienced shipping delays? Just about anyone you talk to these days has had trouble getting something. It seems lately much of the stuff we need is not available when we need it. For farmers that could be chemicals, fertilizer, even equipment parts. But it’s not just an agricultural problem. Building materials, computers, auto parts. Even Elon Musk is having trouble getting enough microchips to build his Teslas. And apparently Chick-fi-A is facing a sauce shortage? Why can we not get our stuff on time?
While you’re probably tired of hearing the phrase “due to COVID,” experts say the lockdown induced by threat of the disease is ultimately to blame. During lockdown, there was a very profound shift in consumer spending away from services and into goods. Instead of doing things, we were buying things.
“We’ve sent a very strong signal to stimulate more manufacturing, which has resulted in a greater need for more transportation services, which has put stress on each link of the supply chain” said Mike Steenhoek, executive director of the Soy Transportation Coalition. “It certainly extends to port availability. We’ve seen pretty significant queues of ocean vessels waiting for an available berth at these ports. We’ve seen significant volumes being supported by our freight rail industry. Trucking is under stress, which has only been exacerbated by a perpetual shortage of truck drivers.”
Steenhoek said the global supply chain log jams illustrate just how interconnected everything is.
“People are often surprised by that, but it doesn’t take much for a problem in one part of our supply chain network to manifest itself to you individually. You can have a problem ‘over there,’ and suddenly, it’s your problem over here,” he said.
The problems that have further compounded already stressed supply chains include the grounding of the Ever Given in the Suez Canal, the hacking of the Colonial Pipeline, and most recently, here in our own backyard, the closing of the I-40 bridge over the Mississippi River.
Impact of I-40 closure
The Hernando DeSoto Bridge connecting West Memphis, Arkansas, and Memphis, Tennessee, was closed May 11 after transportation officials found a crack in its support structure. The 3.3-mile bridge, with its two distinctive steel arches, carries about 60,000 vehicles a day, according to the Tennessee Department of Transportation.
The same day, the Coast Guard closed the river to barge traffic that would pass under the bridge. The Coast Guard reopened the waterway May 14. At the time, there were 62 vessels and 1,058 barges in the queue. However, the bridge remains closed to vehicular traffic indefinitely.
Both the bridge and the Mississippi River it spans are major conduits of food and other agriculture-related traffic. Harvested grain finds its way to Mississippi River ports for export down river through New Orleans, while inputs such as fertilizer also make their way inland by river.
Andrew McKenzie, agricultural economist with the University of Arkansas System Division of Agriculture and the Dale Bumpers College of Agricultural, Food and Life Sciences, co-authored a 2018 paper on barge freight contracts, an area that hasn’t received much analysis.
“Bottom line, the Mississippi River is hugely important to U.S. commodity supply chains related to exports,” McKenzie said. “When barge freight rates increase due to various demand and supply issues these higher costs are absorbed into price bids to farmers.”
Had the river “been closed for a longer length of time – we could have seen price impacts, with markets north of the bridge/river closure seeing price fall because of excess supply and markets south of the bridge/river closure experiencing price increases due to excess demand to lower supply,” McKenzie said.
Steenhoek believes we’ll continue to see some upward pressure on barge rates throughout the year — not due to the temporary Mississippi River closure, but to overall increased demand for transportation.
“When you have all of these goods that are moving and competing for transportation that puts upward pressure on rates,” he said. Barge rates increased last year due to a strong export program.
Longer routes, higher costs
The Arkansas Trucking Association last week estimated the I-40 bridge closure would cost the trucking industry $2.4 million a day as traffic has to be routed elsewhere.
“Using GPS data, we can discern that a previous 8-minute drive is now averaging 84 minutes. This additional transit time at $1.20 a minute for 26,500 trucks is costing the trucking industry more than $2.4 million each day that the bridge is closed,” said Shannon Newton, president of the Arkansas Trucking Association.
“Freight is like water,” Newton said. “It will continue to flow. Our industry will continue to make deliveries. But if the additional expense is prolonged, it is likely to be passed on to consumers.”
The ATA also cautioned that shippers should prepare for longer transit times and surcharges until the flow of traffic is restored.
Bridge repairs could take months. Steenhoek said if there is a silver lining to this situation, it’s that he’s hopeful the near-catastrophe will galvanize leaders to invest in infrastructure — including at the state and local level — particularly in rural areas.
“The ripple effect can be very pronounced. So, as much as we’re focusing on the impact of this major bridge, we can’t forget the rural roads and bridges a farmer has to cross to move his commodity from the field. That’s the link that makes all of the subsequent movements happen.”
How much longer?
Experts expect supply chain stress to continue throughout the year and could even become more challenging in the later summer months.
“Inventories are usually built-up in late summer so there’s plenty of time to have everything in place in advance of the Christmas season surge, so we’ll be encountering that over the next few months,” Steenhoek said.
“Another issue leading to supply chain stress is a changing sentiment toward just-in-time manufacturing. That’s been a buzzword over the last 20 years, and there’s a lot of very rational economic reasons for that, but since the disruption, we’re seeing manufacturers start to move away from just-in-time and pad their inventory levels, which is only further increasing demand on manufacturing and transportation.”
Agricultural economists say farmers need to be aware that supply chain issues will be with us for a while and plan accordingly.
“Whether we’re talking about chemicals or fuel or fertilizer, once you get to the point of ‘I need it right now,’ there’s not a ton of options. You’re going subject to what’s available, and you’re probably going to be looking at higher prices,” said Aaron Smith, associate professor of agricultural economics with the University of Tennessee.
“Map out the rest of the year. If you have a network of input suppliers, start a dialogue with them to see where they’re at, and if you have to, look for alternative sources.”
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