NAFTZ Panelists Say 'Just in Time' May Fall Out of Fashion
Dockworkers' strikes, hurricanes and the trade war have all been major problems for importers and exporters at various points in the last 20 years, but the impact of COVID-19 dwarfs them all, panelists and listeners said on a webinar during the National Association of Foreign-Trade Zones virtual conference May 13.
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Unlike in the case of a strike or a hurricane, however, it's not primarily a logistics problem. Of those attending the webinar, 42% said a loss of business and problems with cash flow were the most difficult results of the pandemic. Another 19% said a supplier's shutdown was the biggest problem, and 14% said their own shutdown or labor shortage was the biggest problem.
However, before they turned to the pandemic, the panelists did a review of how past disruptions changed trading practices. Erik Autor, CEO of NAFTZ, said the West Coast dockworkers' strike in 2002 was a seminal event in trade. “A lot of companies were solely reliant on LA/Long Beach before then,” he said.
Shane Williams, economic development director for the Port of Houston Authority, said it took months for supply chains to recover from the strike, and Houston benefited as Home Depot and Wal-Mart built large distribution centers at the Houston port in the years afterwards. “That put Port Houston into the container game,” he said. Williams, who manages 40 FTZ sites at the port, also said the Galveston Hurricane in 1900 is the only reason Houston's a major port at all.
Before COVID-19, 27% of webinar participants said, a natural disaster like a hurricane had the biggest impact on their business. Autor said, “We have seen an increasing number … due to global climate change. We can probably expect to see more weather-related disruptions and increasing in frequency and severity.”
But 47% said the tariffs from the trade war were the worst disruption before COVID-19.
Williams predicted between the trade war and COVID-19, there's going to be less reliance on Asian factories -- and 35% of webinar listeners said they are going to diversify their supply chains in response to the crisis. “We’ve heard from a lot of people we’re working with,” Williams said, that they expect in the future, north-south distribution in North America will be more prominent. Currently, transportation from the coasts is dominant. “Rail’s been set for a lot of east-west distribution for a long time,” he said, which may be one complication in an effort to shift patterns.
Autor said that the complexity of supply chains overall “has really exposed some significant vulnerabilities in the whole global trade and supply chain system.”
Williams said a lot of his port's customers leaned heavily into “just in time” delivery. “Now they may have to start shifting to larger distribution facilities or third-party distribution facilities,” he said. “They may have to have a larger inventory than they wanted to have.” He said a reliance on not holding inventory left many “stuck without their shirt on.”
But he also pointed to a Texas business that was not mostly caught short, because it started planning for a major pandemic Jan. 15, a month before Texas's first recorded case. The company talked to retailers in China and Italy about how demand shifted, and limited the number of goods per customer in March. That's HEB, a regional grocery chain. “They haven’t had one hitch,” Williams said. “They’ve made a lot of customers for life.”