Shipping delays mount ahead of the holiday season

Aaron Terrazas, Convoy Director of Economic Research, joins Yahoo Finance to discuss supply chain bottlenecks and labor shortages in the trucking industry.

Video transcript

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ALEXIS CHRISTOFOUROS: Shipping operations at US ports remain clogged, as ports, truckers, and warehouses cannot find enough workers, or they can't agree on hours of operation. Here to talk about it is Aaron Terrazas. He is director of Economic Research at Convoy. Aaron, good to see you.

So I read that Nike doesn't have enough sneakers to sell for the holidays. Prices for artificial Christmas trees are going through the roof, already up 25% because of these problems. How bad is the backlog right now at our busiest US ports?

AARON TERRAZAS: Well, it's as bad as it's ever been. A lot of people who manage supply chains for not only Nike but just about every manufacturer and retailer across the United States is doing a lot of scrambling right now. And they've been scrambling for a couple of months at this point.

So you mentioned Los Angeles. The reality is it's not only Los Angeles. It's ports up and down the West Coast. You're seeing freight that would have gone into the Port of Los Angeles diverted to the Gulf or East Coast ports when it can go there. You see cross border ports, like Vancouver, like Ensenada, making a bid to attract some of those ships and just truck it overland. All of that means that everyone is scrambling and doing a lot of last-minute planning.

ALEXIS CHRISTOFOUROS: So talk to me about the root of all of that last-minute scrambling. Is part of this maybe a self-inflicted wound by the industry because it is still so antiquated when you look at the processes to get goods into our ports?

AARON TERRAZAS: That's a great point. Obviously, the pandemic and everything that's happened over the past year and a half has exposed really how fragile supply chains are. I think it's something that we were coming to terms with even before the pandemic. You think about the initial impacts of the US-China trade war. We were starting to see inklings of this back in 2019 and even to 2018.

But the reality is, there are still so many manual processes, so many paper and slow things that happen in the freight industry. And we made a lot of progress, no doubt. You are starting to see things like efforts to decouple the tractor and trailer, the front of the truck and the back of the truck, in order to allow drivers to use their time more efficiently, things like electronic documents, and touchless entry to facilities. That has certainly increased driver productivity, particularly for drivers who do local hauls, not necessarily for long-haul drivers. But it is hard to see those effects when upstream, the retailers and the manufacturers are scrambling themselves.

ALEXIS CHRISTOFOUROS: Yeah. Well, how are our ports and our truckers doing, I guess, compared to other parts of the world, to Asia, which has huge ports of its own, and parts of Europe?

AARON TERRAZAS: Yeah. I mean, I think one of the issues that comes up again and again within the trucking industry right now is labor shortages. And I think whenever you have periods of prolonged hiring, like we had had in the trucking industry, hiring challenges like we have had in the trucking industry now for about a year, you have three conversations.

There is a public conversation around relaxing regulatory barriers to entry. You see this with things like, in the infrastructure bill, there's a pilot for younger, 18 to 21-year-old truck drivers. You see conversations around accessing foreign workers. I know the UK is making a bid to attract some of the truck drivers who left due to Brexit. And you see kind of a conversation around automation and technology-enhanced productivity, which I just mentioned a moment ago.

ALEXIS CHRISTOFOUROS: Are there any bright spots? Give us something we can hold onto here. And are you seeing an area where some of the bottlenecks are easing? Maybe that's in a certain industry, a certain sector versus another. Or is everybody sort of in the same boat, no pun intended, right now?

AARON TERRAZAS: [LAUGHS] Yeah, no. I think kind of a lot of the investments that are being made right now are going to pay dividends as the moment that demand starts to ease. We know that it has been very much demand-driven economy for the past year and a half. Consumer spending, kind of catch-up in manufacturing. The moment that that eases, a lot of our investments in better productivity--

Again, I mentioned kind of decoupling the driver from the back of the truck. That allows drivers to use their time more efficiently, spend less time waiting for their trailer to be unloaded and loaded. Every 1% of freight that transitions to this kind of drop-and-hook model is like adding 10,000 drivers to the system. So I think those productivity-enhancing investments are going to pay off, hopefully as soon as the spring or sometime next year.

ALEXIS CHRISTOFOUROS: And might we then start to see some pricing pressures ease? Because we know that prices for just about everything, including food and gas and furniture and everything in between, is going up. And a big reason why are these supply chain shortages.

AARON TERRAZAS: That's a great point. Truck prices and the cost to move goods for companies are up nationwide about 20% year over year. Historically, companies have not passed that cost along to consumers. But at this point, it's gone up for so long that they are starting to pass along some of that cost to consumers. And so it is one of the factors, among many, driving consumer price inflation.

I think when the freight market does start to slow, it's hard to imagine that we're going to erase all of the gains that we've seen over the past year. Look at trucker wages alone. Those are up close to the double digits over the past year, depending on whether or not you count one-off payments like bonuses. Those wage gains are not going to disappear once the market slows.

ALEXIS CHRISTOFOUROS: All right. We're going to have to leave it there, but to be continued, for sure. Aaron Terrazas, director of economic research there at Convoy, thanks for your insights today.