Q&A: Supply Chain Challenges Creating a 'Complicated Mess'

The views expressed here are solely those of the authors and do not necessarily represent the views of FreightWaves or its affiliates. Jake Medwell, founding partner at 8VC, and Loren A. Smith Jr., president of Skyline Policy Risk Group, discuss key industry topics for this regular quarterly Q&A exclusively on FreightWaves.

By Jake Medwell and Loren Smith

JAKE MEDWELL: The chip shortage, the tire shortage, ships queuing up off the coast of California – every few days there seems to be a new angle on the pressures in the supply chain. How concerned should we be about the state of global, and particularly U.S., commerce and what, if anything, should we be expecting from policymakers in Washington and elsewhere?

LOREN SMITH: It's a major challenge, but there's the reason for the hope that some of the biggest problems get handled over the next few months. But some of the bigger pieces will take years to resolve.

There are three main moving pieces here: 1) geopolitics; 2) infrastructure needs; and 3) regulation.

JAKE: Let's start with geopolitics. China? Populism? COVID aftershocks?

LOREN: We're in what we may eventually think of as the post-globalization era. To be clear, global trade is here to stay, even with an elevated level of nationalism. However, trade networks are being rethought due to a few factors: nationalism/populism; tensions around China and great power competition generally; and the way COVID accelerated certain trends in the economy. 

Basically, these things are leading companies and industries to make changes to their individual supply chains. In some cases, U.S. companies are going to be getting goods from countries other than China where possible, and in other areas we may see a trend of "industrial insourcing" as much as we may see more domestic U.S. production.

All of this means global supply chains are being altered in ways we really haven't seen for a few decades, and we have to hope market players can solve for their individual pieces sooner rather than later.

JAKE: That sounds like a mess.

LOREN: A complicated mess. But I think the good news is that the solutions may come sooner than we think, as individual people and companies that are in competition use ingenuity and entrepreneurship to figure out workarounds.

JAKE: Good leadership teams do have a way of pulling off magic tricks. I've seen it happen!

LOREN: Creativity is the most valuable natural resource.

JAKE: That's right! And as for infrastructure, your second point – what's happening there?

LOREN: Well, looking at the U.S. specifically, it would be handy to have more resources directed to infrastructure. Roads and bridges are very important, especially to support trucking, but a major need that we're seeing the spotlight on is the connecting points, the multimodal nodes between different types of transportation. The problems at the West Coast ports are fundamentally about how to get stuff off the ships and onto the trucks and trains. Moving to 24-7 operations is a good start. Airports are also important, as air freight is growing.

And as pretty much everyone knows, Congress is working on new infrastructure funding through the bipartisan infrastructure bill, and to a certain extent in the partisan reconciliation bill. Whatever happens in Congress, it is really important for federal grantmakers to put money into the freight network, and especially those multimodal connecting nodes. That's the key – make sure funding is put towards building a stronger network. And use those emergency grantmaking powers, where appropriate.

JAKE: More infrastructure would be nice. OK, and what about regulation, your third point?

LOREN: Federal and state regulators have to keep prioritizing the smooth movement of goods: movement by rail, by truck, by ship, by air. The Biden administration has a number of policy priorities they're pursuing, and without delving too deep into each of those issues – including climate policy; equity; workforce protections – they need to balance the needs of freight networks to operate in a way that protects the recovery of jobs and the economy.

JAKE: You mention jobs. How can the various players address labor issues?

LOREN: Well, recruitment and retention of truck drivers and workers is something that companies, the unions, and government are all involved in. Sensible regulation and sensible regulatory reform or possibly deregulation are all part of the mix here. Put whatever filter you want on it – companies need to be able to operate and people need jobs. Cheap, abundant energy also needs to be a priority. It's an all-hands-on-deck situation.

JAKE: Are we going to get out of this by Christmas?

LOREN: Christmas is going to be tight. There's reason for hope that some of the worst-case scenarios will be off the table by then, but I think the big solutions are more of a 2022 story, with effects likely continuing for a few more years.

JAKE: So possibly some good news there. We'll be keeping our eye on the regulatory situation, and how the infrastructure plays out. And hopefully some of the global issues will get worked out relatively quickly and cleanly. Geopolitics, infrastructure, regulation.

LOREN: To be sure. And there are certainly a lot more factors than what we've touched on here – the economy is complicated.

JAKE: Absolutely. Keep watching this space!

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