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Q&A: Untangling Georgia’s supply chain emergency

Subtitle:
Terry College supply chain expert explains the meaning behind the state of emergency
Friday, April 29, 2022 - 10:46am
By:
Merritt Melancon and Marty Parker
Image:
Trucks in parking lot

On April 14, Georgia Gov. Brian Kemp declared a state of emergency stemming from ongoing disruptions to the state’s supply chain infrastructure. 

The measure, which eases regulations on the trucking industry and prevents price gouging on gasoline and diesel fuel, is meant to remedy supply chain disruptions stemming from the COVID-19 pandemic and Russia’s invasion of Ukraine. 

While the new measure can’t hurt, UGA supply chain expert and Terry College of Business management lecturer Marty Parker explained supply chain problems are bigger than one state or set of regulations.

What is the state of the supply chain in Georgia?

It’s difficult, like everywhere else. The labor shortage, the truck shortage, the war in Ukraine and the recent COVID outbreak in China are having an impact.

I don’t think it’s ever fully recovered from the original supply chain shocks in 2020. It’s different for different industries, and it’s complicated. 

How did we get here? Is this still a COVID-related crisis or is it a more systemic problem?

This is a perfect storm. It’s the pandemic and the way the economy rapidly rebounded. It’s COVID cases in China causing lockdowns, the war in Ukraine, the booming U.S. economy, labor shortages from the Great Resignation and a shortage of trucks. It’s the lag time between rising prices and decreasing demand for goods. It’s labor shortages.

Given the complicated nature of the supply chain problems, will the emergency measures instituted by Georgia help?

It takes multiple factors to create a crisis and there are multiple bottlenecks. Addressing any one of those factors will be helpful. 

Frankly, there is not much that Gov. Kemp or President Biden can do because the supply chain starts with raw materials and flows through China, Brazil and other countries where you have manufacturing issues right now. Then there’s port congestion, a trucker shortage, warehouse space shortage and the growth in e-commerce. However, anything you can do to eliminate one of these bottlenecks will help. 

The trucking industry is facing the same labor shortages as other industries. You have a lot of truck drivers reaching retirement, and there are not many young people wanting to go into the industry. 

It is an incredibly regulated industry. Truckers are told when they can sleep, when they can eat, when they can drive, and when they can park. They have this electronic device on their truck that monitors them at all times. 

Recently, I was at the Trucking Profitability Strategies Conference, and there are a lot of companies working to improve the culture for truck drivers and are investing in better analytics and automation. But they are still building those technologies.

It’s not an easy industry. When you add all that complication, it’s very difficult. The good thing about what Gov. Kemp is attempting to do is it removes some of those restrictions. 

The one thing I don’t like is the anti-price gouging parts of the order. Prices communicate scarcity so putting limits on prices — no matter how intentioned — create shortages. Remember the price caps on gasoline in the 1970s? You could not get gasoline at the lower price because the supply ran out. It is the same with rent controls in New York City; it created a shortage of apartments.

The Georgia ports increased the number of containers brought in by 50 percent between 2015 and 2021, and they’re expecting to grow that capacity now that the dredging is complete. Do we have the infrastructure and drivers needed to handle that added supply chain capacity?

I think so. There is a shortage of warehouse space, but more space will be built out over time. 

I know companies are trying to build warehouse space now, but they can’t get the building materials or the labor they need. I know somebody trying to build a large warehouse in Savannah, but that project is on hold because they could not get roofing material. They have all the parts except for the roof. 

So, it’s kind of nutty. That’s how bottlenecks work. One thing can slow everything down. In our case, we’ve just had all of them hit at once. 

Are there industries or areas of the state hit harder than others? 

I think farming is in for a rough season — the record drought in the west, tractor shortages, fertilizer shortages from the war in Ukraine and shortages of other farming equipment.

Also, this is awful for the small companies that make up the bulk of our economy. Companies are having to pay upfront for imported goods well in advance of manufacturing or shipping. This uses up their working capital way before they can sell their finished products and turn them into cash. Money is getting tighter now as the Fed fights inflation. They are hurting. 

How long will these problems last? 

It’s going to improve because I think we’ve got a looming slowdown in the economy. Higher interest rates will start to slow home building and slow large purchases and so on. So that will be bad, but it will be good for the supply chain. My overall feeling is that this has been an anomaly in a generally healthy system. It’s an anomaly due to the pandemic. It’s an anomaly due to changes in demand, but it is leading to a long-term shift.

What kind of long-term shift do you think is happening? 

Everyone is trying to solve this problem through better use of data, better automation and more robotics. So I believe that in the end — and I don't know when that will be — we’ll come out of it with a more resilient supply chain with better information processing and more automation. Everything surrounding COVID is hard to predict. But once we get COVID under control globally, I think things will get better.

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