SYLVIE DOUGLAS, BYLINE: This is PLANET MONEY from NPR.
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DARIAN WOODS, HOST:
Hi, everyone. This is Darian Woods from The Indicator, PLANET MONEY's daily economics podcast.
The world is deep into the supply chain apocalypse at this point. And frankly, all signs suggest we have a long way to go before we're out of the woods. If you're one of the many people still waiting on that new couch or car or a pair of skis, you might be wondering why things are still so broken. I mean, the ski season is halfway through at this point. So we're going to be looking at two crucial chokepoints that explain the slowdown - ports and warehouses. And we look at what it would take to unclog those chokepoints.
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WOODS: After the break, Dustin Dwyer from Michigan Radio brings us our first story about one possible solution to our national port clog problem.
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WOODS: We are joined today by Dustin Dwyer from Michigan Radio. Welcome.
DUSTIN DWYER, BYLINE: Hey, Darian.
WOODS: Good to have you here.
DWYER: It's great to be here. So I wanted to come on to tell you about this journey I heard about.
DWYER: And I brought a globe with me.
WOODS: I love it.
DWYER: All right. So we start at Shanghai, China.
WOODS: Yep. Right on the coast.
DWYER: You're going to go all the way across the Pacific Ocean on your little imaginary cargo ship.
DWYER: And you're going to head like you're going to go to Los Angeles. But as you know, the Port of Los Angeles is backed up.
DWYER: So we're going to...
WOODS: We're going to find an alternative port to go to.
DWYER: Alternative route - so go south. And you know where the Panama Canal is.
WOODS: Oh, yeah.
DWYER: So you're going to take that. Once you get through that, you're going to head up the East Coast. But don't stop. Go past Miami, past Savannah, past Baltimore. Go even past Boston, until you get to Nova Scotia.
WOODS: Right; all the way to Canada, yep.
DWYER: OK, so then hang a left there. And you see that little waterway, the St. Lawrence Seaway, which heads to Montreal?
DWYER: You're going to take that.
WOODS: OK. We're getting into some pretty narrow territory.
DWYER: Keep going past Montreal. You're going to come into Lake Ontario. You're going to see Toronto. Hey, Toronto. You know Niagara Falls?
WOODS: I know of it, yeah.
DWYER: You're not going to go over Niagara Falls. You can't actually go up it.
WOODS: (Laughter) Oh, right.
DWYER: So instead, there's another canal.
WOODS: Yeah, I would imagine so.
DWYER: So then take your boat into Lake Erie. And here, I should tell you, this journey - this long journey is the journey of the Happy Rover. It's a container ship that I found out about. It took this trip back in November.
WOODS: All right, so not your typical journey. And you're saying that the Happy Rover took this journey to avoid the mayhem at the West Coast ports.
DWYER: Exactly. And I was there on the shores of Lake Erie, waiting for the Happy Rover with a guy named Claus Sorensen. He works for a shipping company called Spliethoff.
Is this us out here?
CLAUS SORENSEN: Yep, that's her.
DWYER: That's her.
WOODS: We are standing in Cleveland.
DWYER: Cleveland in November, which is freezing - and I am standing out on the dock in the wind, right downtown. This is right next to where the Browns play, not far from the Rock and Roll Hall of Fame. This is the Port of Cleveland.
I'm standing there with Claus Sorensen, and the Happy Rover is finally pulling in. It's backing into the dock. On the deck of the ship are these maroon shipping containers that they have to unload.
You got one.
SORENSEN: Got one.
DWYER: Only took them 40 days.
DWYER: So Darian, standing right next to it, I have to say - this ship, the Happy Rover, looks plenty huge to me. It's, like, bigger than a football field.
DWYER: But, like, still compared to, like, one of those huge ocean container ships, it's, like, nothing.
WOODS: And the reason it's so small is because it's got to go through all those canals and the Great Lakes. These canals were built before the wave of containerization took off in the 1960s - i.e., putting things into containers and standardizing them with these big metal boxes. When you did that, products could be loaded and unloaded more quickly at the ports, and ships could be built to carry more and more containers.
So all around the world, container ships were getting bigger and bigger, but the canals and the Great Lakes - they were the same size. So even though the Great Lakes does, you know, a lot of shipping, the idea of containerization of these standardized containers with their massive economies of scale - that just skipped over the Great Lakes.
DWYER: Until now, Claus says.
SORENSEN: It's economics, you know? If rates are low, it makes no sense. If rates are high, then you can find a way for it to make sense. Rates are high right now because of the backlog and the bottlenecks, especially on the West Coast.
WOODS: And so with that extra financial incentive, you get the journey of the Happy Rover ship all the way from Shanghai to Cleveland.
DWYER: But even that journey was a long time in the making for the Port of Cleveland and for Claus' company, Spliethoff. They basically made a bet on this years ago, before anyone knew that there was a crisis coming in shipping. Because you can't just make a phone call and, all of a sudden, this port that wasn't taking containers before now can take containers. There are regulations.
And one of the biggest is that the Department of Homeland Security - they have to be able to scan every single container that comes into the port. And buying a scanner - that's not a cheap proposition. We're talking, like, hundreds of thousands of dollars. So if you're operating a port and you think, well, I'm not probably going to make that much money off of this container business, why buy the scanner anyway? Why invest?
WOODS: But Cleveland did, and now other ports in the Great Lakes are following that lead.
DEB DELUCA: The Great Lakes St. Lawrence Seaway System is an underutilized asset. I do think it's capable of being used as a relief valve for these global supply chain pressures.
WOODS: This is Deb DeLuca. She leads the Port of Duluth, which is the largest port on the Great Lakes. It's also the farthest inland. It's more than 2,000 miles from the ocean. And she says it's mostly raw materials moving through Duluth's port right now, like grain, fertilizer and the biggest one, iron ore.
DWYER: Deb says those things are really the heart of Great Lakes shipping today, and they will be for a long time to come. But she says there is room for container shipments to grow. So as of this year, Duluth became the second Great Lakes port after Cleveland to be able to accept container shipments.
DELUCA: You know, it's always a balance of service and price, correct? And I do think that the cost can work.
WOODS: OK. So Dustin, just a bit of a reality check - I mean, we're not expecting the Great Lakes shipping routes to replace the ones to LA and Long Beach, are we?
DWYER: No. OK. Fine, fine. Even in the wildest dreams of Great Lakes enthusiasts like myself, these ports could only handle a tiny fraction of what even the East Coast ports can. But there's still a real opportunity here, and it's not necessarily for these shipments that would take the long way from China, like the Happy Rover.
Consider shipments from Europe. This year, Claus' company, Spliethoff, had the Great Lakes' first dedicated, regularly scheduled container ship route, and it ran from Antwerp, Belgium to Cleveland.
SORENSEN: I mean, we're still getting calls today. How are you doing this? How do you get in here? Well, you know, we have to have a geography lesson.
WOODS: Luckily, I had one at the start of the show.
DWYER: (Laughter) Yeah, so get that map back out.
WOODS: All right, yep.
DWYER: But this time, come from Belgium and trace that route. And Cleveland is actually not that much farther than any of the other East Coast ports.
SORENSEN: From Antwerp to Baltimore and Antwerp to Cleveland, the distance is within a hundred miles. People are astounded to hear this fact. So yeah, the distance is actually very close to being the same.
DWYER: So if things are backed up at those East Coast ports, it can actually make more sense to ship to Cleveland. So much so that this year, Claus says they had containers arriving on boats coming into Cleveland that were then loaded up on trucks or trains or whatever and sent back overland back to the East Coast. And next year, maybe other Great Lakes ports will join them, like Duluth.
There is a lot of potential here. There's about a trillion dollars in annual trade between the U.S. and the EU, with hundreds of thousands of containers arriving on the Atlantic coast every year. So some of that could go to the Great Lakes.
WOODS: For some of the year, right? I mean, there is a polar bear in the room - winter.
DWYER: Which I've been skillfully ignoring this whole time, Darian.
WOODS: That's right. So there is a lot of ice in the winter, and the shipping lanes are actually closed every winter for months.
DWYER: Which is, I'll admit, a minor inconvenience.
WOODS: It might be.
DWYER: But Claus tells his customers, plan in advance. Try to ship more than you think you need early in the season. But yeah, it's an issue.
WOODS: OK, so it's not as if Cleveland's going to suddenly disrupt the entire way that global shipping operates. This won't be, say, bigger than Baltimore.
DWYER: Fine, fine. OK, so...
WOODS: Sorry to rain on your parade.
DWYER: I'll back off on my Great Lakes enthusiasm just a bit. But look, it could be a big deal for Cleveland and for Duluth and for people really anywhere in the middle of the country who want to get their shipments in quicker. So maybe the next time a global supply chain crisis hits, the Great Lakes will be here to relieve some of the pressure.
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WOODS: After the break, we look at another reason your new PlayStation 5 or refrigerator might be caught in purgatory - warehouses.
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WOODS: Our second story about supply chain chokepoints comes from Alina Selyukh from NPR's business desk. Hey, Alina.
ALINA SELYUKH, BYLINE: Hello, hello.
WOODS: You're here to take us on the world's most industrial adventure ride, I hear.
SELYUKH: I am calling it warehousing world.
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WOODS: I hear it.
SELYUKH: Hear the sound of a speedboat clicking on an, I don't know, forklift, maybe. I guess we're riding a forklift today.
WOODS: Yup, yup, yup. So put on your earplugs. We are going on one of Disney's loudest and most juddering theme park rides.
SELYUKH: There are shelves and conveyor belts and robots and literally everything you've ever bought in your life, Darian.
DOUG KIERSEY: Your computer, your phone, your desk, your carpet, the ceiling tiles.
SELYUKH: That's Doug Kiersey. He's the president of Dermody Properties, which owns warehouses used by some of the country's largest retailers.
KIERSEY: It all came out of a greater distribution network.
SELYUKH: Or not coming out these days, I guess.
KIERSEY: It's not coming out as quickly as we would like, is it?
WOODS: The supply chain crisis - and warehouses are a key link in the supply chain. They're moving goods from manufacturers to store shelves.
SELYUKH: This country has more warehouses right now than ever, and yet they are overflowing. They're running out of space.
KIERSEY: It's like nothing we've ever seen. I've been doing this for 38 years. It's unprecedented.
WOODS: And a lot of this, of course, has to do with the pandemic - skyrocketing consumer demand for goods, production challenges making those goods, bottlenecks transporting them.
SELYUKH: Definitely. But there's also more to the story that long predates the pandemic. Our ride begins in a pre-pandemic world a few years ago.
KIERSEY: Our business runs generally at about 93- to 96% occupancy nationally. Even in the great financial crisis, it dipped below 90% only briefly. So there's not a lot of slack in the system to begin with.
WOODS: Warehouses - pretty full even before the pandemic.
SELYUKH: And to be clear, when Doug says, like, 96% occupancy, that doesn't necessarily mean it's just, you know, packed with actual stuff. It just means that space has been claimed - maybe, like, a department store paid rent to reserve that space. So even if it sits empty and another store needs some space urgently, that space is not available.
WOODS: OK. So it sounds like their running their system at a pretty tight rate.
SELYUKH: Definitely. Warehouses already were busier than ever. In fact, the supply of warehousing space has been kind of barely keeping up with the demand for warehousing space for years.
WOODS: If Americans are known for one thing, it's buying a lot of stuff.
SELYUKH: We shop a lot. And if you think about what it takes to supply that space to keep all of that shopping stored, making new warehouses is not a quick thing. And the kind of warehouses that are now in huge demand are also the trickiest ones to build.
KIERSEY: Say, 10 years ago, our business, the business of developing logistics real estate, was really a business of, hey, let's go find the next cornfield out in the exurbs, go align ourselves with the next interchange of the freeway, and that's where we'll build a big building.
SELYUKH: So here we are on our adventure ride. We're watching warehouses rise out of the ground alongside highways. We start way out of town in the exurbs. But now our ride scoots closer and closer to the city because that is where the hottest warehousing market is now.
WOODS: Right. I mean, a lot of people are now quite used to having their stuff delivered within a day or two, so retailers want to store their stuff closer to people so that they can actually offer faster shipping.
KIERSEY: So instead of building a lot of big buildings way out in the exurbs, our customers now are saying we want urban logistics locations, and we want close-in suburban locations. We want more and smaller, more adaptable buildings. And it's taking a while for the business to adjust itself to that new reality.
SELYUKH: Think about how huge of a change that is. Cities and suburbs are expensive. They are more crowded.
WOODS: And, of course, we know residents have a lot of opinions about buildings in their neighborhood. They want their shopping to get there quick, but they also don't want to live next to a giant windowless warehouse a lot of the time. In California, one city tried to impose a 45-day moratorium on building new warehouses.
SELYUKH: And so in recent years, stores have been pretty judicious in how much inventory they want to keep at a warehouse at any given moment. Space is money, literally, so they've been choosing to only stock items right before they expect to sell them.
WOODS: So like major supplies of shovels right before a snowstorm or extreme amounts of hot dogs right before the Fourth of July.
SELYUKH: When the pandemic hit, everything, all of what we've been seeing so far got turned upside down.
Our adventure jolts to a stop right here. We're halting.
WOODS: All right. I'm lifting up my safety bar.
SELYUKH: We're holding right alongside the rest of the world as the pandemic begins, and things start closing - factories, ports, but also stores. People are cutting back on shopping, and so stuff begins piling up.
WOODS: And then when everything reopens, you get a rush of more stuff flooding in.
ZAC ROGERS: Warehouses are already sort of full, and now they're really, really full.
SELYUKH: That's Zac Rogers. He's a supply chain management expert from Colorado State University.
ROGERS: And you can see every month for the last 18 months, there's been less available warehouse space than there was the month before. It's actually sort of a heroic effort in a doomed cause, kind of.
SELYUKH: And this is where you get the jammed-up supply chain story - not enough warehouse workers, truck drivers, railcars and the main thing. You know this one.
WOODS: A lot of shopping, I've heard. But, you know, you can't go out as much and do things in crowded, unventilated spaces. So we are filling that hole by buying stuff.
SELYUKH: In an average year, online shopping might grow 10 or 15%. In the first pandemic year, it jumped over 40% and only kept going. So companies see that, and they start importing at record levels month after month after month.
WOODS: And they're doing it to bring stuff into the U.S. as much as they can while they can because they've seen what factory and port disruptions can do, whether they're here or in China or in Malaysia. They don't want to risk this happening again.
ROGERS: Essentially, you kind of see this doomsday prepper mentality in all of these companies, where normally they've been as lean as possible. And so they're swelling their inventory levels up in anticipation of demand because we're not sure about how quickly we can do transportation. And that, in turn, is totally flooding warehouses.
SELYUKH: And so we see the warehousing world explode. Rents in some markets doubled in a matter of a year. Usually, a new building takes almost a year to sell out. Now people like Doug Kiersey are selling space in buildings that aren't even built yet.
WOODS: They're cranking out warehouses as fast as they can. It was actually the only type of commercial construction that boomed through the pandemic. But remember; the high-tech space that everyone wants in cities and suburbs - that's super-limited.
SELYUKH: Doug Kiersey told me at one point, he had to do something unheard of - turn away an old client as three companies vied for the same warehouse - 1 million square feet. It had sat vacant, and suddenly three tenants urgently wanted in.
WOODS: I mean, that sounds like a nice problem to have.
SELYUKH: Except for the part where he's now got some extremely unhappy clients, and for the part where this problem's ripple effects are expected to stretch far into this year - so, you know, a roller coaster.
WOODS: Thanks very much, Alina, for that very insightful rollercoaster ride - a little bit frightening, but I ended in one piece.
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WOODS: If you liked this episode of PLANET MONEY, you should subscribe to The Indicator podcast. There's a new episode every week. It explains one fascinating aspect of the economy all in 10 minutes or less.
And if you want to stay in touch, you can email us - firstname.lastname@example.org. You can find us on Facebook, TikTok, Twitter or Instagram. We are at @planetmoney.
The original Indicator episodes were produced by Brittany Cronin and Viet Le, with help from Isaac Rodrigues and Gilly Moon. They were edited by Kate Concannon.
This episode of PLANET MONEY was produced by Dave Blanchard and edited by Jess Jiang. PLANET MONEY's executive producer is Alex Goldmark. I'm Darian Woods. This is NPR. Thanks for listening.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.