Enrique Alvarez discusses supply chain disruptions with The Connected Enterprise host Carl Lewis.
Read the show notes to learn about Vector Global's 'Logistics With Purpose Initiative.' Then, please consider helping the company help the millions of Ukrainian refugees.
Carl Lewis: Welcome to The Connected Enterprise podcast. I’m Carl Lewis, your host from Vision33, and my guest is Enrique Alvarez from Vector Global Logistics. Enrique, welcome to the podcast. Please tell us about your background and Vector.
Enrique Alvarez: Thank you for having me, Carl. Vector Global Logistics is a unique results-based logistics company. We have offices in the US, Mexico, and Chile and a presence in Vietnam, Malaysia, and China.
Enrique Alvarez: We’re different from other freight or logistic companies for three reasons. One, our results-based mentality. We’ve taken time and space out of the equation and measure performance by results only. We don't have a set time to work—people can come to the office, not come to the office, have unlimited time off. No nine-to-five here.
Enrique Alvarez: Two, we donate a lot with our Logistics With Purpose Initiative. For every container we move around the world, we do things like donate meals to children in Kenya and help an organization for children with special needs. And three, we’re good at expedited and complex regions with our logistics services.
Carl Lewis: That's exciting. I’ve worked for non-profits, including a disaster relief organization. It’s rewarding. Does Vector work at ports worldwide?
Enrique Alvarez: Yes. We work all over the world.
Carl Lewis: We know the pandemic caused problems. What happened to the supply chain that caused empty shelves and panicked people? How did it affect business?
Enrique Alvarez: It started in China, where people were quarantining a few months before the pandemic hit the US and the West. The reason it became more challenging was the demand for personal protective equipment (PPE). There was a huge global demand for masks, gloves, hand sanitizers, and other products that save lives. China and Asia ware manufacturing and shipping as much PPE as possible and using containers for transport. They also used planes and trucks, but they mainly used ocean shipping containers from Asia into the US, Europe, and the rest of the world.
Enrique Alvarez: That caused two things. One, those products were competing with other products from those places—iPhones/iPads, paper, computers, etc. Suddenly, you have this massive demand for products competing for space, so space got tighter. Two, the US ports were saturated with products coming mostly from Asia. They couldn't unload them fast enough, so steamship lines raised prices and cut some of their services at smaller ports. They focused on the China-to-US trade lanes, making it a bigger mess.
Enrique Alvarez: Let me give you some numbers. The average cost of a 40-foot shipping container from Shanghai to the East Coast, US, was $3,500 before the pandemic. During the second year of the pandemic, the same container was $20,000. That was problematic for most companies. Then there was the number of vessels. At the worst point, we had 100 vessels parked outside Long Beach, California, waiting to berth.
Carl Lewis: A big traffic jam.
Enrique Alvarez: That's exactly what it was. Demand went through the roof. Most countries don’t have the infrastructure to unload the containers and products the communities were demanding. That's what caused all the issues.
Carl Lewis: Was the experience identical in other countries?
Enrique Alvarez: It was similar. In some countries, like Chile, the biggest ports move products like fruit and wine into the US. But the steamship lines, which own the vessels, were making a lot of money shipping directly to the US because the prices were so high, so they stopped using Chile’s ports. So, Chile had congested ports but was also losing money because some vessels weren’t using their ports because it wasn’t in the best interest of the carriers’ bottom lines.
Carl Lewis: So, this problem was created when production lines and shipping focused on PPE for a period. That’s over, but we're still seeing the effects of this supply chain hassle. How close are we to being back to “normal”?
Enrique Alvarez: It's improving, partly because of inflation, lower demand, and less panic. The average container price has dropped to $12,000-$13,000. And today, Long Beach has 28 vessels parked outside. It's not 100, so it’s better, but you shouldn't have vessels parked outside a port. They should go inside the berth, get unloaded, and leave. We still have a problem.
Enrique Alvarez: There’s a big difference in ports, too. For example, Savannah has 34 vessels, New York 22, Houston 12, and only one in Seattle. But still—vessels shouldn’t be parked outside ports.
Enrique Alvarez: Unfortunately, we’ll never get back to “normal.” We'll have to settle for a new normal as our infrastructure catches up, demand stabilizes, and companies get smarter. So many were using a just-in-time (JIT), zero inventory strategy, bringing things from China as needed. Then boom, it was like, “We should think about nearshoring. We should produce closer to the US or closer to where our markets are. Maybe having inventory in China versus nearby poses problems we hadn’t considered.”
Enrique Alvarez: JIT inventory is the other component that put us in that mess. Everyone ran out of inventory and rushed to bring it up quickly for selling.
Carl Lewis: JIT inventory was a big industry push for at least 15 years.
Enrique Alvarez: And it worked. We made it efficient and tight, and it succeeded—until something unpredictable came along. No one could have expected a pandemic. It’s a live-and-learn situation.
Carl Lewis: Some companies are probably planning to return to JIT inventory because it has fewer carrying costs and is better financially. But would you say many companies are increasing their safety stock and managing inventory the “old way”?
Enrique Alvarez: Yes. Companies need a healthy balance between their inventory in the second year of the pandemic and the inventory they’re forecasting. But everyone is thinking inflation's causing demand to slow down. Where’s that efficient, balanced point? Every company is strategizing on where it should be and how to do it. How to balance out their supply chains so they don't have to be as dependent on manufacturing from the other end of the world.
Carl Lewis: It could take a long time to reverse that trend. And I imagine goods will be more expensive if we bring manufacturing and assembly work closer to shore. Which will contribute to the inflation issues. We won't know how it’s going for a decade.
Enrique Alvarez: It will take up to a decade to come back to the balance we need from a global standpoint. The demand coming and the throughput going through the Los Angeles port aren’t slowing down. May's total throughput in Long Beach was 967,000 20-foot containers, which is the third best month in the port's history behind May 2021, so it is slowing down compared to last year. But May 2022’s throughput was 21% higher than 2017 and 2021. There's so much backlog; it’s going to take a while. Other supply chain areas have also been highlighted after the pandemic, like trucking in the US. It’s a challenging industry because there aren’t enough drivers. Not enough chassis. Not enough warehouse space. Every step of the supply chain needs to unclog. We'll see it at the ocean level first, but we’ll have to wait a few years for the rest of the supply chains to catch up.
Carl Lewis: That makes sense. My grandson likes hash browns that come pre-pressed, like the ones you get from McDonald's.
Enrique Alvarez: They're delicious!
Carl Lewis: He only likes one brand, and that's what he wants for breakfast every day. But my local grocery store has been out of them for at least three months. They're made in the US and transported in the US, which tells me trucking is the problem. And maybe potatoes were in such high demand that they went elsewhere. And there’s a men's three-in-one lotion I’ve used for years. I bought three when the supply chain seemed messy, but I'm out, and they still don't have it in the store. I think it will be a while before the store shelves aren’t empty. My grocery store now spreads product out to avoid holes because management realizes empty space gets on people’s nerves.
Enrique Alvarez: You're right. In this country, we’re not just impulse buyers—we’re panic buyers. When something happens, we grab as much (for example) toilet paper as we can. That hurts the supply chains a lot. It seems cultural, and it would require education more than anything else. And it's something supply chains can’t forecast or oversee.
Carl Lewis: Is demand still high? Or is demand shrinking, and the clog is the backlog they're still trying to fill? What’s happening?
Enrique Alvarez: It's a combination of the two. Demand is high. It's slowing down, but it's still high compared to where it needs to be for logistics to function properly. And a backlog exists. But some of our clients, including in the automotive industry, are slowing down production and shipping schedules and reducing inventory. But it will take a while for the entire supply chain to follow.
Carl Lewis: Which industries are suffering the most?
Enrique Alvarez: The automotive industry was hit badly, especially regarding microchips. That's still a problem and will continue to be for a while. The electronics industry also had the microchip problem and was hit hard. But really, it's everywhere. And now there’s the war in Ukraine and a big earthquake in Afghanistan. And everything happening with climate change, tariffs, policies, politics, etc.—which I don't want to get into—affects the global supply chain.
Enrique Alvarez: But I don't want to be completely negative. Something positive is that people are appreciating what logistics means, and owners and CEOs are actively considering logistics. It took a pandemic to make us aware that what we buy at the grocery store has many steps behind it. So, you should probably be more mindful before placing that Amazon order. It's so easy to buy that we buy tons of useless stuff, which doesn't help anyone.
Carl Lewis: I'm fortunate to hear a lot about supply chains because my wife works for a packaging company. Per your example, when you go to the grocery store to buy something in a jar, the typical consumer doesn't understand the glass industry had to make the jar. Small things affect an entire industry quickly.
Enrique Alvarez: You mentioned your grandson. That's another thing I'm optimistic about. The new generations are so much more educated about making buying decisions. They’ll buy products from companies that are more responsible, more caring, more sustainable. They're starting to demand it. I see it in my kids, and that's a good thing. I’m hopeful about it.
Carl Lewis: Do you see companies reconsidering their suppliers? Looking at alternatives, even replacements, for places like China?
Enrique Alvarez: Yes. Many of our automotive clients are questioning it, and some are already moving manufacturing lines to other countries because, one, they might be more efficient from a shipping standpoint, and two, the original country wasn’t respectful or caring enough for their workers, the environment, or whatever. Those changes are inspiring.
Carl Lewis: Do you think that will be the new normal? We can’t go back, but the changes might mean a better, more thoughtful place.
Enrique Alvarez: I agree.
Carl Lewis: Things were driven by margins and just in time, which put our dependency on faraway places. Is it possible it won’t be that way in the future?
Enrique Alvarez: Absolutely. It will be a combination of things. One interesting sector is technology. There are many investments in supply chain technology—tracking and tracing containers better, improving purchase-ordering software, streamlining supply chains, trying to integrate your suppliers’ IT systems with yours, etc. That's going to be critical. The question is how to measure consumer demand so manufacturers can make better decisions about where to manufacture to reduce their overall costs, especially shipping.
Enrique Alvarez: We’ll also see changes on the technology side of things, like trucking. You and I could have an entire episode about trucking in the US because it's a bad problem. We don’t hear as much as we should in the news. But we’ll see driverless trucks on the highways and fully automated warehouses. I had the pleasure of visiting Port Bremerhaven in Germany. The whole port is automated. For us to do that, we must take care of our amazing port workers. They’re heroes. Everyone praises doctors and nurses for their pandemic work—and they deserve it—but delivery drivers and port workers were heroes too. We can't forget about them. We must continue automating and recognizing the amazing value humans offer.
Enrique Alvarez: Companies will decide where to manufacture, and hopefully, they’ll be more strategic and smarter about how much they're manufacturing. Maybe they’ll consolidate a little. One thing I’m passionate about is companies being purpose-driven versus profits-driven. Maximizing profits at all costs is not the future. I think that's going to be the most exciting change.
Carl Lewis: And people choosing companies to purchase from based on those criteria.
Enrique Alvarez: Absolutely. Eventually, non-purpose-driven companies will go under. No matter how big you are or how much market share you have, if you worry about profits above all else, you’ll go under.
Carl Lewis: How is Vector preparing for the future? What initiatives do you have to address these challenges and head them off?
Enrique Alvarez: We’re experienced with expedited shipping, cargo, and complex regions of the world. Anything with a high level of complexity. We’re trying to be strategic about where we play. We're a very boutique logistics company, and we're being more selective about our clients. We want clients who value service over price, caring over profits. Because if you make the right decisions for the right reasons, you’re maximizing profits in the long run. I'm not saying be 100% altruistic. Be a good business owner/CEO. The way to maximize profits longer term is to do the right things for the right reasons.
Enrique Alvarez: Vector's growing fast. We're increasing our offices internationally and celebrating our culture. We're a unique results-based company based on a book I strongly recommend. It’s called Why Work Sucks and How to Fix It. We're very passionate about it and proactively doing it to face the future.
Enrique Alvarez: Just one more thing, Carl. Vector’s relief efforts program has an initiative for Ukraine. We’re shipping a lot of containers there for free. If you or your listeners want to help us help the millions of refugees, we’d appreciate it. We have a monthly meeting to coordinate with organizations, and there are great organizations doing great things.
Carl Lewis: Absolutely. We'll be glad to publish it for you. Thank you for joining us today, Enrique. And for everyone else out there, until we see you again, stay connected.