GLOBAL MARITIME CRISIS: NO QUICK SOLUTION

As spring approaches, the transportation and logistics crisis continues to wreak havoc across the global supply chain, showing few signs of abating. While recent data from the Federal Reserve Bank of Economic Data (FRED) and Descartes Datamyne™ indicate a slight slowdown in economic indicators (but not enough to suggest a change in disruption levels), US import volumes have continued to break records in January and amplify supply chain and logistics challenges.

The big picture reveals that ports are still struggling to manage rising import volumes as the pandemic continues to limit consumer spending on services in favor of purchases of durable and non-durable goods. Factors such as long wait times at ports, labor and container shortages, the backlog of containers waiting to be emptied or transported, and the uncertainty of impending contract negotiations for the International Longshore and Warehouse Union (ILWU) continue to disrupt the supply chain.

With no clear indicator of when the pressure on supply chains and logistics operations will begin to ease, importers and logistics service providers (LSPs) must hold the line as they face the current supply chain challenges.

MOVE SHIPPING VOLUMES TO EAST COAST PORTS

While November and December 2021 showed a slight decline in the volume of containers imported into the United States, January 2022 rebounded to show a record volume of 2.47 million TEUs. Compared to January 2021 and January 2020 before the pandemic, January 2022 volumes increased by 3% and 14%, respectively, putting additional pressure on an overstretched global supply chain.

In an attempt to mitigate the impact of record import volumes, logistics service providers and importers continue to shift volume eastward, away from major west coast ports. Container import processing declined for the third consecutive month at the Port of Los Angeles, down 1.3% in January 2022 and down 25.4% from its peak in May 2021.

On the opposite coast, the Port of New York/New Jersey handled the most containers for the second consecutive month. Similarly, the ports of Savannah and Houston saw increases of 6.8% and 17.4%, respectively, and their highest volumes in nine months.

RETAIL SIGNS

FRED’s retail inventory-to-sales ratio illustrates the relationship between month-end inventory values ​​and monthly sales and is an important indicator of retailers’ ability to keep merchandise on physical and virtual shelves to meet demand. consumers.

The latest update (November 2021) showed a slight improvement – an increase from 0.02 to 1.09 – and might give importers and LSPs a faint ray of hope. Unfortunately, the ratio is still near historic lows, as retailers struggle with empty shelves and frustrated customers. While retailers may be able to catch up on depleted inventory during the “slower” winter sale months, it’s too early to tell.


THE GUILTY: CONSUMER DEMAND FOR GOODS

The quantity of goods purchased by consumers is one of the main drivers behind the increase in global shipping volumes. As a result, the ratio of consumer spending on goods to services is one to watch. For the last reported month (December 2021), the goods-to-services ratio fell 1.8% to 51.6%.

This slight downward movement may signal lower import volumes in the future; however, January container import volumes remained within the massive 2.4-2.6 million TEU range that has persisted through 2021, contributing to the chronic supply chain disruptions that have tracking (e.g. delays, variability, etc.).

As the pandemic continues to dampen spending on services and experience-based businesses (e.g. travel, restaurants, entertainment), consumers will continue to spend more on goods than services, but for how much? time ?

THE PANDEMIC ALWAYS A FACTOR

While the US and Europe are beginning to move towards the Omicron variant, China has taken a different approach; Beijing’s zero COVID strategy could exacerbate global supply disruptions. China has strict lockdown protocols in place when a local outbreak occurs. If (when) shutdowns occur, the flow of goods could slow down or come to a complete halt, which would directly impact manufacturers who rely on parts from China to produce their goods.

With the decline of Omicron cases in most of the United States, half of the states dropped mask mandates and other pandemic-related protocols, which could lead to a temporary spike in COVID-19 transmission, intensifying worker shortages and supply chain bottlenecks.

On an optimistic note, the surge in Omicron did not dampen the job market as expected. A low Federal Reserve unemployment rate is another economic indicator of a continued strong economy and increased demand for goods. Unemployment in the United States rose by a nominal rate of 0.1% to 4.0%, according to the jobs report in early February. Approaching the historic low of 3.5% non-war, the unemployment rate is down from 6.2% in February 2021 – and down from the dizzying peak of 14.7% in April 2020. Moreover, a surprising 467,000 jobs were created in January, a much larger increase than the approximately 150,000 new jobs expected.

NEXT STEPS

With shipping capacity being limited, importers need to maximize their short-term profitability by streamlining SKUs to ship higher-speed, higher-margin goods. If possible, companies should move volumes from west coast ports to less congested alternative ports to reduce wait times.

Logistics service providers should focus on maintaining the supply chain resources they have, especially drivers. By leveraging route optimization technology, shippers and logistics service providers can help retain drivers by creating routes to reduce stress and improve drivers’ quality of life.

To build supply chain resilience, importers and logistics service providers need to focus on supply chain predictability. By shifting the movement of goods to less congested transportation lanes, they can improve supply chain speed and reliability.

Looking a little deeper, companies can lessen their reliance on premium trade lines by assessing supplier and factory density. Although density allows for economies of scale, the crisis in logistics capacities linked to the pandemic has revealed the drawbacks of this operational strategy.

THE LAST WORD

While the slight reduction in personal consumption of goods could be a positive sign, other indicators, such as retailers’ inventory-to-sales ratio, need to improve measurably to ease the strain on America’s logistics infrastructure. into 2022. And with January container import volumes at record highs and shipping and container prices skyrocketing, importers and LSPs face a congested and frustrating year. Businesses must prepare for more lasting impact by implementing tactics to address short-term capacity constraints, while taking steps to build long-term supply chain resilience.