Global Logistics Shipping Crisis: Record Import Volumes, But Slight Softening of Economic Drivers

The big question on the minds of importers and LSPs is when, or if, a decline in import volume will occur in 2022. In addition, several significant one-time events could exacerbate the ability to move goods globally. Here’s what Descartes will be watching:

• Monthly TEU volumes between 2.4M and 2.6M. This consistently high level will continue to stress ports and inland logistics until infrastructure can be enhanced. January was another strong month with 2.47M TEUs imported.
• Port wait times. If they decrease, it’s an indication of improved port processing capabilities or that the demand for goods and logistics services is declining. It’s too early to tell.
• FRED Inventory to Sales Ratio. Retailers are still suffering from out-of-stock situations and want more inventory because of availability variability. If the ratio doesn’t increase, it means that retailers aren’t catching up and the demand for goods and logistics services will be inflated. January improved, but the ratio is still near its historical low.
• Goods to services ratio and goods spending. This is the root of the current situation. If the pandemic continues to curtail services spending by consumers and the economy stays strong, the “stuff economy” will continue to drive heightened import volumes. In January, there was some softening here, especially for durable goods.
• Continuing impact of the pandemic. New variants are driving shock waves through global supply chains. Whether it’s cities in China on full lockdown, swaths of employees out sick or country-based restrictions, a lack of resources will constrain the ability of supply chains to recover. Resource availability was an issue in January, impacting the productivity of supply chain and logistics operations.
• International Longshore and Warehouse Union (ILWU) contract negotiations. The negotiations could be uneventful or they could turn port operations and supply chains upside down in the first half of 2022 and possibly beyond. All quiet in January.
• 2022 Beijing Winter Olympics. Coming right after the Chinese Lunar New Year, China’s desire to reduce pollution could curtail manufacturing and logistics operations and reduce the ability of importers and LSPs to use the traditionally lower volume import season to catch up. January imports from China were up 8% year-over-year versus 6% overall imports, so there may have been some acceleration of imports to avoid the February decrease in Chinese shipping capacity.

Import volumes were off to a record start in January; however, there are slight economic signs that the some of the demand that drives them is softening. It will be some time before the pressure on supply chains and logistics operations begins to lift.  Descartes will continue to highlight key Descartes Datamyne, U.S. government and industry data in coming months to provide insight into the global shipping crisis. Our current perspectives and recommendations are unchanged:

Short-term:

• Shipping capacity constrained? Rationalize SKUs to ship higher velocity and margin goods to maximize profitability.
• Track the spread of COVID variants to determine when they will hit critical parts of the supply chain. As COVID variants come in waves, they travel and impact across the globe unevenly. Use tracking sites such as The New York Times to better understand their path and impact on global supply chains.
• Focus on keeping the supply chain resources you have, especially drivers. The old adage “a bird in the hand is worth more than two in the bush” definitely applies here. Building trips to reduce stress and improve quality of life to retain drivers is now as or more important than wage increases.
• Accelerate inventory coming in through West Coast ports now or use alternate ports as a hedge against upcoming ILWU contract negotiations.

Near-term:

• Shift the movement of goods to less congested transportation lanes to improve supply chain velocity and reliability. Total transit time is important, but so is supply chain predictability. Evaluate alternative transportation lanes into the U.S., including entry through northern and southern borders and inland ports.

Long-term:

• Evaluate supplier and factory location density to mitigate reliance on over-taxed trade lanes. Density creates economy of scale but also risk, and the pandemic and subsequent logistics capacity crisis highlight the downside.