Are We There Yet?

The question that so many children ask has become synonymous with the journey we are facing with global logistics. As part of Descartes’ ongoing update on the global logistics crisis, we look at several core logistics and economic measures to determine if the situation is improving not just in the short term, but also further out. Here’s where we stand as of mid-October 2021.

U.S. import container volume remains high. September is down slightly versus August, but a shorter month and a national holiday have to be considered (See Figure #1). Overall, September 2021 was 9% higher than 2020 and 22% higher than pre-pandemic 2019. The 2021 TEU volume should hover between 2.4M and 2.6M TEUs monthly through the end of the year and the same will happen for 2022. Assuming there is no softness, the peak season in the second half of 2022 will drown out any decline we might see until November and December of 2022.

Figure #1. U.S. Container Import Volume Year-over-Year Comparison. Source: Descartes Datamyne

Port entry delays are down slightly but going “24X7” won’t factor much into reducing the congestion. As of mid-October, the delay for vessels entering the Port of Los Angeles was 14.5¹ days, down from 15.3¹ days in August. For comparison, the delay in October of 2020 was 4.5¹ days. The increased operating hours for the Port of Los Angeles will result in 3,500² additional containers per week processed per promises from Walmart, FedEx, UPS, Target, Home Depot and Samsung; however, the port currently processes almost 80,000³ containers per week.

What are carriers and logistics services providers saying? Conversations with transportation industry operators continue to highlight that their businesses remain at full capacity and that they are not expecting a decline in shipping demand from their customers through the rest of 2021 and well into 2022. They say that capacity is not able to keep up with demand, resulting in containers stacked in Asia and high container “rolling” rates.

Retailers are still well behind traditional inventory levels. The inventory to sales ratio (see Figure #2) has improved slightly but remains almost 32% lower than in 2019. In addition, many retailers state that they will carry more inventory going forward. Closing the retail inventory to sales ratio gap and exceeding it will continue to put pressure global logistics operations beyond the holiday season and well into 2022.

Figure #2: FRED Retail Inventory to Sales Ratio

There are several economic factors that could result in longer-term logistics volume increases. Many consumers continue to do well economically, but no longer spend their wealth on “experiences” such as international travel. As a result, consumers are buying durable and non-durable goods at very strong rates (See Figures #3 and #4). The implication for global shipping is that many of these goods are produced outside of the U.S. and will need to be imported.

Figure #3: Personal Consumption Expenditures: Durable Goods

Figure #4: Personal Consumption Expenditures: Nondurable Goods

From a high-level perspective, it’s safe to say at this point that we are not close to “there yet”. The data still suggests that importers should continue to view the global logistics capacity shortage as more than a short-term problem. Descartes will continue to highlight Descartes Datamyne and U.S. government data monthly to give importers and logistics services providers a better view into the continuing global shipping crisis. In the meantime, importers should: a) in the short-term, evaluate product mix to only focus on their high velocity SKUs for the limited transportation capacity available to minimize cash cycles with limited available inventory; b) near-term, shift their movement of goods to less congested lanes to improve supply chain velocity and reliability and c) long-term, evaluate supplier and factory location density to mitigate reliance on over-taxed trade lanes.

Notes

1. Descartes Datamyne
2. Fact Sheet: Biden Administration
3. Port of Los Angeles