Why the Stuff Economy is Extending the Global Shipping Crisis

The ongoing COVID-19 pandemic has affected supply chains in a profound way. Whether it was the reductions in manufacturing and transportation capacity or the imbalance of containers globally, importers and LSPs have been facing a myriad of logistics challenges.

The pandemic also altered other aspects of life and business and, in some cases, more structurally than others. One area majorly affected has been the disposable income habits of Americans and the changes to those habits have had a direct impact on the severity and length of the global shipping crisis.  

Prior to the pandemic, we were in the “experience economy” where Americans, especially younger ones, were foregoing ownership of “things” and spending their money on services such as travel and events. The pandemic put a halt to most of the services that were driving the experience economy. However, disposable income for many Americans didn’t fall and, instead of “doing something”, they turned to “buying something”. From appliances to furniture and outdoor sporting equipment, sales of durable goods or “stuff” have dramatically increased (see Figure 1).  

Figure 1: Increase in Demand for Durable Goods

How do we know the stuff economy is large contributor to the global shipping crisis? The U.S. is an import economy. It imports more goods than it makes and we are able to see the demand in those numbers. We can look at the volume of imports (in twenty-foot equivalent units – TEUs) and see the changes (see Figure 2). The chart below speaks for itself and reflects the extent of the current shipping crisis. 

Figure 2: 2016-2021 Container Volume Comparison

When reviewing overall ocean container import volumes, you can see that the shift to the stuff economy occurred in mid-2020 (see Figure 2) and has grown significantly beyond the last “normal” year 2019. In fact, the last 12 months container import volume (ending September 2021) was 19% higher than the 2019 total container import volume. This level of increase in a short time would put a strain on any logistics ecosystem, pandemic or not.

The stuff economy is an excellent example of how changes in macroeconomic conditions can materially impact supply chains and why it is important to track broader changes in trade flows that may not even be related to your industry. Because consumer spending is such a large part of the U.S. economy, its impact on global shipping is all about the battle for the consumer’s wallet. Until the service-based industries (e.g. global tourism and travel) pick up considerably, consumers have their fill of goods or the economic situation of most Americans degrades, it appears that the stuff economy will continue to drive global shipping volumes and make it challenging for importers and their LSP partners to move freight.  

Current trends and observations of industry conditions point towards the conclusion that the current shipping crisis is not likely to be resolved until late-fall of 2022. As we are now firmly in the annual peak shipping season, TEU volumes continue to hover between 2.4M and 2.6M per month.

Even with continued record-setting import volumes, there are possible examples of a gradual return to normalcy. The monthly import volumes for high-volume, durable goods such as furniture have steadily declined since May and have now returned to the expected levels as the chart below demonstrates.

Figure 3: 2016-2021 Monthly Furniture Imports

Whether this decline in imports reflects a decrease in consumer demand, key suppliers slowing down production, or importers delaying order in the face of the global shipping crisis remains to be seen.

The key takeaway still remains – importers need to view the global shipping crisis as more than a short-term problem.

Descartes will continue to highlight the U.S. Container Import Report on a monthly basis to give importers and LSPs a better view into the continuing global shipping crisis. In the meantime, importers should: 1) Plan to shift their movement of goods to less congested lanes; 2) Evaluate product mix to only focus on their high velocity SKUs for the limited transportation capacity available; and 3) Determine the viability of potentially late shipments for short peak seasons, like Thanksgiving, and determine the potential of those goods missing their sell season.