Seeking answers to transpacific cargo congestion questions

Analysis | Forecasts from global shipping analysts see maritime supply chain bottlenecks persisting for another year

Despite earlier predictions that supply chain disruptions would be cleared up by next year’s second quarter, recent deterioration in logistics efficiency has forced analysts to revise their forecasts | Submitted

The pre-Christmas transpacific cargo forecast includes heavy container terminal congestion marked by windfall ocean liner profits.

Unfortunately, the outlook sees few supply chain disruption abatement initiatives on the near horizon.

There are, however, insights on solutions for avoiding similar logistics dysfunction in the longer term.

The trick is instituting them efficiently and effectively in a necessarily interdependent but not always seamlessly interconnected multitrillion-dollar enterprise.

Global shipping sector analysts had predicted that the supply chain disruptions sparked by the 2020 onset of the COVID-19 pandemic and the unexpected surge in container traffic in 2020’s second half would be largely cleared up by 2022’s second quarter.

That is not likely to happen.

Simon Heaney, senior manager of container research for Drewry, conceded in a recent update that the U.K.-based shipping consultancy had been overly optimistic about the global supply chain’s recovery time.

Instead, the return to relatively normal pre-disruption delivery efficiency, he said, would now be closer to the end of next year rather than Q2 2022.

Heaney said Drewry had expected to see more progress by now.

“But supply chain efficiency has deteriorated of late. And that’s really attributable to a number of factors. One of those is China’s zero-COVID policy that shuts its big terminals briefly, but after just a handful of cases.”

He added that shipping accidents and extreme weather events had also disrupted port and terminal operations in various parts of the world.

The spread of the COVID-19 Delta variant has also raised the risk of more supply chain shutdowns, and the wide range of pandemic responses in different countries has increased uncertainty over which moving parts of the supply chain will be idled and when. That uncertainty complicates the prediction business – as does the dearth of good data, especially from supply chain inland links, Heaney said.

A recent Oxford Economics survey of risk perceptions from 148 of the world's largest companies found that "supply chain disruption poses the greatest risk to global economic recovery."

But anyone seeking silver linings in the chaos need look no further than the bottom lines for major ocean carriers.

The revised forecast for their 2021 profit is now US$150 billion, which Nilesh Tiwary, Drewry’s manager of maritime financial research, pointed out is more than the US$109 billion in profit the carriers generated in all of the previous 20 years.

The bottom-line bonanza shows little sign of slowing.

Freight rates are projected to be 163% higher in 2021 than they were in 2019.

Drewry forecasts eastbound transpacific container volumes to increase 13% in 2021 and world port handling to rise by 8.2% compared with 2020, which would be 7.2% higher than in pre-pandemic 2019.

The percentage is down from Drewry’s previous estimate of 10.1%, in part because, as Heaney pointed out, port bottlenecks have gotten worse, and “the economic outlooks [for 2022] that underpin our forecasts have dimmed slightly over the past  three months.”

Cargo bottlenecks have many causes but Heaney said there is no convenient scapegoat.

“This was not caused by a single sector, nor can one group fix it on its own.”

Ocean carriers, he said, “are not to blame for this crisis. They are just the lucky winners from this horrible situation. It’s not their fault, because ports keep them waiting [and] their sailing schedules are in complete disarray.… But neither is it the fault of ports and terminals that they’ve become parking lots for ships and boxes because COVID stripped away a lot of their capacity to turn boxes efficiently [and] then have them moved from their sites because there are fewer trucks available and there is low warehousing space, which again has been accentuated because e-commerce has boomed through this period.”

There is, instead, plenty of blame to be shared.

COVID-19 is the central villain here. But it is as much an amplifier of long-standing supply chain weaknesses as it is the spark that ignited the current logistics chaos.

Brittain Ladd, a Texas-based retail and e-commerce analyst, said the core cause of the current cargo congestion crisis “is that in 2020 something happened that had never happened before in human history: entire continents … entire countries made the decision to shut down their economies because of COVID.”

That global shutdown, which also idled supply chains, was followed by a sudden spike in late 2020 and early 2021 in consumer demand for goods as travel and other services were locked down.

That demand overwhelmed supply and the ability of manufacturing centres to meet that demand, especially in China, where many factories were closed or facing worker shortages.

So we now have what Ladd called “the bullwhip effect, which is a massive rise in demand and then this massive drop in ability to meet that demand.”

Some major retailers have dodged the bullwhip by shifting cargo to air freight; others have chartered or bought container ships. But those are expensive, Band-Aid solutions.

“What really has to happen,” Ladd said, “is a very large investment by the federal government to modernize our port system.”

But he added that North America’s entire goods movement system needs to be re-evaluated to determine what kind of a supply chain the United States and the rest of the continent should have.

He said the U.S. should work with Mexico to increase rail and road connections between the two countries and add port facilities in Mexico to handle more transpacific cargo.

Standardized digitization of ocean carrier and port systems is also fundamental to increasing their efficiency and interconnectivity.

And there is a basic human resource factor at play here.

Wim Lagaay, the president and CEO of APM Terminals North America, said that the shortage of workers up and down the supply chain and especially those servicing “the last mile … from the warehouse into consumers’ hands” is a major contributor to the current congestion chaos.

APM is the terminal arm of Maersk (CPH:MAERSK-B), the world’s largest maritime container shipping company.

Ladd added that supply chain analysis needs more and better data.

But he said there is another important question to consider: Are countries all over the world ever going to shut down their economies again at the same time?

“Are we trying to come up with a solution for a problem that may not happen again for another 100 or 200 years?”

However, Ladd added that there is no question port and supply chain technology needs to be modernized – pandemic or no pandemic. Panic patchwork fixes are not the answer; strategic upgrade implementations are, he said.

“Let’s be smart about this. Let’s really do some analysis here. And let’s find the weakest links in the supply chains globally, [and] let’s fix that.”

He pointed to one upside of the pandemic-triggered port congestion: it has forced large companies to rethink their supply chain strategies.

For example, he said, more should be working out ways to collaborate.

He noted that Walmart (NYSE:WMT) recently announced that it will start delivering products for Home Depot (NYSE:HD).

“Companies have the responsibility to take ownership of this mess. And if more companies collaborate, like Home Depot and Walmart, you don’t have as much complexity in the supply chain.”

Accelerated collaboration, increased logistics co-operation, better technology and data sharing won’t arrive in time to repair supply chain damage for Christmas 2021, but short and long-term improvements resulting from the shock delivered to the system by the global pandemic might accelerate implementation of more of those improvements by Christmas 2022.

That would be a welcome gift for ports, shippers and consumers alike. •