January 11, 2022

Since the beginning of the pandemic almost two years ago, disruptions to the global supply chain have been numerous, which has meant higher costs for both businesses and consumers.  Certain factors are indicating that the supply chain woes that have plagued the logistics industry for months are beginning to subside however it might be until next year until the manufacturing, retail, and shipping sectors return to normal operations. Strong demand for goods, port congestion in the United States, truck driver shortages, and higher freight rates are challenges that still remain.

Shipping

The shipping delays that plagued much of 2021 are still continuing beyond the holiday peak.  Import volumes remain strong as we move closer to China’s Lunar New Year holiday, and the ships waiting to unload in southern California has hit a record of 105 as of last week. Other ports are seeing some ease in congestion; however, the northern east coast has seen an increase compared to last year. As of last Friday, a grand total of 146 ships were waiting for berths along all three U.S. coastlines.

With the ongoing capacity crunch, shippers have been forced to look into alternative modes of transportation.  For example, using air freight transportation or sending freight to an East Coast port such as Charleston. Ports in Tampa and Miami in Florida have appealed to shippers to send freight there rather than Southern California because they are able to handle the extra volume. However, to get from East Asia to the U.S. East Coast, ships must pass through the Panama Canal, which adds about seven days to the journey and costs an additional $3,000 per container but was worth it to some shippers because the backups were so severe.

Rail has become another mode of transportation that shippers are considering. Freight railroads recently lifted their limits on inbound cargo into congested container terminals in the Chicago area. Big chains like Walmart, Home Depot were all stocked for the holidays because they imported goods earlier than usual this year, and some retailers even chartered their own ships to get around the delays. This has caused several to report lower profit margins as elevated freight costs are cutting into profits.

The backlog in U.S. ports will likely continue well into 2022.  Covid remains a strong variable in the level of disruption in the supply chain.  Once Covid shifts to endemic disease, demand will start to level, and inventories will recover, leading to the clearing of port congestion.

Trucking Transportation

Less-than-truckload (LTL) carriers have announced that positive trends have carried through December. There is strong demand from customers along with a favorable pricing environment that has been improving freight density in LTL networks and higher yields.

The current truck driver shortage in the U.S. has risen to 80,000, the highest it has been yet. Increased demand for freight, as well as pandemic-related challenges, have exacerbated the shortage. It is estimated that the trucking industry will need to recruit about one million new drivers in order to close the gap caused by the increased demand for freight and upcoming retirements.

While enhanced unemployment benefits ended in early September, it has not yet resulted in available labor. Older truck drivers who either retired early or have yet to return to the job market are contributing to the driver shortage, although some may return this year.

The DRIVE Safe Act, which is a training program for younger drivers that was included in the $1 trillion infrastructure bill may also help with the truck driver shortage. This apprenticeship program’s rolling enrollment of 3,000 participants won’t address the shortage entirely but is a step in the right direction.  The Federal Motor Carrier Safety Administration also extended regulatory waivers related to truckers’ allowable work time until February 28, 2022. Federal regulators extended the exemption from hours-of-service rules for drivers carrying pandemic-related freight such as medical supplies and equipment for COVID-19 testing, vaccines, and personal protective equipment.

Manufacturing

Factory slowdowns in production in Asian countries in recent months due to COVID-19 outbreaks caused production limitations. The decline in the output of semiconductors and textiles had a global effect but industrial output in Asia should improve in the coming months, although many countries are struggling with labor shortages.   

The global chip shortage will continue into 2022, but the issue should alleviate by mid-year. New chip fabrication plans will create more capacity. German technology and engineering group Bosch has built a new semiconductor plant in Dresden with production starting last July. Major chipmaking companies like Samsung and Intel are also working on building new factories.

What to Expect in 2022

Less pressure on the global supply chain would lower logistics and shipping costs while also continuing to meet strong demand, which most likely will not be sustained in the long term.  This would alleviate the upward pressure on inflation. While inflation is on the rise, there should be a leveling off by the middle of next year. While prices will not come down, they will increase at a much slower pace. Business costs, however, will most likely remain high throughout 2022 as employers attempt to entice workers to re-join the workforce. Residential and commercial construction will remain strong as will industrial and warehouse sectors which will add to transportation needs.

The infrastructure bill that passed last month will invest money to modernize ports and airports to make it easier for companies to ship and get goods to the market. Supply chain bottlenecks will be reduced, which will lower costs for businesses and consumers. 

Although working through the continued challenges of the supply chain will take time, opportunities do exist.  Adaptability and improving efficiencies are the keys to managing the ongoing volatility of the supply chain moving forward.