The peak of the crisis is a mirage

A line of more than 80 container ships waiting to dock at ports in Los Angeles and Long Beach, Calif., Was cut in half at the end of November – or so it looked. As it turns out, the ships that were disappearing from the queue were only hiding, strolling across the Pacific beyond the reach of official tally.

The actual midweek bottleneck stood at 96 vessels. In a recurring theme in the economies of Germany to the United States, progress in fixing this boom in supply has turned out to be a mirage. As the year of supply chains messed up, logistics experts are struggling to distinguish between the spokes of real improvement and the false dawn. Even if optimists are right to detect a peak in the deadlock, the fragile world trading system faces months of additional suffering and is in danger of collapsing again even from a single unforeseen shock.

“I wouldn’t necessarily call it a dip,” said Jennifer Bisceglie, CEO of Interos, an Arlington, Va.-Based supply chain risk management firm. She sees any return to normal as an 18 to 24 month transition, in part because businesses grapple with pandemic challenges alongside efforts to strengthen supplier networks with digitization. Among signs of a nascent recovery, an Oxford Economics report released last month showed an easing of supply chain tensions in the United States in November. But the fallout from the new variant of the coronavirus, which triggered another round of restrictions ahead of the Christmas travel season, “risks slowing the rate at which supply chain issues are being addressed and could slow progress until now, “he said.

“It is far too early to say that we have seen the peak of supply chain disruptions,” said Oren Klachkin, chief US economist at Oxford Economics. “The situation is very fluid and the omicron variant could make the situation worse.”

No relief in sight
The monthly index of logistics managers in the United States released in early December also did not show a lurch to normal. The primary indicator climbed for a second month in November, reflecting warehouse costs which hit a record high, as well as rising inventory and transportation expenses. Respondents to the LMI survey do not expect significant relief over the next 12 months.

Zac Rogers, who helps compile IMT as an assistant professor at Colorado State University’s College of Business, said the worst was probably over in the mismatch between logistics capacity and demand.

Still, he cautions that going down doesn’t mean supply chains are in the clear or can’t go back to them. Rogers says the current semiconductor shortage is at the heart of the issues, because it means, for example, that a new Class 8 truck ordered today won’t be finished until February 2023. “We still have a long way to go. to go until things pick up. to normal, ”he said. “We’re not going to wake up on January 1 and suddenly have all the trucks and storage we need to cut costs significantly. “

Maritime transport
Capacity constraints continue to keep shipping rates high. The price of a 40-foot container to the west coast of the United States from China edged up slightly in early December to $ 14,825, according to Freightos data which includes surcharges and premiums. While that’s a 28% drop from the record high of $ 20,586 reached in September, it’s still more than 10 times what it cost in December 2019.

Many observers note that these headline-grabbing rates reflect the spot market, and most major retailers and manufacturers pay lower rates set out in annual contracts that typically renew with carriers around April of each year. Today, long-term contract prices for containers are rising, with a 16% jump in November leading to a 121% year-over-year increase, according to Xeneta, a platform for analyzing the market. sea ​​and air freight market. “It’s hard to see a change of course coming, with the fundamentals stacked very in favor of the carrier community,” said Patrik Berglund, CEO of Oslo-based Xeneta, in an online article. “In short, they have never done so well, while many shippers, unfortunately, are well and truly on the ropes.

Air freight
Pressure is also relentless in the air freight market, where fares continue to climb amid demand fueled in part by delays and skyrocketing ocean freight costs. As the Federal Reserve’s most recent beige book noted, the cost of transporting goods on ships has recently exceeded the cost of airplanes. So analysts say there is little reason to expect air freight rates to drop in the near term. Camille Carenton, senior air cargo manager at Flexport, said last month that demand is “really high” and is causing backlogs at US and European airports, with delays ranging from two to seven days. “The last few months have seen a rare convergence of limited capacity, higher demand and a more intense peak season, but the high prices so far are probably more seasonal than anything else,” said Eytan Buchman, director of marketing at Freightos, based in Hong Kong. , an online freight market. “That doesn’t mean the worst is not over yet.”

The struggles of Europe
In the eurozone, a Bloomberg Economics gauge shows supply conditions are cooling off after high levels. The duration of this trajectory depends on the possibility of controlling the virus. In Germany, a survey in December showed investor confidence in the current environment has fallen to its lowest level in six months as the country reintroduces restrictions to curb outbreaks of the virus.

German manufacturers have been held back for months by global supply problems. Highlighting their challenge, the factory order data showed a much worse drop than any analyst predicted. In addition, consumers experience the fastest inflation since the early 1990s.

“Persistent bottlenecks weigh on production and retail,” ZEW chairman Achim Wambach said in a statement. “Lower economic expectations show that hopes of much stronger growth over the next six months are fading.”

UK truck driver shortage
The UK economy continues to struggle with strains ranging from crowded ports to shortages of truck drivers. AP Moller-Maersk A / S recently said it was skipping some container services through the congested port of Felixstowe, Britain’s busiest container gateway, until March, and was moving British goods on shuttles by from continental Europe.

Perhaps the main cause of Britain’s freight backlogs is the lack of truck drivers. Logistics UK said in a report in December that the number of truck drivers – or heavy goods vehicles – fell by 72,000 – or 24% – between the second quarters of 2019 and 2021.

UK logistics companies are taking action to boost training, recruitment and compensation, “but there are concerns that some supply chain disruptions will continue into 2022 until these crucial roles are fulfilled in the ‘whole industry,’ the report warned.

Carol N. Valencia