So far, 2022 has shown that predicting global trade flows is harder than ever. Many of the predictions of the past year in terms of the economy and global trade have not transpired. Ports and related-inland logistics are still congested, and a number of factors continue to impact the reliability of global supply chains. High inflation and the Russian invasion threaten to depress the economy and ultimately global trade but have not yet made their impact fully felt. Here is a recap of key figures and events from the first half of 2022 that are contributing to a challenging second half of the year for global trade.
Volume. In early 2021, there were many predictions that global trade would slow after peak season and return to “normal” in 2022. Well, 2021 U.S. container import volume did not slow down and, in fact, was the biggest year ever—and then 2022 came along with volumes that have topped 2021 in every month so far (see Figure 1) despite calls for significant contraction and collapsing rates that didn’t materialize in the second quarter. Import volumes in the first half of 2022 are 4.9% higher than the same period in 2021. Pre-pandemic, the U.S. had a strained logistics infrastructure ,and the first half of 2022 shows 28.3% greater volumes than in 2019. Clearly, the significant increases in container import volumes have
continued to overwhelm the ports and related inland infrastructure. As long as U.S. monthly imports remain above 2.4 million containers, global supply chains will continue to experience congestion and
Figure 1: First Half Year U. S. Container Import Volumes
With the delays the large West Coast ports were experiencing in 2021, importers began to shift some of the volume to East and Gulf Coast ports. In the first half of 2022, there was progress in reducing port delay times, especially for the West Coast Ports; however, with increased container volumes, East and Gulf Coast ports are not experiencing as much decrease in wait times (see Figure 2). In addition, the number of ships waiting at sea has dramatically increased again. According to MarineTraffic, in June 2022, the number of ships waiting to enter all U.S. ports combined increased by 36% to 125, with more than 64% of them sitting off East and Gulf Coast ports.
Figure 2: Port Wait Times 1H 2022
Despite the highly publicized COVID-related lockdowns in China and in particular Shanghai, goods continued to flow from the country to the U.S. (see Figure 3). January 2022 was the peak of container volume imports at 991,373 TEUs while April 2022 was lower by only 7.7% when the lockdowns were in full effect. Expectations of a big surge of containers from China once the country fully emerged from lockdowns hasn’t happened so far and may be mitigated by the redirection of containers to open Chinese ports during the lockdowns.
Figure 3: 1H 2022 U.S. Imports from China
Economy. Consumer demand and a strong economy, the prime drivers of increased container imports, remained high in the first half of 2022. Consumer demand defied numerous predictions of a slowing economy or even recession. Unemployment for the last four months of the first half of 2022 was a steady 3.6%, which is 0.1% away from an all-time, non-war year low according to the U.S. Bureau of Labor Statistics (BLS). In addition, consumer spending on durable goods also remained high over the first half of the year. Growing inflation throughout the first half of 2022 (up 9.1% since June 2021) and a rising U.S. dollar compared to foreign currencies were potential economic dampening factors in the first half of 2022 that could come into play during the second half.
A substantial contributor to high inflation was energy/fuel costs, which were trending higher at the beginning of 2022 and then accelerated with the Russian invasion of the Ukraine in late February. The conflict-related sanctions, even if there is cessation of hostilities, are likely to remain in place and keep energy/fuel costs high for the future. One note, with exceptions for Ukraine and Russian exports, the Russian invasion has not significantly impacted global trade flow into the U.S.
Labor. Competition from all facets of the economy and continued high consumer demand for goods has made hiring logistics workers a challenge in the first half of 2022. It’s not that there hasn’t been a concerted effort as, per the BLS, the number of employed warehouse and driver workers has risen by 759,000 since the start of the pandemic. Instead, the sheer increase in contain import volume of 28.3% for the same period has outstripped the industry’s ability to keep up with the demand for more workers.
Labor unrest in the U.S. and abroad increases the potential risk for disrupted supply chains in the second half of 2022. The highly watched International Longshore and Warehouse Union (ILWU) contract negotiations that were anticipated to be addressed before the current contract expired on July 1 did not happen. Negotiations continue and there have not been any slowdowns or stoppages related to them.
However, another labor issue is compounding disruptions in California. Drayage owner-operators are protesting the refusal of the U.S. Supreme Court to hear the case challenging California law AB5, which would make them employees of carriers contracting the moves. The result has been a dray driver work stoppage at the Port of Oakland where ILWU workers refused to cross the picket line—the combination essentially shutting down the Port of Oakland. Internationally, work stoppages at major German ports due to ongoing contract negotiations threatens U.S imports from one of the top global exporters.
Pandemic. The rapidly mutating coronavirus continues to disrupt global supply chains. The most obvious example is the lockdowns in China; however, variants have rolled through other countries, like Vietnam where it significantly impacted the flow of goods out of that country. What have we learned about the coronavirus in 2022? It is mutating faster than our vaccines can control it, some regionally produced vaccines are not as effective as the North American and European versions, and country policies concerning the coronavirus are as much a consideration as the virus itself.
The first half of 2022 was as much about what didn’t happen in global trade and why it is hard to predict if there will be less congestion and disruption for the rest of the year. The U.S. economy and container imports didn’t slow down. As a result, U.S. ports and related logistics infrastructure struggled to keep pace with the volume of imports despite some of the volume shifting from the West to East Coast ports.
The ILWU contract didn’t get settled and the coronavirus didn’t fade away. The potential for labor disputes and continued waves of COVID to negatively impact the flow of goods into the U.S. in the
second half of 2022 remains large. Until we see measurable changes in consumer demand and related container import volumes, and a reduction in some of the other disruptive factors, global supply chain and logistics professionals should treat the second half of 2022 with as much care and skepticism as the first half.