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2022 Global Supply Chain Outlook: 5 Trends to Watch

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2022 Global Supply Chain Outlook: 5 Trends to Watch

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As 2022 unfolds, supply chain and logistics leaders are under enormous pressure. Capacity constraints, skyrocketing shipping costs, geopolitical conflict, and frenzied consumer demand for goods exacerbated by a shortage of inventory, containers and drivers (and human resources more generally) continue to hinder the efficient flow of goods.

Faced with unabating supply chain disruptions on a global scale, the spotlight is on importers and logistics service providers (LSP) to pivot quickly and rethink their supply chain tactics, strategies, and
technologies to drive competitive differentiation amidst the chaos.

Many of the challenges brought to light by the pandemic are here to stay and companies need to adapt to survive. Here are five factors impacting logistics and supply chains that will determine companies’ performance in 2022 and beyond.

1. CONSUMER DEMAND DRIVING RECORD IMPORTS

Due to pandemic-related restrictions that began in 2020, consumer spending shifted away from services, such as travel, entertainment, and dining out, towards the purchase of durable and non- durable goods, like electronics, appliances, clothing, and groceries. Notably, a sizeable chunk of those purchases was made online. Two years into the pandemic, consumer spending on goods is still at dizzying heights.

The explosive retail growth is reflected in record import volumes that are showing little sign of slowing down: U.S. container import volume in February 2022 was up 12% from January 2021 and 38% from February 2020. These unprecedented import volumes continue to strain global and domestic supply chain and logistics operations.

Whether the Russia/Ukraine conflict or rising inflation dampen consumer demand is to be seen, but unless consumer buying behavior shifts back towards service-based spending in lieu of goods, importers and logistics service providers (LSPs) will experience little relief.

2. CAPACITY CONSTRAINTS ESCALATING COSTS

The current logistics infrastructure has failed to keep up with freight demand, creating an acute capacity crunch in the U.S. at ports and across last mile distribution. With a shortage of logistics workers, coupled  with a lack of drivers to move shipments, importers and LSPs are struggling to transport goods efficiently and cost-effectively.

In addition to the strain of increased import volumes, a large imbalance in logistics assets is compounding the issue, impeding the ability to keep goods flowing. Ocean containers are in short supply, as empty assets are immediately being returned to Asia to take advantage of the high shipping rates ocean carriers can command to move goods to North America or Europe. The air cargo industry is also grappling with its own acute asset shortages, as global inventories of unit load devices (ULD), the pallets and containers used to move shipments by air, are straining the efficient movement of goods.

To combat capacity constraints and escalating transportation cost —including rapidly rising gas and diesel prices due largely to the recent sanctions imposed on Russia—supply chain and logistics
operations must be more productive and effective with resources that already exist. Companies need better visibility to assets to maximize their utilization and rebalance their location over time. Optimization will also be critical to reduce warehouse and transportation inefficiencies and increase the effectiveness of currently available assets.

3. RESOURCE AND INVENTORY SHORTAGE

The resource shortage is a growing concern. Baby Boomers are retiring at accelerated rates, with the pandemic pushing more than 3 million baby boomers into retirement. With Millennials not seeking out logistics and supply chain jobs, retailers, distributors, and logistics companies are struggling to meet customer demand.

In light of the worker shortage, companies are recognizing the need to reduce their dependence on manual labor and focus resources on higher-value work that improves financial performance and customer experience. To this end, successful organizations have adopted the “do more with less” approach, automating manual processes and optimizing existing resources with best-in-class technology.

Automation that scales warehouse worker productivity, eliminates time-consuming manual paper-based manifests and proof-of delivery, and enables customers to self-service book and track shipments and schedule delivery appointments will be crucial for increasing operational efficiency and protecting the bottom-line during disruptive times.

The shortage of drivers continues to compromise trucking capacity, contributing to disruptions in the flow of goods. According to the American Trucking Associations, the current U.S. driver shortage stands at 80,000, with a projected shortage of 160,000+ drivers by 2030. Over the next decade, the trucking industry will need to recruit nearly one million new drivers in order to close the gap caused by freight demand, projected retirements, and other supply chain pressures.

The driver shortage is forcing companies to be more effective and efficient with existing resources, emphasizing driver retention and productivity strategies. By optimizing delivery routes using AI-driven route planning and optimization solutions, businesses can improve the overall productivity of their existing drivers while improving drivers’ quality of life to prevent churn.

4. SUSTAINABILITY FOCUS

With more governments putting environmental plans into action and consumers making purchasing decisions based upon a company’s sustainability performance, the spotlight is shining on supply chain and logistics operations to take a leading role in the effort to reduce greenhouse gas emissions.

Rather than viewing this as another problem to address, successful companies recognize that improved supply chain performance and betterment of the environment go hand-in-hand; CO 2 reduction is an opportunity for savings and improvements across the board: efficiency, cost, time, resources and, of course, environmental.

The unsung heroes of sustainability, performance improvement programs in supply chain and logistic operations almost always result in less CO 2 production. Whether offering eco-friendly delivery options, minimizing distance and fuel consumption with route optimization solutions, eliminating paper documents by digitizing logistics processes, or reducing wasteful vehicle congestion, idling, and speeding, companies can improve both performance and the customer experience while helping the
planet.

5. GEOPOLITICAL CONFLICT

Given the globalization of supply chains, the logistics-related impact of geopolitical conflicts, even at a regional level, can be severe. Companies must make tactical, strategic, and technology decisions to weather today’s conflicts while minimizing the impact of future ones by building more resilient supply chains. And with cyber warfare now a staple of geopolitical combatants, supply chain resiliency must include the ability to withstand attacks to the IT infrastructure that runs today’s supply chains.

In response to geopolitical conflicts, countries often enact economic sanctions to combat aggressors, as with the current sanctions against Russia in response to the Ukraine invasion. One of the greatest challenges organizations face is examining trading partners, sanctioned individuals and ownership structures in their supply chain to determine whether it’s safe to continue to conduct business with them. In today’s climate, forward-thinking importers and LSPs rely on automated denied party screening systems and export compliance solutions to simplify screening and mitigate risk.

With the potential for global conflicts and related sanctions to negatively impact the flow of goods domestically and internationally, companies also need to evaluate alternate sourcing strategies as part of their annual risk analysis to diversify the impact of potential supply chain disruptions.

LOOKING AHEAD

Importers and LSPs will face a congested, disrupted, expensive, and frustrating 2022 and must strategically consider the longer-term impacts of the ongoing crisis in global shipping. On a more positive note, supply chain and logistics leaders who master the art of finding opportunities in uncertainty, doing more with less, and building customer-facing and environmentally friendly supply chains will guide their organizations through the turbulence of current and future disruptions.

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GLOBAL SHIPPING CRISIS: NO QUICK FIX

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With spring only a short time away, the shipping and logistics crisis continues to wreak havoc throughout the global supply chain, showing little sign of relenting. While recent data from the Federal Reserve Economic Data (FRED) and Descartes Datamyne™ point to a slight softening of economic indicators (although not enough to suggest a change in the levels of disruption), U.S. import volumes continued to break records in January and amplify supply chain and logistics challenges.

The big picture reveals ports are still struggling to handle the increased import volumes, as the pandemic continues to limit consumers’ service-based expenditures in favor of durable and non-durable goods purchases. Factors such as lengthy port wait times, labor and container shortages, the backlog of containers waiting to be emptied or transported, and the uncertainty of the impending International Longshore and Warehouse Union (ILWU) contract negotiations continue to disrupt the supply chain.

With no clear indicator of when the pressure on supply chains and logistics operations will begin to lift, importers and logistics service providers (LSPs) must hold the line as they contend with ongoing supply chain challenges.

SHIPPING VOLUMES SHIFT TO EAST COAST PORTS

While November and December 2021 showed a slight decline in U.S. import container volume, January 2022 rebounded to post a record volume of 2.47M TEUs. Compared to January 2021 and pre-pandemic January 2020, January 2022 volumes increased 3% and 14%, respectively, placing further strain on an overwhelmed global supply chain.

In an attempt to mitigate the impact of record-breaking import volumes, LSPs and importers continue to shift volume eastwards, away from the major West Coast ports. Container import processing declined for the third month in a row at the Port of Los Angeles, down 1.3% in January 2022—and down 25.4% since its high in May 2021.

On the opposite coast, the Port of New York/New Jersey processed the most containers for the second consecutive month. Similarly, the Ports of Savannah and Houston experienced increases of 6.8% and 17.4%, respectively, and their highest volumes of the last nine months.

RETAIL SIGNS

The FRED retail inventory-to-sales ratio illustrates the relationship between the end-of-month inventory values and monthly sales and is an important indicator of retailers’ ability to keep goods on physical and virtual shelves to meet consumer demands.

The latest update (November 2021) showed a slight improvement—an increase of 0.02 to 1.09—and may provide a faint glimmer of hope for importers and LSPs. Unfortunately, the ratio is still hovering near historical lows, as retailers grapple with empty shelves and frustrated customers. While there’s a possibility that retailers will be able to catch up on depleted inventory positions during the “slower” winter sales months, it’s too early to tell.


THE CULPRIT: CONSUMER DEMAND FOR GOODS

The amount of goods purchased by consumers is one of the most significant drivers of heightened global shipping volumes. Accordingly, the ratio of consumer expenditures on goods vs. services is one to watch. For the latest reported month (December 2021), the goods-to-services ratio dropped 1.8% to 51.6%.

This slight downward shift may signal softer import volumes going forward; however, January container import volumes remained in the massive 2.4M to 2.6M TEU range that persisted throughout 2021, contributing to the ensuing chronic supply chain disruptions (e.g., delays, variability, etc.).

With the pandemic still dampening expenditures on service and experienced-based businesses (e.g., travel, restaurants, entertainment), consumers will continue to spend more on goods than services—but for how long?

PANDEMIC STILL A FACTOR

As the U.S. and Europe start to make the shift towards living with the Omicron variant, China has taken a different approach; Beijing’s zero-COVID strategy could exacerbate global supply disruptions. China has strict lockdown protocols in place when a local outbreak occurs. If (when) lockdowns occur, the flow of goods could slow to a crawl or stop altogether, directly impacting manufacturers that rely on parts from China to produce their goods.

With Omicron cases receding across most of the U.S., half of the states have abandoned mask mandates and other pandemic-related protocols which could lead to a temporary spike in COVID-19 transmission, intensifying worker shortages and supply chain bottlenecks.

On an optimistic note, the Omicron surge did not dampen the employment market as anticipated. A low Federal Reserve Unemployment Rate is another economic indicator of a continued strong economy and higher demand for goods. Unemployment in the U.S. rose by a nominal 0.1% to 4.0%, according to the early February jobs report. Approaching the historical non-wartime low of 3.5%, the unemployment rate is down from 6.2% in February 2021—and down from the dizzying peak of 14.7% in April 2020. In addition, a surprising 467,000 jobs were created in January, a much larger increase than the roughly 150,000 forecasted new jobs.

NEXT STEPS

With shipping capacity constrained, importers should maximize profitability in the short-term by rationalizing SKUs to ship higher-velocity and higher-margin goods. If feasible, companies should shift volumes away from West Coast ports to alternate, less congested ports to reduce wait times.

LSPs should focus on keeping the supply chain resources they have, especially drivers. Leveraging route optimization technology, shippers and LSPs can help retain drivers by building trips to reduce stress and improve drivers’ quality of life.

To build resilience into the supply chain, importers and LSPs should focus on supply chain predictability. By shifting the movement of goods to less congested transportation lanes, they can improve supply chain velocity and reliability.

Looking a bit further out, companies can mitigate reliance on over-taxed trade lines by evaluating supplier and factory location density. Although density enables economies of scale, the pandemic-related logistics capacity crisis exposed the downside of this operational strategy.

THE FINAL WORD

While the slight reduction in the personal consumption of goods might be a positive sign, other indicators, such as the retailer inventory-to-sales ratio, need to measurably improve to take the pressure off the U.S. logistics infrastructure in 2022. And with January’s container import volume at record levels and shipping and container prices skyrocketing, importers and LSPs are facing a congested and frustrating year ahead. Companies must prepare for more lasting impact by implementing tactics to address capacity constraints in the short-term, while taking steps to build long-term supply chain resilience.

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Archives, Global Logistics, Global Shippers 101, Global Trade Daily

GLOBAL SHIPPING WOES: THE SAGA CONTINUES

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As 2022 unfolds, the pandemic-driven supply chain crunch is showing little sign of relenting. U.S. imports are at record highs and ports are clogged with ships waiting to enter and containers waiting to be emptied. Throngs of workers are off sick with the Omicron variant, severe winter weather is disrupting numerous transportation routes, and the International Longshore and Warehouse Union (ILWU) contract negotiations are on the doorstep. Given the current state of affairs, and with the latest forecasts pointing to persistent supply chain bottlenecks, companies involved in international trade should focus on building supply chain resilience to weather the storm long-term.

CONSUMERS WANT THE GOODS

With a strong economy, declining unemployment rate (3.9% in December), and limited opportunity to spend their money on services (e.g., travel, events, restaurants) due to COVID restrictions, consumers are buying more durable and non-durable goods: think flat screen TVs for Netflix bingeing, furniture for the home office, and more kitchen appliances and groceries to cook at home instead of dining out.

Personal expenditures on goods remain high, increasing by 0.1% in December 2021, according to the latest U.S. Federal Reserve Economic Data (FRED) data. As Omicron spreads like wildfire across the country and service businesses grapple with staff shortages and new restrictions, consumer spending will continue to flow away from experience-based expenditures towards the purchase of tangible goods.

With consumers clamoring for products, retailers are still contending with availability issues, as reflected in the worrisome inventory-to-sales ratio of 1.07 (October 2021, latest update). According to FRED, this problematic ratio is tied with April 2021 as the lowest since the start of the pandemic—not good news for retailers facing aggressive consumer demand and empty shelves.

PORTS ARE STRUGGLING

The intense consumer demand for goods is one of the most significant drivers of high import volumes and the resulting global shipping challenges. While container import volumes declined in December compared to December 2020 and December 2019, volumes still broke records. According to U.S. import data, volumes increased 1% and 25%, respectively. In fact, year-over-year 2021 container import volumes were 18% higher than 2020 and 22% higher than 2019.

Source: Descartes Datamyne™

The record import volumes, coupled with driver shortages and a U.S. workforce crippled by the Omicron wave, continue to wreak havoc at the ports. Despite lower import volumes in December, port delays worsened, according to analysis from Descartes Datamyne™.

Delays reached staggering heights—Port of Los Angeles (15.1 days), Port of Long Beach (15.6 days), Port of New York/New Jersey (11.7 days)—and the number of ships waiting to dock and unload increased in tandem. As of January 7, 2021, there were 105 ships waiting to enter the Ports of Los Angeles and Long Beach, up from 96 at the start of December 2021.

Notably, in response to problematic port delays, importers and LSPs are accelerating their shift away from the large West Coast ports. In fact, the Port of New York/New Jersey processed the most containers in December.

Source: Descartes Datamyne

RELENTLESS PANDEMIC-DRIVEN CHALLENGES

The pandemic continues to leave uncertainty in its wake, dashing hopes for a fast recovery from the supply chain chaos. Importers, LSPs, and ports are contending with record numbers of the labor force away sick or self-isolating. This is greatly impacting the ability to get goods into the hands of consumers—from electronics to beef and everything in between.

In the U.S., manufacturers are bracing for the impact of renewed lockdowns underway in China. As the country attempts to keep the Omicron variant from taking hold, its zero-tolerance policy may trigger another round of shutdowns at Chinese factories and ports, leading to further supply chain disruptions and constraining the ability of supply chains to recover.

At least 20 million people (~1.5% of China’s population) are in lockdown and the Hong Kong airport has initiated a month-long suspension of transit flights from approximately 150 “high-risk” countries; Volkswagen and Toyota have temporarily suspended their operations in the port city of Tianjin due to lockdowns. This “Omicron effect” will continue to exacerbate pressure on an already-taxed global supply chain in the near term.

Even as countries recover from the latest coronavirus variant wave, they will be under enormous pressure to simultaneously catch up on previous trade flows while trying to meet new demand—creating a whiplash effect on global logistics, as monthly TEUs swing dramatically between high and low volumes moving through the supply chain.

LOOKING AHEAD: DÉJÀ VU

If consumer behavior in 2022 mirrors 2021, the demand for goods and the associated logistics services to get them to market will stay at elevated levels through 2022, extending the supply chain capacity crunch and forcing stakeholders to adapt to the new normal. What steps can manufacturers, retailers, and LSPs take to mitigate risk moving forward?

In the short-term, importers and LSPs should track the spread of COVID variants to understand their path and the impact on critical parts of the supply chain. Companies should focus on keeping and nurturing the supply chain resources they have, especially drivers, and prioritize shipping higher-velocity and higher-margin goods to maximize profitability in the face of shipping capacity constraints. In addition, by considering alternate ports, such as eastern or inland ports, companies can hedge their bets against upcoming ILWU contract negotiations.

Shippers should also explore the possibility of shifting the movement of goods to less congested transportation lanes, or using alternative lanes into the U.S. (e.g., entry via northern and southern borders), to improve supply chain velocity and reliability. While total transit time is an important metric, supply chain predictability is a valuable attribute in the face of pandemic-driven volatility.

Thinking long-term, companies should evaluate the location density of their suppliers and factories to mitigate reliance on over-taxed trade lanes. While density does create economies of scale, the pandemic and subsequent logistics capacity crisis has highlighted the downside and inherent risks of this approach.

RESILIENCY HELPS ANSWER THE CALL

With months of shipping backlogs, labor shortages, and increased consumer demand for goods taking their toll on importers, LSPs and ports alike, companies must implement strategies that build resilience into their supply chains. From shifting to more resilient inventory models (i.e., saying goodbye to just-in-time) to leveraging global trade intelligence solutions to determine the most expedient and cost-effective routes and modes of transport, organizations can take steps to evolve their operations to better manage shipping challenges, mitigate supply chain risks, and protect their business from costly disruptions.

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Archives, Global Logistics, Global Trade Daily, International Trade

SUPPLY CHAIN CRUNCH: RESILIENCY STRATEGIES OF TOP-PERFORMING COMPANIES

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While U.S. port congestion and worker shortages have persisted for years, the continued ripple effect of the pandemic’s global supply chain disruption, coupled with the ecommerce boom and lack of retail inventory, has exacerbated the supply chain crunch to crisis levels. Throw in skyrocketing freight costs, container shortages, and the impending International Longshoremen Workers Union contract renewal and the outlook for short-term relief is well out of reach. Indeed, results from a recent benchmark survey from Descartes Datamyne indicate the supply chain crisis will continue well into 2022—tough news for those organizations without solid mitigation strategies in place.

MAJOR CONTRIBUTOR: The stuff economy

Multiple factors are contributing to the global supply chain challenges, but increased consumer demand for “stuff” is a major trigger. The pandemic has changed the economic fundamentals of consumer buying behavior, with Americans shifting away from experience-based spending (e.g., travel, events) towards stuff-based purchases focused on durable (e.g., furniture, exercise equipment) and nondurable (e.g., clothing, groceries) goods—and this buying trend shows no signs of slowing down.

According to U.S. import data, container import volume in November 2021 continued to pummel the supply chain: 34% higher volume than November 2019 and 12% greater than November 2020. In fact, only one other month in the prior two years (October 2020) had a higher container import volume. Transportation industry operators are operating at full capacity and are not expecting a decline in shipping demand from their customers well into 2022.

With TEU volume hovering between 2.4M and 2.6M TEUs monthly for the remainder of 2021 and likely continuing through 2022, capacity will be unable to keep pace with demand. The operational consequences of the global supply chain crisis—containers stacked in Asia, high container “rolling” rates, and unprecedented wait times for vessels at U.S. West Coast ports—are not going away any time soon.

STORE SHELVES ARE LIGHT

For many retailers, stock levels are precariously low as supply chain woes continue. While manufacturing and distribution capacity declined, particularly in the Asia-Pacific region, consumer demand in the U.S. grew and retailers have been unable to replenish their shrinking inventory of finished goods. In fact, the inventory to sales ratio decreased by more than 30% since 2019, according to the U.S. Census Bureau.

Going forward, many retailers are deciding to hold more inventory as a hedge against greater supply chain uncertainty. As a result, retailers will be buying more than what they need in the short-term to build their stocks to larger acceptable levels. This strategy will continue to put more pressure on supply chains and logistics operations, even after the peak holiday season ends this year.

Like retailers, manufacturers are facing similar inventory challenges, from semiconductor chips for auto manufacturing to lithium-ion batteries for electric vehicles. In a recent fireside chat with investors, Hau Thai-Tang, the Chief Operations & Product Platform Officer at Ford Motor Co., noted that “what’s different about today versus prior years is that there’s no float or buffer in the inventory.” The pandemic-driven supply chain issues have “fundamentally changed the way we’re thinking about procurement and design,” shining a light on the shortcomings of the just-in-time inventory model for capital-intensive systems with long lead times and interdependencies on other industries, Thai-Tang said.

supply chain RESILIENCY: technology & data lead the way

Forward-thinking companies have recognized that the global supply chain crisis is more than a short-term problem, with the majority believing that bottlenecks could get worse over the next few years. So how are businesses coping with the supply chain crunch? Descartes’ benchmark survey examined the supply chain resiliency strategies of carriers, logistics providers, importers, and shippers from around the world to uncover how organizations are responding to the supply chain challenges.

The survey revealed that top-performing companies—logistics providers and importers alike—have pinpointed ways to navigate the chaos. Investment in technology is their primary strategy to keep the business moving forward in the face of ongoing and severe supply chain disruptions. Specifically, top performers favored global trade intelligence solutions to help them rapidly identify new suppliers, markets, customers, and trade lanes to optimize their existing supply chains.

The survey found that high-performing companies were investing in HTS and HS classification and landed cost calculation software to analyze the financial viability of new trade networks. It also found these companies were relying on denied party screening solutions to vet new trade chain partners, from suppliers and customers to logistics companies.

Investment in global trade data solutions enables international businesses to re-evaluate their supply chains rapidly and constantly, a process critical to minimizing delays and boosting resilience. In the current supply chain crisis, organizations that fail to adopt this strategy as best practice risk losing market share to more agile competitors.

looking ahead

The forward outlook is a good news/bad news story of economic and employment growth driving increased pressure on global supply chains. While the most recent employment numbers were shy of the Federal Reserve’s robust autumn predictions, the continued opening up of business will drive job growth and consumer spending, which will continue to exert pressure on global supply chains.

With the latest forecasts pointing to current supply chain bottlenecks persisting through 2022, companies involved in international trade must find ways to build supply chain resilience. One of the most effective strategies for retailers and other importers is to leverage global trade intelligence solutions. By expediting trade data analysis to determine the most expedient and cost-effective routes and modes of transport, global trade data solutions can help companies optimize global supply chains to build market differentiation, bolster customer satisfaction, and come out the other side of this crisis in good shape.