How it impacts carriers and shippers
Demand for imported products remains high and continues to surpass the capacity to deliver them. This will likely remain the case throughout the first half of 2022 and possibly the entire year. It’s becoming increasingly obvious that resolving the supply chain disruptions of the past two years and the resulting mismatched capacity and demand will require investing in technology, ships, warehouses, laborers, and more.
Drastically Growing Capacity to Meet Demand
Shipping and logistics companies have been scrambling to increase capacity to meet the growing demand of the past couple of years. As a result, several of the leading container shipping companies of the world expanded capacity in 2021 by deploying both new vessels and older ships in addition to adding hundreds of thousands of new containers to their fleets.
For example, the carrier Maersk grew its fleet by a significant 6.4 percent in 2021, reaching 4.3 million TEUs. This action particularly impacts key trades out of Asia, putting pressure on the US West Coast and North Europe ports, causing backups.
A Sea-Intelligence Maritime Analysis emphasized that the capacity growth in the industry will likely reach massive proportions of about 20 percent year over year for the Asia-US West Coast trade lane as well as the Asia-North Europe Lane in early 2022. Therefore, the bottlenecks and other logistical issues are likely to continue in these areas in the months ahead.
This congestion is one of the contributing factors to the capacity shortage causing logistics companies struggle to meet demand. It has effectively eliminated over 10 percent of global capacity. As carriers order new boxes and vessels, they should be able to slowly catch up to demand. However, even with such intense efforts, it may take most or all of 2022 to successfully catch up.
Future Changes in Demand and How to Respond
Although demand remains high for now, there are some signs that it may begin to ease in the second half of 2022. In the meantime, boosting inland pipelines should help improve the flow of containers.
Carriers limiting their intermodal rail services inland point was a significant challenge for importers in 2021 that drove the resurgence in demand for transload and cross-dock services on the East and West Coasts. Transloading this year may be the key to moving international cargo inland.
As ports work through continuing backlogs, systematic problems like aging infrastructure, outdated technology, equipment shortages, and labor shortages become increasingly apparent. Unfortunately, addressing these problems proves costly, dissuading many shipping companies from taking action. As a result, manufacturers may begin opting for another potential solution – moving production closer to customers to bypass much of the complex logistics system entirely.
Other Contributing Factors
Acute inflation is one driver of supply chain issues that will likely continue to rise and influence supply chains, combined with high demand and wage pressures. As for demand, consumers are still buying fewer services and experiences in favor of purchasing physical goods due to pandemic pressures. This significant and continuing shift in consumer behavior combined with relatively strong economic situations are factors pushing demand to new heights.
However, inflation is highly concentrated across markets, suggesting market problems are concentrated rather than long-term. This gives hope that supply will soon balance demand, as was the case for personal protective equipment and as seems to be the case for semiconductors which are currently experiencing slowly improving supply.
For the remainder of 2022, the biggest unknowns are what potential shocks still lie on the horizon. Carriers and shippers should invest in planning and preparing by taking the time to evaluate potential shifts and effective responses. Contact the experts at ClearFreight today to learn how our customizable supply chain solutions can help you strengthen your supply chain and make logistics easier for you.