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.