Global Logistics Shipping Crisis: Slight Softening, But Still Record Import Volume

While December was the second consecutive month of declining container import volumes, it was still strong relative to previous years and especially pre-pandemic ones. Because the volume is still very high, port delays in many of the largest U.S. ports increased. The economics behind the high import volume continue to support strong demand for goods and the logistics services needed to move them. If strong demand for goods continues in 2022, there will not be a break from today’s frenetic pace. The January update of the logistics and economic metrics Descartes is tracking point to a sustained impact on global supply chains.

While December was the second month in a row with declining container import volumes (see Figure 1), compared to December 2020 and pre-pandemic December 2019, it was still a record month with volumes up 1% and 25%, respectively. From a pattern perspective, the November/December decline is similar to 2019. Looking at year-over-year container import volumes, 2021 was 18% higher than 2020 and 22% higher than 2019. When considering the extent of the container import increase and the fact that higher volumes have persisted for 18 months, the chronic supply chain disruption (e.g., delays, variability, etc.) that has ensued should not be surprising.

Figure 1: U.S. Container Import Volume Year-over-Year Comparison

Source: Descartes Datamyne

With decreasing container import volumes, the expectation would be that port delays would also contract. Instead, port delays are still worsening, according to Descartes Datamyne™ analysis. Delay times at the Port of Los Angeles increased in December to 15.1 days, which was almost back to August levels of 15.3 days. At the Port of Long Beach, the delay was even higher at 15.6 days. Equally, delays at the Port of New York/New Jersey also increased by almost a day to 11.7. The Port of Savannah was the only one of the top four ports by volume to see a decrease from 10.7 days in November to 9.9 days in December. This delay increase coincides with the number of ships waiting to enter the Ports of Los Angles and Long Beach which increased to another record level¹. As of January 7, 2022, there were 105, up from 96 on December 1, 2021.

Importers and logistics services providers (LSPs) continue to shift volume away from the major West Coast ports. The Port of New York/New Jersey processed the most containers in December (see Figure 2), which is exceptional. Looking at May to December volumes in aggregate, the Port of New York/New Jersey surpassed the Port of Long Beach to become the second largest container import processor. In addition, as a percentage of the top ten ports, the Port of Los Angeles declined by 4.6% when comparing December and May while the Ports of New York/New Jersey and Savanah increased by 2.4% and 0.7% respectively.

The inventory to sales ratio (see Figure 2) tracked by the U.S. Federal Reserve slightly declined again (1.1 in August and 1.09 in September, the latest update). This indicates that retailers have not been able to get beyond the peak season inventory demands in the second half of 2022. In addition, a number of events in 2022 conspire to make it hard for importers to elevate them in early to mid-2022. February could be a deceptively slow import month as the Chinese New Year (Feb. 1^st) traditionally depresses imports. However, the Olympics (Feb. 4^th – 20^th) could further depress that month’s shipping volumes as the desire to reduce pollution, especially during the Olympics, could cause many parts of the Chinese economy to curtail operations² before and during that time.

Figure 2: Top 3 Port Container Import Volumes

Product availability is still an issue as the inventory to sales ratio (see Figure 3) tracked by the U.S. Federal Reserve slightly declined again (1.1 in August, 1.09 in September, and 1.07 in October, the latest update). The October ratio is tied with April 2021 as the lowest ratio of retailer inventory to sales since the start of the pandemic. Even though many retailers started their inventory build earlier in the year to meet peak season demand, the declining ratio indicates either: 1) that retailers have not been able to make progress increasing stock in the second half of 2021 and are falling further behind; or 2) consumers started their holiday purchasing much earlier, consuming inventory at a faster than expected rate.

Figure 3: FRED Retailers: Inventory to Sales Ratio

Personal expenditures on goods continues to be strong. This is one of the most significant drivers of high import volumes and the resulting global logistics challenges. While these expenditures as a ratio of goods to services declined slightly (0.4%), they increased by 0.1%, according to the latest FRED data (see Figure 4). With a strong economy and limited opportunities to spend their money on services (e.g., travel, restaurants and events), consumers are buying more durable and non-durable goods. The Delta and Omicron COVID-19 variants are continuing to depress consumer services expenditures and, without another avenue for consumers to spend their money, the demand for goods and related logistics services will likely not decline anytime soon.

Another indicator of a strong economy and continued high demand for goods is the Federal Reserve Unemployment Rate. The recent report (December) showed a continuing decline at 3.9%. By comparison, the unemployment rate just before the pandemic was down to 3.5%.

Figure 4: Personal Consumption Metrics

Omicron has quickly become the dominant variant worldwide, creating more supply chain capacity challenges and uncertainty. While it appears to be less lethal than previous variants, it spreads more quickly and has the ability to infect even those with two vaccinations and a booster. The result is that record numbers of workers are reporting not able to work and impacting supply chain capacity. It has also caused a reinstatement of many government mandates, some of which are so stringent they are stopping supply chain activity. For example, Cathay Pacific stopped flights to and from its Hong Kong home base.

As countries recover from COVID waves, they will be simultaneously catching up on previous export demand while trying to meet new demand. In some respects, these ups and downs will create a whiplash effect on global logistics. For example, according to Descartes Datamyne, U.S. import volumes from Vietnam were as high as 233,457 TEUs in May of 2021 before dropping to 131,716 TEUs in November due to a large COVID outbreak and the shuttering of factories and logistics operations. In December, U.S. imports from Vietnam increased by almost 20% (157,360 TEUs) and 2022 should see a significant increase as the backlog for products such as furniture where the country is a leading manufacturer starts to move again.

The big question on the minds of importers and LSPs is when, or if, a decline in import volume will occur in 2022. In addition, several significant one-time events could exacerbate the ability to move goods globally. Here’s what Descartes will be watching:

• Monthly TEU volumes between 2.4M and 2.6M. This consistently high level will continue to stress ports and inland logistics until infrastructure can be enhanced.
• Port wait times. If they decrease, it’s an indication of improved port processing capabilities or that the demand for goods and logistics services is declining.
• FRED Inventory to Sales Ratio. Retailers are still suffering from out-of-stock situations and want more because of availability variability. If the ratio doesn’t increase, it means that retailers aren’t catching up and the demand for goods and logistics services will be inflated.
• Goods to services ratio and goods spending. This is the root of the current situation. If the pandemic continues to curtail services spending by consumers and the economy stays strong, the “stuff economy” will continue to drive heightened import volumes.
• Continuing impact of the pandemic. New variants are driving shock waves through global supply chains. Whether it’s cities in China on full lockdown, swaths of employees out sick or country-based restrictions, a lack of resources will constrain the ability of supply chains to recover.
• International Longshore and Warehouse Union (ILWU) contract negotiations. The negotiations could be uneventful or they could turn port operations and supply chains upside down in the first half of 2022 and possibly beyond.
• 2022 Beijing Winter Olympics. Coming right after the Chinese Lunar New Year, China’s desire to reduce pollution could curtail manufacturing and logistics operations and reduce the ability of importers and LSPs to use the traditionally lower volume import season to catch up.

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. Descartes will continue to highlight key Descartes Datamyne, U.S. government and industry data in coming months to provide insight into the global shipping crisis. Our current perspectives and recommendations are:

Short-term:

• Shipping capacity constrained? Rationalize SKUs to ship higher velocity and margin goods to maximize profitability.
• Track the spread of COVID variants to determine when they will hit critical parts of the supply chain. As COVID variants come in waves, they travel and impact across the globe unevenly. Use tracking sites such as The New York Times to better understand their path and impact on global supply chains.
• Focus on keeping the supply chain resources you have, especially drivers. The old adage “a bird in the hand is worth more than two in the bush” definitely applies here. Building trips to reduce stress and improve quality of life to retain drivers is now as or more important than wage increases.
• Accelerate inventory coming in through West Coast ports early in 2022 or use alternate ports as a hedge against upcoming ILWU contract negotiations.

Near-term:

• Shift the movement of goods to less congested transportation lanes to improve supply chain velocity and reliability. Total transit time is important, but so is supply chain predictability. Evaluate alternative transportation lanes into the U.S., including entry through northern and southern borders and inland ports.

Long-term:

• Evaluate supplier and factory location density to mitigate reliance on over-taxed trade lanes. Density creates economy of scale but also risk, and the pandemic and subsequent logistics capacity crisis highlight the downside.

¹ Source: Maritime Exchange of Southern California and American Shipper