The Global Shipping Crisis
Global Logistics Shipping Crisis: Record Import Volumes, But Slight Softening of Economic Drivers
There was no break in the global shipping crisis as January 2022 started with record year-over-year container import volumes versus 2021. This is remarkable considering how strong 2021 was for volumes. January was consistent with logistics community expectations about strong demand and bookings in 2022. In the coming months, there will have to be a steady increase in demand for goods; otherwise, there will be no reprieve from today’s frenetic pace in 2022. This is particularly concerning given that consumer durable goods purchases softened in January. The February update of the logistics and economic metrics Descartes is tracking point to a sustained impact on global supply chains.
In this Article...
January continued the record month trend for U.S. container import volume.
January reversed the two month decline and 2022 is starting off with another record for container import volume (see Figure 1). Container import volume was up 3% from December 2021 and 6% from January 2021, but up 14% from January 2020. Any expectation that there would be an import decline after the holidays should be discarded with the January numbers. Another month with over 2.4 million container imports indicates that the chronic supply chain disruptions (e.g., delays, variability, etc.) importers and the logistics community have been experiencing are not abating in the short-term.
Figure 1: U.S. Container Import Volume Year-over-Year Comparison
Source: Descartes Datamyne™
The shift away from the West Coast continues.
While overall container import volume increased in December, 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 for the second month in a row (see Figure 2). At the Port of Los Angeles, container import processing declined for a third straight month, down 1.3% in January and down 25.4% since its high in May 2021. The Ports of Savannah and Houston, the number four and five top ports, saw increases of 6.8% and 17.4%, respectively, and their highest volumes of the last nine months.
Figure 2: Top 3 Port Container Import Volumes
Source: Descartes Datamyne
Slight improvement in the Retail Inventory to sales ratio.
The Federal Reserve Economic Data (FRED) retail inventory to sales ratio showed a small improvement (see Figure 3) of 0.02 to 1.09 for the latest update (November 2021). The retail inventory to sales ratio is an important indicator of retailers’ ability to keep goods on physical or virtual shelves. The ratio is hovering around historical lows and it’s too early to tell if retailers are going to able to use the “slower” sales months in the winter to measurably catch up on depleted inventory positions.
Figure 3: FRED Retailers: Inventory to Sales Ratio
Consumer personal expenditures of goods softened and unemployment decline accelerated despite Omicron.
Goods purchases by consumers is one of the most significant drivers of high import volumes and the resulting global logistics challenges. To put this in context, the increase in goods purchased by consumers from 2019 to 2021 was 22.4%—and in that same timeframe the volume of containers imported increased by 21.8%.
The ratio of personal expenditures of goods to services declined for the second straight month by 1.8% to 51.6% for the latest reported month (December 2021). A combination of early holiday buying and the slowing down of consumers’ durable goods buying spree (4.5% reduction in December versus November) may be significant factors. Omicron is a “double-edged sword” in this discussion as it could also be contributing to slower goods purchases; however, the economy appears to remain strong and Omicron continues to depress consumer opportunities to spend money on services (e.g., travel, restaurants and events) as opposed to goods.
Another indicator of a continued strong economy and higher demand for goods is the Federal Reserve Unemployment Rate. The early February jobs report showed that COVID wasn’t the anticipated dampening factor as there was a very nominal unemployment increase of 0.1% to 4.0%, but 467,000 jobs created—significantly more than expected. The unemployment rate is approaching the February 2020 pre-pandemic and historical non-wartime low of 3.5%.
Figure 4: Personal Consumption Metrics
Source: U.S. Federal Reserve Economic Data & Descartes
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Global Shipping Resource Center
Executive Vice President of Industry and Services
Descartes Systems Group
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What to watch in 2022.
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. January was another strong month with 2.47M TEUs imported.
- 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. It’s too early to tell.
- FRED Inventory to Sales Ratio. Retailers are still suffering from out-of-stock situations and want more inventory 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. January improved, but the ratio is still near its historical low.
- 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. In January, there was some softening here, especially for durable goods.
- 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. Resource availability was an issue in January, impacting the productivity of supply chain and logistics operations.
- 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. All quiet in January.
- 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. January imports from China were up 8% year-over-year versus 6% overall imports, so there may have been some acceleration of imports to avoid the February decrease in Chinese shipping capacity.
New year starting stronger than the old year.
Import volumes were off to a record start in January; however, there are slight economic signs that the some of the demand that drives them is softening. It will be some time before the pressure on supply chains and logistics operations begins to lift. 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 unchanged:
- 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 now or use alternate ports as a hedge against upcoming ILWU contract negotiations.
- 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.
- 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.
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