Current State of the Supply Chain Industry

Now that the record-smashing holiday season has passed ( 10.7% over the 2019 season) it's time to look towards 2022 with renewed vigor!

Much like the US has a State of the Union address yearly to discuss how the previous year went, how things are going currently, and how things might go, we are going to take the same look at the current state of the supply chain industry.

So to avoid a bottleneck of our own, let's get right into it and take a look at the state of the supply chain industry in 2022.

How Did We Get Here

2021 was a calendar year full of volatile ups and downs for the entire supply chain community, ports re-opening or closing on an almost daily basis, equipment, and personnel shortages, not to mention the scenario that played out in the Suez Canal.

Recently, (Dec 7th  2021), the Zhenhai district was placed back into lockdown causing production to grind to a halt again and hindering port traffic significantly. This is a troubling sign that as new Covid variants emerge, we may still witness 2020-esque closures. This serves to lengthen the already 80+ day delivery time frame that has become the new industry standard as of late. When the harbors are open, there is still congestion on the dock that leads to an unloading process that takes nearly 5 times longer than usual.

The reason that cargo boxes are stalled so long once the ship is at berth has to do with the acute shortage of available truck chassis' to get cargo off the lot. This is mainly because they are being occupied with empty containers that have nowhere to go. Time has become so tight at wharves that loading the excess empty TEUs onto outbound vessels simply isn't feasible, so stacks remain as high while a trickle of goods makes it out on the few open trucks still available. This causes headaches for everyone involved especially the drivers who want to make the loads but cannot due to issues beyond their control, it's no wonder that we are seeing the highest gap of needed versus active drivers in history, almost 100,000 and climbing!

Another glaring weakness in the global supply chain that got spotlighted in 2021 was just how close to the edge we have pushed shipping equipment in regards to historic traffic lanes such as the Suez and Panama Canals. When the Ever Given, one of the world's largest cargo vessels got lodged in a narrow stretch of the Suez Canal a 106-day delay ensued leading some ships to divert around Africa while others waited. Once the route was cleared traffic resumed resulting in ocean liners that waited to arrive in Europe at the same time as those that went past the Cape of Good Hope making a second backup for the already late seafarers.

Unfortunately, this issue will likely not be resolved anytime soon as the limitations placed on ship design by the canals is rather set in stone seeing as the environmental impact of expanding them is far too great, and had they not been built generations ago there is little chance that construction would commence in this age of eco-awareness.

Where We Are

All the volatility of 2021 has left everyone in a very precarious predicament where "normal" now encompasses double shipping times compared to 2019 and astronomically high prices that are beginning to break $10,000 per forty-foot container.

The pace at which the price is increasing and the coinciding hike in delivery times is stifling recovery and driving many smaller businesses into a downward spiral that could spell the end for many. For now, the larger big box companies can eat the higher overhead and some have attempted to sidestep shipping issues by leasing their own carriers to carry freight from production centers to their shelves exclusively.

Unfortunately, the disruptions of 20/21 to the "just in time" supply chains that had become the industry standard are continuing to ripple through every sector of manufacturing as well. This means that even if you were able to get a good rate from a shipper, there is no guarantee your products will be ready in time to make the boat. As this is the first pandemic event to hit a fully global supply chain, there is no way to measure how long a full recovery could take.

What's On The Horizon

Although the clouds are not yet breaking, there are a few silver linings that could help us navigate through this storm and maybe even come out stronger. The United States' H.R.3684 will begin injecting its $1.2 billion stimulus package very soon, bringing much-needed repairs and upgrades to sea, rail, road, and air infrastructure. There is also a new proposal to lower the required age for interstate trucker licenses that hopes to erase the workforce deficit.

Furthermore, there is a renewed interest in shortening supply chain networks by leveraging regional ecosystems and local labor instead of being so reliant on overseas options which will, in turn, boost recovery efforts and help to ensure that massive interruptions are not as impactful in the future.

It will be more important than ever this year to keep an eye on the state of the supply chain industry. Having said that, check back soon for more insights like these and more from Redwood.