Posted: June 22, 2022
With the August-October peak season approaching for international logistics, 2022 is again posing headaches for logistics managers.
Rates have softened slightly in recent months as consumers moved away from the retail therapy of the pandemic and towards spending on holidays and services.
But it is widely expected that peak season will see an increase again, as retailers look to build further inventory space ahead of the Christmas period.
Will rates ever decline?
The million-dollar question. They’ve been brutal for well over a year now.
“I think the days of a $1500 freight rate from Yantian to Long Beach are long gone. It won’t go down to that level, but they’ll find somewhere in the middle to settle.”
Daniel Gardner, President & Co-Founder Trade Facilitators Inc.
It has been wise for businesses in the current market to build inventory, such is the scale of the disruption to supply chains. But in the US, inventory usage was 16.6% higher year-on-year in April 2022 than 2021. At some point firms will need to slow down importing and shift stock.
Industry stakeholder estimates are that this should happen in the early part of 2023. So certainly not during the upcoming busy period or before Christmas.
Consumer spending is expected to become lethargic after the festive period and inflation rates will unfortunately continue to deflate people’s spending power. 8.6% in the US, 9.1% in the UK, 7.9% in Germany across May 2022 is going to start biting very soon.
Most households will be getting a real terms income cut in 2022.
Of course, this potential decrease in freight rates is only speculation. Supply chain managers will be watching the carriers with interest. Blank sailings (when a port is skipped by a ship) are common occurrences in the instance of low demand. Will carriers introduce more of them to keep rates artificially high and what will the backlash be from shippers?
Is strike action a concern?
Industrial action from operators at Hamburg and Antwerp ports has added to the concerns of supply chain managers heading into the busy period.
Further disruption is reasonably likely, in support of wage negotiations.
With yard density also at alarming levels, some carriers are looking to dock at other north European port destinations, where the threat of action is reduced.
There’s no doubt this kind of news is the last thing wanted by logistics managers after the challenges of recent years.
Better news on strike disruption comes from the US west coast. A union representing more than 22,000 dockworkers at 30 ports cannot foresee a walkout over pay in the current climate.
The time for diversions is over.
You only have to go as far back as February to find a time when over 70 container ships were waiting outside the port in Los Angeles. In the peaks of the congestion in late 2021, there were over 100 vessels anchored, ready to unload.
But there’s no doubt that the numbers are reducing now. The time for diverting your goods to other ports to avoid congestion are over.
The number of ships waiting to dock is now well below 20 in Los Angeles. It’s becoming less of a headache, particularly with the threat of strike action in the US subsided and inflation expected to bite consumer spending.
Tough times are ahead for retail businesses given the economic climate. Most economic commentators suggest many western countries are heading for recession. One shred of relief in 2023 could be this resulting in an easing of freight rates and with it a substantial decline in supply chain costs. Whether this will materialise though is still doubtful.
Whatever the supply chain disruption, our experts all over the world have decades of experience solving these challenges daily. Reach out to us below for advice on maximising the efficiency of your logistics.