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Many of these problems have been evident since the third or fourth quarter of 2021 and the problem may actually be more acute than initially realized
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The problem with the present shortage of shipping capacity is that orders of newbuild ships will only come on-line in 2023, probably after demand has reduced
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This trend is set to continue in 2021 with the number of global e-commerce users expected to grow to 3.8 billion
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Congestion at ports has meant that ships spend more time waiting to be off-loaded and trucks more time waiting to pick up containers
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An increase in the need for last mile delivery will also result in much higher carbon emissions
Supply chain issues that rocked 2021 look set to continue into 2022 as the world struggles to deal with uncertainty over COVID-19 and the new variants associated with it, according to a new report from Transport Intelligence (Ti) Insight.
The whitepaper said the COVID crisis has led to disruption of production, especially across Asia, as a result of the impacts of government lockdowns, a coal shortage, and difficulty among many emerging market exporters in accessing trade finance, which is critical to the functioning of many global supply chains.
“This challenging manufacturing environment has been exacerbated by ‘lumpy’ demand from Western customers, struggling to understand their own markets. This has resulted in a stop-start pattern to both orders and fulfilment, wreaking havoc with inventory management and, most egregiously, with the capacity planning of shipping lines,” the report said.
Ti, a leading logistics and supply chain market research and analysis company, said many of these problems have been evident since the third or fourth quarter of 2021 and the problem may actually be more acute than initially realized.
“Logistics and supply chain managers should start considering that the present problem of price and availability in markets such as road, rail, airfreight, shipping but also areas such as warehousing, may become considerably more severe in the short-term with the potential to threaten the existence of certain companies and cause acute macroeconomic problems,” it continued.
Driver shortages
Among these persisting supply chain issues are driver shortages, particularly in Europe, which are being exacerbated by a combination of COVID-19, booming customer demand and the ongoing structural issues restricting the supply of drivers.
Driver shortages have been affecting the global road freight market for around 15 years. The issue comes as the pool of truck drivers is contracting but demand for transport is rising. The COVID-19 pandemic has further exacerbated the situation as new drivers have been unable to train and take their tests and COVID restrictions make the job even less attractive.
Port congestion
Another major issue likely to extend into the new year is the threat posed by shipping and port congestion to nations’ economies, with the situation in the US particularly bad, said Ti Insight. Shipping rates have risen exponentially and containers have been delayed by weeks, sometimes months, meaning that many smaller importers in the US have gone out of business as a result.
The problem with the present shortage of shipping capacity is that orders of newbuild ships will only come on-line in 2023, probably after demand has reduced. Also, it does not take into account the fact that many drivers or warehouses do not work 24/7, meaning that congestion will continue for the foreseeable future during daylight hours.
“(T)he entire industry will need to become far more flexible, agile, more automated and digitized if it is to deal with levels of volatility which may become the norm in a post-Covid world,” the paper, released in December, said.
Rise of e-commerce
Another ongoing major supply chain disruptor is the unprecedented growth of e-commerce in 2020 and 2021. Higher growth rates have been seen in developing markets where e-commerce is a newer phenomenon. For example, Thailand and Indonesia are notable for growth rates around the 50% mark. Large growth rates were also noted in markets where e-commerce has been around for some time, such as the UK and the US, where growth was more than 30%.
These growth rates are a testament to the significant disruption that e-commerce has caused the retail sector on a global scale. The number of global e-commerce users grew 9.5% year-on-year to reach over 3.4 billion users in 2020. This trend is set to continue in 2021 with the number of global e-commerce users expected to grow to 3.8 billion.
Carbon emissions
On the issue of carbon emissions, meanwhile, Ti said that across the supply chain, there was an average decline in carbon emissions of 3.1% and 4.4% for 2019 and 2020, respectively, which was achieved with efficiency gains and emissions reductions.
However, 2021 is likely to show a considerable reversal in this trend, the research said.
Post-COVID consumer demand in the West has driven up volumes on key trade lanes and the resulting capacity crunch has led shipping lines to augment their ultra-large container ships with much smaller, older and less efficient vessels. Congestion at ports has meant that ships spend more time waiting to be off-loaded and trucks more time waiting to pick up containers.
“In addition to this, ships are speeding up transit times in order to catch up with schedules, partly to keep their customers happy, partly to take advantage of eye-watering shipping rates,” said the report.
Shipping should not be singled out, it added. Air cargo and express operators have also seen a boom in demand for their services in the past year and FedEx has already abandoned one of its targets due, not least, to a surge in international e-commerce shipments.
“An increase in the need for Last Mile delivery, such an important part of keeping societies and economies functioning during the COVID pandemic, will also result in much higher carbon emissions,” the report said.
Technology adoption
Another notable development since the onset of Covid-19 is the acceleration in the development and adoption of technology to cope with the huge pressures being placed on supply chain partners.
The importance of supply chain and logistics technologies in ensuring the delivery of food and essential goods to retailers and consumers as well as maintaining the supply of life-saving drugs cannot be understated, the report said.
“The technology-based operating models developed over the past twenty years have enabled people to remain at home, limiting the spread of the virus and preventing many deaths. Although these models have been placed under unprecedented stress they stood up to the challenge remarkably well.”
Digitization critical for logistics sector
Looking ahead, Ti highlighted the need to accelerate digitization in the logistics sector if the industry is to cope with a volatile, uncertain, complex and ambiguous market environment, which was demonstrated in the past two years.
“More digitization will lead to the increase of digitalization of markets which will be fundamental to increasing levels of efficiency. This will go hand in glove with the automation of logistics processes—not least those in the warehouse. We will see more use of robots and automated handling equipment by warehouse operators looking to improve efficiencies but also to reduce the risk of having large workforces vulnerable to the outbreak of disease in the future, whether this is Covid-19 or another disease,” the paper said.
Within the supply chain itself, high levels of visibility will be required to provide companies with the agility and flexibility to respond to crises. This will involve collaboration between supply chain partners, logistics companies, and governments, among others.
“Governments will be particularly important within the process in order to facilitate the movement of cross border goods. In the world of global supply chains and international e-commerce the role which customs organizations play in the facilitation of trade will be ever more important,” Ti Insight concluded.
Photo by Bernd Dittrich on Unsplash
