Tuesday, October 26, 2021
HomeBreaking NewsSupply chain operations won’t normalize until end-2022, forecasts Drewry

Supply chain operations won’t normalize until end-2022, forecasts Drewry

  • Prediction is based on the deteriorating supply chain situation, indicating a much deeper-seated problem than initially thought
  • End-2022 is a more likely timeframe for recovery, superseding previous expectations of a post-Chinese New Year fix
  • World port handling is seen to increase by 8.2% this year compared to 2020, or up 7.2% against pre-pandemic 2019
  • The outlook for average global freight rates is raised to 126% on the back of strong spot rate movement and a longer supply chain recovery timeline
  • Carriers now expect to make eye-watering EBIT of $150 billion in 2021, and slightly more again in 2022

Rather than improve, the global supply chain situation is deteriorating and will not normalize after the Chinese New Year in February as initially thought, but by the end of 2022 yet, according to a new Drewry forecast.

In its latest Container Forecaster report, the maritime and shipping consultancy said its latest prediction is based on the deteriorating supply chain situation, which indicates that the problem is “much deeper-seated than feared, with the pandemic bringing forward latent crises within certain sectors.”

It added that rising Delta cases have raised the risk for further logistics capacity to be restricted, either through more lockdown measures or stricter working protocols, while the looming expiration of the US West Coast dockworker contract next summer looms as a disruptive risk.

The consensus view among industry professionals is that end-2022 is a more likely timeframe for recovery, superseding previous expectations of a post-Chinese New Year fix, Drewry further said.

The report sees world port handling increasing by 8.2% this year compared to 2020, or up 7.2% against pre-pandemic 2019.

This is a downgrade on its previous guidance of 10.1% given three months ago, as supply chain disruption has since worsened amid rising cases of Covid-19 that led to some Chinese terminals being temporarily shuttered, compounded by extreme weather events.

“Drewry does not expect to see operations normalise until the end of 2022,” said the report.

For next year, Drewry retained its previous 5.2% guidance for global port handling, although rising inflationary pressures, partly due to supply chain inefficiencies that have supercharged transportation costs, stand out as a downside risk.

Raised outlook for carrier rates, profits

Drewry also again raised forecasts for container freight rates and carrier profitability in view of the prolonged disruption.

It has increased the outlook for average global freight rates (spot and contract) for 2021 to 126% from 47% in its June forecast as a result of stronger-than-expected spot rate movement in the third quarter of 2021 and a longer supply chain recovery timeline.

For 2022, spot rates are expected to decline, but there will be a significant increase in contract pricing, leading to an increase in average global pricing of about 6%.

Consequently, carrier industry earnings before interest and taxes (EBIT) have hit a new record, topping US$39.2 billion in the second quarter of 2021, an almost eleven-fold improvement from $3.6 billion profit in the same quarter a year ago.

Carriers are now expected to make eye-watering EBIT of $150 billion in 2021, and slightly more again in 2022, said Drewry.

“With regulators breathing down their necks for evidence of unethical activity, lines are on the defensive and recent moves by some to cease further spot rate increases need to be viewed through the prism of a PR war,” it continued.

However, it said shipping lines are not to blame for this crisis, but “are just the very lucky winners from this cruel lottery.”

“It is not carriers’ fault that because ports keep them waiting, sailing schedules are in disarray and access to container equipment is limited,” it continued.

“Nor is it the fault of ports and terminals that they have become parking lots for ships and boxes, because Covid made them less able to turn boxes efficiently, and then have them cleared from site quickly due to fewer truck drivers and low warehousing space.”

RELATED READ: About half a million containers waiting off LA, Long Beach ports

Drewry also predicts fleet growth to lag behind demand growth this year and next, but that the story will flip from 2023 onwards as the recent frenzy of orders starts to be delivered.

“The anticipated mismatch between supply and demand in 2023 presents a risk to carriers of overcapacity returning to the market.”

Photo by Dominik Lückmann on Unsplash

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here

fourteen − 13 =

- Advertisment -

Most Popular

- Advertisment -