Managing Supply Chain Risk More Complex as U.S. Imports Hit New High
Container shipments into the U.S. hit a new all-time high in May 2022, making the task of managing supply chain risk much more complicated to navigate. The surge was fueled by continued strong consumer spending and a positive U.S. economic outlook for the second quarter, which combined to allay concerns about the potentially damaging ripple effects of high inflation, COVID lockdowns in China and the Russia-Ukraine war in Europe.
The June update of the logistics metrics Descartes is tracking continues to point to congestion and challenging global supply chain performance for the rest of 2022. For shippers and their logistics providers still looking for the elusive turning point for the world’s supply chains, the light at the end of the tunnel remains a long way off.
May continued the record monthly trend for U.S. container import volume.
Heading into the halfway mark of 2022, container imports into the U.S. set another monthly record (see Figure 1), as the TEU volume in May crept up 7% to 2,622,465 from April, eclipsing the 2.6 million TEU level for the first time. The rate of increase though might not have been as pronounced when taking into account that April is a day shorter and included the Easter holidays. In contrast to previous years, May 2022 container import volumes were up 3% from May 2021 and 26% from pre-pandemic May 2019.
Figure 1: U.S. Container Import Volume Year-over-Year Comparison
May U.S. container import volumes from China were up 5.4% compared to April 2022 as COVID lockdowns began to ease especially the industrial hub of Shanghai. Compared with May 2021, however, volumes were down 2.1%, highlighting the effects of the China lockdowns. Looking at month-on-month figures, Vietnam, India, Thailand, and Thailand also performed strongly, while South Korea edged back slightly.
Trade flow shifting away from top ports.
The sideways pitch and yaw in import volume swings between the top West and East Coast ports continued in May 2022, and there was more evidence of a stronger push towards smaller ports with potentially higher capacity as shippers and logistics providers played a smarter game at more effectively managing supply chain risk.
Comparing the top five West Coast ports to the top five East Coast ports in May 2022 versus April 2022 shows that, of the total import container volume, the East dipped to 43.6% from 45.4%, while the West edged slightly higher to 41.5% from 41.2%. The bigger story was the share of volume shifting away from the top 10 ports. In May 2022, the top 10 represented 85.1% of all volume, compared with 86.5% the month before and 86.9% year-on-year.
Comparing five-month periods as shown in Figure 2, top West Coast ports (orange), with the exception of Long Beach, experienced container throughput shifts to other less congested ports, including those on the East Coast. The Port of Los Angeles remained in the top spot at 496,070 TEUs in May, up ~50,000 TEUs compared with April but that was still well below its high of 530,432 TEUs in May 2021. The Port of New York/New Jersey was second at 454,749 TEUs. Long Beach held the third spot at 417,113 TEUs.
Figure 2: Container Import Volume Shifts at Top 10 Ports
Delay times decline but ports are bracing for peak season.
The top 10 ports all reduced delays in May (see Figure 3), compared with the month before, as the number of vessels queuing up to unload their containers fell sharply recently. For example, at the very end of May, there were 25 ships waiting to berth in Los Angeles and Long Beach, against 109 in mid-January, according to the Hellenic Shipping News, which also, however, noted upticks in the early June queue numbers in the West Coast as well as in the Gulf and East Coasts.
The welcome respite is attributed to a number of factors, including the China COVID lockdowns, shipments being redirected to less congested ports, and that the ports themselves are potentially getting better at improving container processing efficiency. While delays are declining, it must be remembered that wait times are still far off the low single digits that persisted prior to the supply chain port congestion we are now seeing.
In fact, port authorities are viewing this as the calm before the storm. With peak season just around the corner, they are bracing for the worst, especially on the West Coast if the International Longshore and Warehouse Union (ILWU) fails to agree on new contract terms ahead of the July 1st deadline.
Figure 3: Top 10 Ports Monthly Average Delay (in days)
Managing supply chain risk may become challenging as China eases COVID lockdowns.
As major industrial Chinese cities ease out of their COVID lockdowns, thousands of factories will resume production. And as they do, there’s one thing they will likely be placing a priority on—they will be working to make up for lost time. This could have a major impact on global supply chains, signaling worsening port congestion in the peak shipping season during the fall months ahead of the end of year holiday season.
Shanghai was the powerhouse industrial province most affected by COVID restrictions, with shipments significantly curtailed in the eight-week lockdown. As Figure 4 shows, the number of container shipments from Shanghai to the U.S. dropped 35%, comparing May 2022 with January.
Figure 4: Shanghai Imports to the U.S. (TEUs)
Managing supply chain risk: 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. May U.S. container import volume spiked above the 2.6M TEU level for the first time.
• 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. There was another reduction in wait times in May but with China easing COVID lockdowns, peak season just around the corner, and the ILWU negotiations ongoing, ports are better off preparing for the worst.
• Continuing impact of the pandemic. The spread of COVID subvariants continues to add uncertainty to the trajectory of the pandemic and may continue to impact supply chains in unpredictable ways as different countries are affected at different times and for different durations. With COVID lockdowns In China easing recently, and with U.S. container imports hitting an all-time high in May, managing supply chain risk will likely become more complicated especially in the coming peak season in the Fall.
• Key economic indicators such as the inflation rate, monthly BLS Jobs Report, FRED Inventory to Sales Ratio and FRED Personal Consumption Expenditure: Durable Goods. A fundamental change in consumer buying behavior from services to goods occurred early in the pandemic and was the force behind the dramatic increase in U.S. container import volumes over the last two years. The May jobs report showed another month of solid growth. The latest FRED numbers released in May (but are for March/April) show them to be relatively consistent with the last 12+ months.
• 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. Negotiations began as scheduled in May. The Biden Administration is working behind the scenes to keep dockworkers on the job, but with the ILWU suspending talks in late May, albeit for a few days, it’s still too early to say how proceedings will unfold ahead of the July 1st deadline.
• Inflation and the Russia/Ukraine conflict. Inflation may be the only way to slow down the strong U.S. economy and ultimately help to alleviate the global logistics capacity-related problems that exist. In May, inflation declined slightly but still remained high and the effect of the Russia/Ukraine conflict on fuel costs continues.
May was yet another record month.
May U.S. container import volumes set yet another record versus 2021; however, China emerging from its COVID lockdowns could extend today’s global supply chain challenges and drive greater uncertainty. For sure, managing supply chain risk will become more complex. This data reaffirms that 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 the coming months to provide insight into the global shipping crisis. Our current perspectives and recommendations are largely unchanged:
• Evaluate the impact of inflation and the Russia/Ukraine conflict on logistics costs and capacity constraints. Ensure that key trading partners are not on sanctions lists.
• Shipping capacity constrained? Rationalize SKUs to ship higher velocity and margin goods to maximize profitability.
• 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 ILWU contract negotiations that are now underway.
• 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 across the globe unevenly and create disruptions. Use tracking sites such as The New York Times to better understand their path and impact on global supply chains.
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 and regions of the globe that are potentials for conflict. Density creates economy of scale but also risk, and the pandemic and subsequent logistics capacity crisis highlight the downside. Conflicts do not happen “overnight” so now is the time to address this potentially business disrupting issue.