Supply chain disruptions likely beyond Q1 2022
by Denys Hobson. A multitude of supply chain disruptions and various challenges across the trade sector means that volatility in global supply chains is likely to continue beyond Q1 2022.Wednesday, 01 Sep 2021
by Denys Hobson. Recently there have been a multitude of supply chain disruptions and various challenges across the trade sector, which continue with no sign of reprieve. Two significant events in July (riots and the Transnet cyberattack) dominated headlines recently. The timing, scale and impact of both events, along with broader global factors, will have further repercussions on our economy and supply chains – with volatility likely to continue beyond Q1 2022.
While the traditional global peak shipping period has commenced, the trend of capacity constraints, equipment shortages, port congestion, increasing freight rates and Covid lockdowns continue. In fact, some countries have also recently implemented stricter lockdowns which has further compounded the delays in manufacturing and shipping. This, coupled with the recent weakening of the Rand will further add to the headaches of importers – placing additional pressure on lost sales, cashflow and margins. Consumers may also be in for a surprise as they will be paying more for imported products; or be frustrated by not being able to purchase items on their wish list due to the late or non-arrival of goods.
Capacity and container availability constraints
Currently the only constant is the anticipation of what will be the next major set-back to an already severely constrained sea freight market. Capacity is negatively comprised and as we enter the peak shipping period, the overall impact is compounded, creating a snowball effect across global supply chains. While every trade route has its challenges – there is still much uncertainty in terms of when shipments will depart and arrive. Port congestion continues to hamper carriers’ efforts to reposition equipment and adhere to routings and sailing schedules.
There was also an increase in the reduction of capacity in July, especially from India, Far East and South America. At one stage there were close to 120 ports reporting congestion with a combined 328 ships idle or at anchor, which equates to approximately 10% of global capacity!
Sailing options ex-India and South America to South Africa are also currently very limited with some carriers choosing to stop accepting new bookings for the coming weeks. USA import demand continues to grow, which is worrying for other trades as shipping lines focus on supporting the demand by removing capacity from other trades and adding capacity to the Asia-USA trade. This is a major contributing factor to driving freight rates up. In fact, rates continue to increase weekly and breach historical highs, especially on the Far East and India trades which is of great concern to retailers.
The trend towards higher spot pricing continues to gain momentum with shipping lines offering priority for capacity and equipment to those that are willing to accept rates at a premium. Schedules will continue to remain erratic across all trades and delays of between three to five weeks are still being experienced for major transhipment hubs such as Singapore. Freight and surcharge increases have also been implemented on the European and USA trades. Bunker levels are also increasing which is contributing to the overall rate increases.
Expect delays and increased prices
This imbalance and shortage of equipment is being experienced across most trades now and is no longer just specific to 40HQ containers – which are generally the preferred container type for retail importers. Port congestion, bottlenecks and port omissions are all contributing factors to the poor container circulation which reduces shipping line’s ability to position containers to meet demand.
Major ports around the globe are also struggling with increased volumes, berthing delays and in some cases, severe operational disruptions caused by Covid, amongst other things. Such factors impact the operational performance and ultimately result in ports and shipping lines not being able to clear backlogs, resulting in more bottlenecks and congestion. In extreme cases, shipping lines are choosing to bypass ports due to congestion – which was seen recently in South Africa due to the Transnet cyberattack, as well as ports of Shenzhen and Ningbo.
The general market consensus is that we will continue to experience supply chain disruptions beyond Q1 2022. As a result, unpredictable lead times and increasing rates will remain a common theme and importers need to factor this into their business planning, especially as it may jeopardise South Africa’s retail high season which includes November’s Black Friday and the December seasonal sales. Demand for airfreight is also increasing and similar types of issues as seen in the sea freight market like congestion, volatile lead times and increasing freight rates, will be experienced in the airfreight market. It may be a disappointing sales period for importers that have failed to react quickly to the market warnings around the global trade disruptions.
Denys Hobson is a logistics and pricing analyst at Investec for Business.
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