Supply Chain Forecasted to “Normalize”

Household goods shipments should become more predictable and less costly.

It was two years ago when the world watched as the pandemic slowly clogged one of the biggest arteries of global trade: container ships packed to the brim and congregating off the coast of Southern California.

The bottleneck began on 15 October 2020 with five ships, and then grew to 40 in February 2021 as Americans rushed to stock up on items for their COVID-19 lockdowns. The line dropped to nine in June 2021 but then swelled above 60 this time last year before peaking at 109 in January. However, many signs point to a decrease of supply chain pressure.

In the world of supply chain management, which has been thrown into chaos over the past two years, the forecast for 2023 is gradually becoming more positive. According to the latest Logistics Managers’ Index, “September’s future predictions hint at normalization and a return to business as usual over the next year.”

That isn't to say that the global economy will be running flawlessly in the near future. Many companies are still fighting through shortages in parts and staff. This holiday season, supply chains are vulnerable to everything from strange weather and dock worker strikes, to China's COVID-19 lockdowns and Russia's war in Ukraine.

Although the capacity for international transportation has substantially improved, industry experts warn that people may become overly optimistic about the recovery's speed. For example, U.S. companies may still have difficulty securing raw materials and components.

The number of container ships arriving in the busiest U.S. port located in Los Angeles has decreased from 30 to only 17 within a year, evidence of slowing shipping. Although the decline has been gradual, and surrounding depots are still having issues with backlogs, recently weekly import levels have fallen below last year's numbers.

Ocean Freight Shipments Are Indicating a Decrease in Consumer Demand

Ocean shipping is seeing a major consumer retreat. The drop in demand affects a number of items, including machinery, housing, industrial goods, and apparel. This is due to a surplus of goods in addition to a lack of understanding regarding consumer demand. The decline in ocean freight shipments is partially due to inventory stockpiling occurring sooner than expected this summer.

According to Oxford Economics, the U.S. hit its height of supply strains in February but has been gradually improving since September. It also helps that consumers in developed economies are spending less. One of the benefits of weakening demand is it will ease stress in supply chains. Industry experts predict that supply chain conditions should stay on a more encouraging trajectory in the final stretch of 2022 and in 2023.

It will not be all smooth sailings from now until 2023. The ongoing threat of labor action from rail and port workers in specific areas, the congestion at European ports, and the schedule changes due to weather conditions will probably cause more canceled sailings and missed ports.

By some measures, the untangling of transportation snarls has happened as quickly as last year's system buildup. That's not good news for corporations that have flourished in the confusion. This year, spot rates for shipping containers have declined rapidly by 60% due to the carrier's opposite problem from last year: an abundance of capacity.

To control costs, ocean carriers are using tactical canceled sailings to match the space of the ship with orders, which they hope will prevent future price drops. The ocean carriers are implementing a procedure known as "blank sailings" to reduce the number of single voyages. This practice is similar to when airlines cancel half-booked flights. According to figures from Drewry, ocean carriers are chopping entire service loops away to suit their available space with demand.

In a recent client note, HSL Logistics stated that its vessel cuts were close to 50% and that the decline in vessel capacity may persist until 2023 when demands increase again before Chinese New Year in late January.

The industry's negative circumstances could improve sooner than expected due to new ships launching in 2023 and 2024. The order-book-to-fleet ratio of 28% is the highest since 2010, according to Moody’s. This increase in capacity will exceed projections for global trade volumes. “Although service reliability issues and elevated freight rates will likely persist into 2023 as the transportation ecosystem continues to right itself, we believe that carriers’ earnings have now peaked as an increased supply of vessels meets weakening demand,” the Moody’s report stated.

Normalizing Supply Chain Will Lead to Smoother Relocations

The improvement in container ship congestion means that shipments of household goods may arrive on schedule with little to no delays. A continued decrease in ocean freight demand will also lead to more normalized pricing for shippers.

Although there is a light at the end of the tunnel, organizations should not expect a return to pre-pandemic conditions anytime soon. The shipping industry is still waiting for a rebound in consumer spending that would spur shipments and sailings back to 2019 levels.

Want to learn more about how the global supply chain is changing and affecting the mobility industry? Join us at GWS2022 in Las Vegas. GWS2022 will offer sessions that focus on building teams, preparing for the future, offering practical guidance, and encouraging collaboration across the industry to address issues and face the challenges resulting from the pandemic and changes in technology.