Supply Chain Chaos & Sky-High Freight Rates Until 2023?!
When will it end? There are plenty of things people could be saying that about nowadays, but for U.S. shippers, unbelievably high freight rates; terribly congested ports; and disrupted, unpredictable supply chains create this sentiment every day. The last year and a half has been an escalating disaster for shippers as freight rates have shattered record high after record high; reliability from carriers has hit low after unbelievable low; cargo has kept getting rolled to later voyages; record numbers of ships have sat at anchor, waiting to get to the Ports of Los Angeles and Long Beach; the congestion within the ports has refused to clear, U.S. agricultural exporters – along with other exporters – have gotten refused service and shipping containers; shippers have gotten hit with unfair demurrage and detention fees, carriers have basically held cargo for ransom with no-roll premiums… When will it all end?
Maybe not until 2023 according to an article by Greg Miller American Shipper published this week.
Current Chaos Plus Labor Union Contract Negotiations
More and more, experts are predicting out of control freight rates, port congestion, and general supply chain chaos to last well into 2022. I was basically alone when I predicted we could see freight rates come down a bit by the end of this year back when we were heading into an early peak season (and ports were already congested in part from what seemed like 2020’s peak carrying all the way into this year’s). If the experts are right about this mess lasting well into 2022, you have a potential disaster waiting for the baton to keep this nightmare going. Labor contract negotiations at West Coast ports between the Pacific Maritime Association (PMA) and the International Longshore & Warehouse Union (ILWU) are looming. The current dockworkers contract expires next year, and that poses a danger to shippers. Contentious contract negotiations between the ILWU and PMA in 2014-15 led to major port congestion, supply chain disruption, and heavy costs to U.S. shippers and the economy.
I actually blogged about this back in August. The issue of automation alone is likely to make for an ugly fight between the ILWU and PMA that would be costly for shippers. I’m hoping contract negotiations end up going smoothly and nothing is disrupted. Unfortunately, most experts don’t find that likely, which is why I also offered 3 ways to protect your supply chain from the likely ILWU port congestion. I said at the time that there were those who worried we’d have little respite between what we’ve been facing and what looks likely to come. That worry of little respite has turned to fear of no respite.
The current mess bleeding into the potential mess of next year is how Miller sees sky-high freight rates and supply chaos going all the way into 2023.
Are We There Yet?
Miller gets into how hard it is to tell when we’ve finally hit the height of this mess and things start getting better:
The Golden Week holiday is now underway in China. At this time in 2020, some market watchers expected spot ocean freight rates to peak just after Golden Week, then fall back. Asia-West Coast spot rates, as measured by Drewry, are triple what they were when those predictions were made, despite a recent dip.
“Timing the top” predictions have slid from Golden Week 2020 to year-end 2020 to Chinese Lunar New Year 2021 to midyear to year-end 2021 to sometime past Lunar New Year 2022. Liner companies have persistently proven far too conservative in their forecasts. Maersk has upgraded its guidance three times this year; current 2021 earnings guidance is more than twice initial expectations.
Even in the darkness there is hope. That recent dip mentioned could possibly continue. Perhaps my against the grain prediction of prices coming down some by the end of the year will come true.
In 2020, my against the grain prediction that we’d still have a peak season when experts were predicting we wouldn’t because of the pandemic came true. It came too true. However, this year I predicted we might see the peak season fizzle early because of inflation and shippers importing early because of all the supply chain disruptions. Inflation keeps climbing and shippers did ship early, but the peak season does not appear to have fizzled.
Universal Cargo’s shipment count, which I use as a barometer for the industry, had a small dip of 6% in September from August but appears like October could end as high September. But we have a while to wait for the final numbers there.
It’s All Peak Season to Me
I said earlier that all of 2021 has felt like a peak season. Miller quoted an industry expert in his article who went ahead and just called it all peak season, saying the chaos will last well into next year and the freight rates to stay high for the year:
Nerijus Poskus, vice president of global ocean at digital freight forwarder Flexport, told American Shipper, “We have been in a never-ending peak season. In my opinion, peak season is when there is less supply than demand and there is a backlog building somewhere. And I think we have been in it ever since COVID hit.
“I would say that the shippers that don’t have enough inventory at this time are going to sell out prior to Christmas because of all of the delays,” Poskus said, adding that the current lead time for cargo from Asia to inland U.S. points using non-premium ocean and rail can now be over 100 days.
“I think this chaos will last well into 2022. [Shippers] should expect that the whole of 2022 may be another peak season,” he said, adding, “Importers should expect the spot market to remain high for 2022.”
A little redefining of peak season aside, Poskus is not alone in his forecast. Miller quoted others with similar things to say about the future. Yes, experts are expecting shipping to drag on like this for a while, but it is worth pointing out that they’ve been wrong repeatedly over the last couple years. Let’s hold on to the glimmer of hope that the little freight rate dip turns into something more and the ports get congestion under control, but plan for the less favorable outcomes many are predicting.