2022 Logistics Outlook: Supply Chain Chaos and Price Increases

February 17, 2022 • Posted in Market Insights

Everyone hoped the “Great Supply Chain Disruption” would fade away alongside COVID-19’s transition from pandemic to endemic — but neither is off to a great start in 2022.

Analysts predict continued supply chain chaos through the year and perhaps longer as trucking remains desperate for drivers, rail service levels are down and ports are more congested than ever. Additionally, transportation costs are expected to increase, which is introducing new challenges for plastics companies.

In this post, we will examine the biggest logistical challenges that continue to impact trucking, ocean freight and rail, and outline actions that plastics companies can take to reduce impacts in 2022.

Ocean Freight

All U.S. ports are congested. In early February 2022, the Port of Charleston in South Carolina had a record number of import containers awaiting delivery and a line of 15 container ships anchored nearby waiting to offload. The port estimated it would take six weeks to clear that bottleneck. Meanwhile, delays at the ports of Los Angeles and Long Beach, which handle approximately 40% of containerized imports in the U.S., continue to be significant even though record volumes are being processed.

Port congestion complications have grown to a level that has captured the White House’s attention and led to a rise in demurrage costs. While previously uncommon, these fees are being leveraged more frequently to prompt the expedited movement of shipping containers. But demurrage costs are proving more pain than gain for ports, shipping companies and distributors like M. Holland because the issue is not that these companies don’t want to move their goods out of the port; the problem is they can’t. Even if the logistics market could unclog ports, it wouldn’t be enough to create a steady flow throughout the supply chain because, like ports, rail, warehousing and trucking are stretched to the point of breaking.

Takeaways for plastics companies: Given the complexity of the situation, port congestion and high demand for shipping containers will likely continue for at least the next six to nine months as will the elevated ocean shipping costs. And let’s not forget the port detention and storage costs that are largely unavoidable and can be quite significant.

Trucking & Rail

Surges in port activity mean more trucks and rail cars are needed to move products and containers from the seaside to inland areas or nearby warehouses. But available warehousing near ports is a scarce commodity, and transportation modes are struggling with labor shortages across the board.

The trucking industry has faced a driver shortage for almost 20 years — it’s nothing new — but the shortage has increased by 30% since the start of the pandemic. And port congestion is making trucking labor matters worse; truckers report waiting in miles-long lines for up to eight hours to enter terminals. This cuts into truckers’ pay and causes them to miss revenue-driving appointments, which is a problem because many truck drivers are paid per load.

Rail is the next best alternative to move containers from port terminals. But according to Logistics Management, the rail industry faces similar labor shortages to the trucking industry across its suppliers, carriers and receivers. One of the first signs of container congestion last summer was the container gridlock at inland ports like Chicago — there was not room enough for the deluge of containers from the coasts.

Takeaways for plastics companies: Expect to see freight rates remain high throughout 2022. And rail rates will likely hold steady throughout 2022 because of lower demand. Both modes will have significant barriers to returning to pre-pandemic service levels.

How to Evolve with the Supply Chain

One person or company can’t resolve today’s supply chain issues. Still, there are best practices that plastics companies can put into place now to protect their business from supply chain risk and help improve the situation:

  1. Change to “just in case” philosophy: Move away from just-in-time inventory processes to protect your company from risk during the current supply chain disruption.
  2. Anticipate added time and costs: Lead times aren’t likely to shorten, and logistics costs are expected to increase. Create breathing room for your company by allocating additional budget to accommodate these rising costs.
  3. Be part of the logistics solution: Be timely for freight pick-ups or returns of shipment containers. Do your part to work efficiently so that the ports, truckers and railway lines can operate smoothly. Do you now actively work to shorten dwell times or do you still think “they can wait”?

For more information and guidance on how to best navigate the “Great Supply Chain Disruption”, visit: www.mholland.com/about/supply-chain or contact Roland Wilson, M. Holland’s Director of Logistics at rwilson@mholland.com.

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