2022 Logistics Update: Capacity Increases but Uncertainty Remains

August 24, 2022 • Posted in Market Insights

M. Holland’s 2022 Logistics Outlook discussed the supply chain chaos of early 2022 caused by congested ports, rising demurrage costs and labor shortages. While the supply chain is gradually improving on a global scale, remaining alert, agile and aware of current events affecting global logistics will go a long way toward improving service levels in the coming months. Possible labor strikes on the West Coast of the U.S. and continued equipment shortages are impacting the flow of logistics across the globe. The plastics industry is faring a little better, with shortened lead times for delivery and increased commodity availability. But M. Holland expects disruption to continue well into 2023. In this update, we will examine the latest logistics challenges and industry trends that are impacting ocean freight and trucking and rail, as well as share considerations and best practices for the remainder of 2022.

Ocean Freight

Congestion remains a problem in ports all over the world, but new developments in the U.S. and China risk escalating the existing shipping crisis.

On the West Coast of the U.S., contract negotiations are underway between port workers’ and the nation’s busiest seaport complexes at Los Angeles and Long Beach, creating concerns about a strike that could be crippling to domestic and international supply chains. In a statement, the Pacific Maritime Association affirmed its commitment to negotiating a new contract without disruption. However, the conditions for a strike are in place, and leery companies are routing cargo away from the West Coast to avoid potential labor-related slowdowns. These redirected shipments are driving up costs and contributing to backups in ports on the East and Gulf Coasts, including New York, New Jersey, Savannah and Houston. It is expected that congestion at these ports will continue until the negotiations are complete.

While the U.S. faces possible port closures, the reopening of the Shanghai Port after COVID-19 lockdowns is likely to give some relief to importers of raw materials and manufactured goods from China in the second half of 2022. But the benefits of the port reopening will be tempered by equipment shortages elsewhere. For months, empty containers and other equipment such as chassis have piled up in Shanghai, causing a shortage of equipment at other ports worldwide.

Another major disruption to sea trade is the war in Ukraine, which has severely disrupted trade routes and material flows. Among the consequences have been extensions of shipment times and a substantial increase in shipping costs. The disruption is likely to continue as long as the conflict continues.

Takeaways for plastics companies shipping internationally: Planning is critical to mitigate shipping risks. The longer the lead times for orders, the better. Jen Riley-Brady, Vice President of International at M. Holland, recommends staggering shipments across multiple vessels, ports and even providers to ensure supply. She uses insights from the maritime global dashboard to evaluate the performance of vendors and make informed decisions to avoid shipping delays.

Trucking & Rail

In the U.S., rail providers are having their own challenges, causing additional delays to both imported cargo at congested ports and domestic shipments. Chaos across supply chains has caused backups and congestion at many coastal and inland transfer hubs, forcing rail companies to curtail service. The U.S. Surface Transportation Board is actively working with several major providers to create a plan to reduce service interruptions, but results so far are illusive.

Although rail is historically the most utilized mode of freight transportation, rising rail costs in recent years have made trucking a more cost-effective option in some cases. And there remains a risk of a labor disruption as contract negotiations have required mediation. The trucking industry has suffered from a driver deficit, but in recent months capacity has increased. A notable exception is bulk trucking where capacity remains tight; bulk trucking requires specialized equipment, and the driver pool is smaller due to drivers’ additional bulk transfer equipment responsibilities.

Takeaways for plastics companies shipping domestically in the U.S. and Canada: Agility and flexibility are critical to success in domestic logistics according to Roland Wilson, Director of Logistics at M. Holland. “The surface transportation landscape can change quickly as we recently witnessed with the spike in fuel costs. And although dry van capacity has increased and rates moderated, the bulk trucking landscape has tight capacity and elevated freight rates,” Roland said. “As such it is important to have options in case your preferred carrier is out of capacity.” He added that being a good business partner or “shipper of choice” has helped through the tough times where long-term relationships pay dividends.

Best Practices for Managing Today’s Supply Chain

While we continue to slog through supply chain chaos in 2022, follow these best practices to improve service levels:

  1. Stay agile: Focus on establishing supply chain resilience, if necessary, at the expense of maximizing supply chain efficiency. Build redundancy into your supply chain and expect the unexpected.
  2. Maintain frequent communication with channel partners: Within a shifting market, partnership and communication are key. Provide forecasts to your supply chain partners and build as much lead time as possible into your orders. Open communication about forecasting, planning and needs will help ensure you have the materials you need when you need them.
  3. Secure your vendor list against uncertainty: Make sure you are aligned with quality suppliers who are not only reliable but are prepared to partner in securing your supply needs. At M. Holland, for example, we’re working with a number of customers to specify material alternatives so backup products are available should there be a supply disruption.

If misery loves company, supply chain managers have had plenty of it during the pandemic. “Keep in mind that every importer and exporter across every industry is facing the same issues,” Jen reminds us. “The situation will improve, and we will all be stronger and more resilient supply chain managers for the experience.” The supply chain is improving gradually on a global scale. Remaining alert and agile will go a long way toward improving service levels in the coming months.

For more information on M. Holland’s supply chain network, visit www.mholland.com/about/supply-chain.

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