Is an end to supply chain bottlenecks in sight?

Source: Times of Malta

Date: 27/01/2022

By: Christopher Cutajar, credit analyst at Calamatta Cuschieri

Supply chains, broadly defined as an activity performed by an organisation to deliver goods – converted from raw materials or components to the end consumer as a finished product or service, has been topic widely discussed in recent months, also dictating private sector business activity and economies path forward. 

The coronavirus pandemic and disruptions brought about through a wave of infections, some worse than others and giving rise to coronavirus-inflicted mitigation measures, rendered such process deemed to be naturally complex, to worsen, creating logistical nightmares and thus, tormenting businesses. Restrictions on movement and confinement resulted in a shift of retail consumption in favour of goods rather than services, notably supported by the development of e-commerce. Disruptions in relation to capacity limitations worsened an already tense situation. 

Vessel delays congested ports and crammed warehouses, adding to the supply cracks caused by a semiconductor crisis and petrochemical shortages. Smaller businesses had to fiercely fight to secure space on container ships to keep both manufacturing and sales moving while experiencing cash flow pressure as they absorb the surging freight rates, significantly higher compared to pre-pandemic levels. At the other end of the spectrum, consumers experienced such supply ruptures through limited product availability and increasing prices, fuelling inflationary pressures. Annual inflation data showed that US consumer prices accelerated by seven per cent in December, the fastest pace in almost 40 years.

Albeit such ill scenario is set to persist, at least in the very short-term, the severity of such supply-related issues are now seemingly easing. That said, risks do remain. 

Vessel congestion at two major gateways for trade ease

The two major gateways for trade on the western side of the United States; Los Angeles and Long Beach, in 2021 became the focal point of massive supply-chain related disruptions, leaving store shelves empty and intensifying pricing pressures. However, supply bottlenecks have in recent weeks eased, noting progress as backlogs of containers holding goods, previously piling up, dwindled. 

Dwell time; the stint a container sits around on average before it gets picked up, has dropped notably since late October and the number of vessels at anchor outside the ports waiting to berth to offload their cargo, dropped. 

Such encouraging figures are however only one side to the story, perhaps the more optimistic one, as vessels, previously waiting outside the ports are now spread out across the Pacific Ocean, drifting to avoid traffic jams as experienced beforehand. 

While stacks of containers filled with imported goods shrank, stacks of empty ones needing to be shipped back haven’t yet moved by much, creating a headache for truckers who need to offload their empty container prior to picking up a loaded one at the terminals. 

China zero-tolerance stresses

China’s supply chainsEfforts by Chinese authorities to reduce the spread of the coronavirus pandemic, through increased testing and enforcing quarantine measures, have in recent months led to labour shortages, curbs in the largest port hubs, and port closures across the country, disrupting global ship schedules and supply chains. Ultimately, causing a backlog in some of China’s major ports.

Risk of further disruptions for “epidemic management” is certainly not far-fetched as the world’s second-largest economy pushes ahead with its zero-tolerance Coronavirus strategy. Such moves led to a continued increased demand for air freight. Rates, notably in outbound Asia have indeed spiked, in some instances two-fold, and may further maintain its upward trajectory ahead of the extended Lunar New Year holiday in China, were some shipping firms may suspend their services. 

Tags: Supply chains |