Even in more reliable times, solving the challenges of freight logistics can seem like a game of Whac-a-Mole. As soon as one problem is rectified or diminished, another one pops up. This is exemplified in the complex global system of moving fashion goods around the world, where zero-tolerance Covid measures put parts of China under a prolonged lockdown, goods are seized at the U.S. border due to forced labor concerns, and domestic labor shortages and conflicts continue to grind the gears on America’s West Coast.
It’s a “perfect storm of chaos,” exacerbated by a climate of uncertainty not seen in recent memory. But things are starting to move. Literally. It’s just not necessarily forward.
“At the last count, there were about 300 ships off the coast of Shanghai waiting to berth,” said Vincent Iacopella, executive vice president growth and strategy at freight forwarder Alba Wheels Up, in a recent Fireside Chat with Sourcing Journal founder and president Edward Hertzman. “And while there are containers moving out of Chinese ports, the question is this: are warehouses open? Are distribution centers open? Are businesses open?”
By mid-June, the industry expects a “substantial opening up” of the Chinese side of the supply chain, according to Iacopella, which will lead to a reprieve on Trans-Pacific capacity issues. But whether that translates to a demand surge for capacity is anyone’s guess.
“A month ago, if you said China is going to open up, that meant a tremendous demand for capacity,” said Iacopella. “But we are hearing that many companies saw a 5 to 6 percent drop in consumer demand in Q1. Is that enough to translate into a loosening of capacity? I’m not sure.” He also noted that the Russia-Ukraine war is putting upward pressure on fuel prices, which will also affect demand, or at least impact the costs of doing business.
Container prices might level out in time if there is a massive slowdown in the economy as well. “We’re never going back to the $4,000 container, and maybe that was too cheap, but maybe the $20,000 container is too expensive,” he said. “It’s possible the $9,000, $10,000, $11,000 container is the new range, but of course that’s totally subject to demand, capacity and how fast inventory is moving in North America.”
The other unpredictable issue is a glut of inventory. It used to be that whoever had inventory and could deliver to retail, versus having it sit on a boat outside Long Beach, was winning. But as quarterly reports show retailers like Amazon, Walmart and Kohl’s missing financial targets, it’s not clear how all that inventory is going to move.
On top of that, getting inventory moving requires workers at the docks. But the West Coast dock worker contract, which is set to expire on July 1, 2022, is creating discord between the International Longshore & Warehouse Union and the Pacific Maritime Association. While the outcome remains uncertain, Iacopella believes the stakeholders “have no appetite” for a strike or further work disruption, and will continue to try to sort things out. “There’s no guarantee of course, but do I think that if there’s no agreement by July 1 or 2 there will be a work stoppage? No,” he said.
So what can the industry control? Iacopella pointed out that advanced data, which, when used widely and shared in a way that benefits all stakeholders, can help companies better predict what they need to do. “If you look at the Port of Los Angeles and the Port of Long Beach, both ports are talking about optimizing advanced data that would give us more of a shared database so that people can project and plan,” he said.
Click the image above to watch the Fireside Chat.