While it seems container shipping rates are finally starting to ease up—Drewry’s World Container composite index decreased by 1.5 percent week-over-week to $9,050.77 per 40-foot container and well off peak levels north of $10,000 in September—supply chain concerns continue to cloud ocean and air freight as the holiday season heats up.
Given the uncertainty, Oxford Economics doesn’t expect a full easing in supply chain disruptions before the first half of 2022. The forecasting and analytics company noted, however, that based on current orders and freight prices keep falling, shipping capacity is set to rise approximately 22 percent from 2022 to 2024 as demand eases.
Alongside expected port logjams in the U.S. and Europe into 2022 and heightened demand for goods coming from Asia, the Omicron variant of the coronavirus is bringing its own level of uncertainty as more than 70 countries impose travel restrictions from numerous southern Africa nations where it was initially discovered, including South Africa, Botswana, Eswatini, Lesotho, Mozambique, Namibia, Malawi, Angola, Zambia and Zimbabwe.
The restrictions and ensuing flight cancellations could have ramifications for air freight. Air cargo capacity is expected to decrease by 30 percent over the next few days, particularly on the key trade lanes between South Africa and North America, Europe and Asia. Due to strong demand, spot rates are likely to significantly increase until the end of the year amid the peak shipping season, Everstream Analytics said in a recent brief.
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In the week after the World Health Organization (WHO) officially named omicron, there have already been 25 logistics and supplier incidents related to the variant, Everstream says. This is more than double the 12 found in the week after the Delta variant was named, the firm said.
Asian exports surge as US congestion continues
More persistent supply chain disruptions like these, particularly related to the variant, could send Asia’s total gross domestic product (GDP) growth down 1.6 percentage points in 2022, from 5.4 to 4 percent, according to Oxford Economics.
Goods export volumes out of Asian ports are up 13 percent in the first nine months of 2021 versus the same period in 2020, and 5 percent higher compared to 2019, according to data from Oxford Economics. But the road to recovery has been bumpy. When restrictions were first implemented after factories across Vietnam and Malaysia had shuttered due to Covid-19 outbreaks, their economies were particularly hard hit, with Vietnam’s manufacturing plunging 12 percent on a seasonally adjusted basis in the third quarter.
Even as production in the impacted countries ramps back up, logistical challenges persist, particularly in ocean shipping. Capacity on major shipping routes between Asia, Europe, and the U.S. have recovered to pre-Covid levels, and 20-foot equivalent unit (TEU) container port throughput was up approximately 6.2 percent in the first nine months of 2021 compared to the same period in 2019.
But port congestion concerns also remain as vessels are stuck off shore, as more gateways seek new alternatives to get product off the ships and onto roads and rail. Globally, less than half of container ships have arrived on time during 2021, and delays for late vessels are consistently adding 7.5 days to standard delivery times, versus approximately four days across 2018 and 2019, according to a report from Oxford Economics and Sea-Intelligence.
The increase in delivery times led to a rise in blank sailings, with approximately 10 percent of scheduled capacity being cut in the first half of 2021, the firm said. That number has since declined to 8 percent.
Adding to the concerns, productivity at U.S. ports still significantly lags behind their Asian counterparts. Asian ports can load or unload a container more than twice as fast as their North American counterparts, taking an average of 27 seconds compared to 76 seconds on large call sizes, according to research and analysis firm IHS Markit.
While Asian ports operate 24/7, a measure that Long Beach and Los Angeles have only recently piloted, the U.S. gateways also faces limited capacity at warehouses and a trucking labor shortage, all of which have spawned more logistical bottlenecks.
As a result, ship turnaround times in Shanghai, the world’s busiest port, are currently at 4.9 days, only up slightly from the 4.5-day average from 2017 to 2019. Similarly, for other Asian ports such as Singapore; Busan, South Korea; and Kelang, Malaysia, the current turnaround is between 1.7 days to 3.5 days. In contrast, turnaround time at Los Angeles/Long Beach is up from 3.6 days to 6.4 days on average, according to data from RBC Capital Markets and Bloomberg.
However, the recent effort to institute container dwell fees, which have already been postponed twice, appear to have helped the Southern California ports clear some space. From Oct. 25 to Nov. 23, the two ports have seen a combined 33 percent decline in cargo left on the docks for extended periods.
Asia’s port efficiency has made Oxford Economics more optimistic that the ramp-up in production will not lead to congestion across the region. In one example offered by the firm, Singapore has also implemented measures to ease regional port congestion, including opening the Tuas Port to store containers and allowing vessels to refuel and change crews.
In the U.S. and the U.K., both of which have been fighting through labor shortages, all eyes are now on whether the Omicron variant exacerbates these problems as workers at logistics and manufacturing facilities could temporarily exit the workforce or be deterred from returning.
Everstream Analytics noted that if worker shortages worsen in both countries, the congestion issues could persist deep into 2022 and delay a return to normalcy in ocean shipping supply chains, which it initially anticipated to happen sometime after the Chinese Lunar New Year in February 2022.