TVF Industry Insights: Supply Chain Pressure Soars to Record Highs

Apr 18, 2022 | News

Supply chain disruptions continue to be a factor in global trade and TVF is committed to giving you the most up to date news and developments as we see and hear them. Below are some topics that we’re tracking so we can make the best possible decisions for our business and for yours. As always, if you have questions or concerns, we encourage you to contact us.

Supply chain pressure soars to record highs
The Logistics Managers’ Index, released the first week in April, advanced for a third straight month in March. The index reached 76.2, up from 75.2 in February. The monthly survey, released by Colorado State University and affiliated with four other American universities, asks logistics managers about inventories, warehousing and transportation.

“Continued inventory congestion has driven inventory costs, warehousing prices, and overall aggregate logistics costs to all-time high levels,” the report stated. “This is putting even more pressure on already constrained capacity.”

The report highlighted crosscurrents buffeting the U.S. economy, where accelerating inflation threatens to hurt consumer demand. Firms that boosted stockpiles during two years of pandemic-driven supply uncertainty are trying to assess whether they’ve overbought or whether the added cushion is a more permanent feature.

Inventory costs “are anticipated to remain very high throughout the next 12 months,” according to the report. Some respondents “expect to hold a lot of inventory in the next year, and to pay a significant amount to do so.”

It’s possible, they said, that recent supply-chain challenges “taught manufacturers, suppliers, retailers, and customers that holding inventory provides an important element of safety in uncertain times.”

Potential Dockworker strike
With tensions high from the challenges faced over the last two years, prospect of a confrontation between union dockworkers and their employers is heightening at some of the most critical ports on earth.

The potential conflict centers on negotiations over a new contract for more than 22,000 union workers employed at 29 ports along the West Coast of the United States. Nearly three-fourths work at the twin ports of Long Beach and Los Angeles, the primary gateway for goods shipped to the United States from Asia, and a locus of problems afflicting the global supply chain.

The contract for the International Longshore and Warehouse Union expires at the end of June.

A labor impasse could worsen the floating traffic jams that have kept dozens of ships waiting in the Pacific before they can pull up to the docks. That could aggravate shortages and send already high prices for consumer goods soaring.

With ports now capturing attention in Washington, some within the shipping industry expressed confidence that negotiations will yield a deal absent a disruptive slowdown or strike.

Shanghai lockdown due to covid -port lockdowns
Shanghai extended restrictions in many parts of the city, which is home to China’s financial hub and one of the world’s busiest ports. The Port of Shanghai had already been suffering from major holdups, and experts say the extension may worsen congestion and increase transportation costs further.

The coastal city imposed a two-phase lockdown on its 25 million residents earlier this month. Authorities placed the western part of the city under lockdown on Friday and extended an existing lockdown in eastern neighborhoods with positive cases by up to nine days.

These restrictions have caused major delays at Shanghai port, which is in the eastern part of the city and was already congested. It is the world’s busiest container port, handling more than four times the volume seen at the Port of Los Angeles in 2021, according to data from both cities’ port authorities.

VesselsValue, a global shipping data provider said the number of ships waiting to load or discharge at Shanghai’s port had skyrocketed to more than 300 in early April, a near fivefold increase from prior weeks.

“Congestion at Shanghai usually worsens at this time of year. However, the recent increase is far higher than both last year and normal seasonal levels,” the firm said in a statement on Tuesday.

The city’s government, meanwhile, has said that freight operations will remain normal under the lockdown.

Shanghai International Port Group, which runs the port, said last month that it would implement a “closed-loop system” that requires employees to stay in specific areas and adhere to certain protocols to prevent the spread of coronavirus.

Although the Shanghai port remains operational, activities such as warehousing and staffing will be affected, causing delays, and hindering cross-country transportation.