SEKO’s Gagne provides insights on 2022 supply chain and logistics landscape
Securing capacity for airfreight, ocean, ground, and final mile parcel, as well as meeting labor needs, will be the keys to enable growth and the consumer experience in 2022.
That was the word from James Gagne, president and CEO of Chicago-based 3PL and global freight forwarder SEKO Logistics, at the company’s Media Day Market Update earlier this week.
These drivers, noted Gagne, come amid inflation at a nearly 40-year high, with the Consumer Price Index up 7% annually in 2021, according to U.S. Department of Labor data.
“Raising interest rates is not going to unload 100 vessels off of the coast of California,” he said. “And rate hikes are not going to address of solve the supply shocks side of the equation. Whether the Federal Reserve or the European Central Bank rate hikes result in a policy change in China towards the Chinese zero Covid policy is highly doubtful. We don’t see that.”
As for the labor-related challenges relative to securing capacity, in the U.S. and abroad, Gagne explained that is tied back to a few different factors.
One was the amount of labor for a structural impact across all modes, as well as what he called a churn across industries, in tandem with the concept of the Great Resignation and also Covid case numbers and resultant isolation periods that are uneven across the globe.
“All signs really point to 2022 being another year of volatility and uncertainty if you are a chief supply chain officer, a CEO, a board member, or head of logistics [and other titles],” he said. “You need to understand this is a year of volatility and a year to be ramping up the consultative approach collaboratively with your partners that are helping and supporting your logistics and supply chain efforts. With global supply chain disruptions and shortages caused by the pandemic set to continue, that is what we mean by a year of volatility.”
Regarding examples of volatility, Gagne cited how average transit time delays in shipping from China to Europe rose to six days in December after having fallen in the months leading up to it. That was also the case for China to the U.S., West Coast as well, which have been steadily increasing going back to October, he noted, with delays becoming “routine” and empty shipping containers across the world are not in the right places, coupled with blank sailings expected to continue well into 2022.
And while the Covid breakouts continue throughout the supply chain, Gagne said consumers continue to purchase at a healthy rate, with demand remaining strong. What’s more, he observed ports will need to continue to focus on clearing backlogs against the backdrop of the aforementioned strong levels of consumer spending.
Gagne said that the port delays are not just a U.S. problem either, with the Chinese Port of Ningbo reportedly recently having 80 ships at anchor waiting to unload.
“Leveraging visibility to where your product is [located] is more important than ever before,” he said. “Most of the delays in queues in China are actually a result of land-based restrictions. This is what gets imposed by port authorities at the key ports. And the zero Covid policy has resulted in a roster-type of system for port workers that is impacting efficiency and productivity, with maybe half of port workers at ports compared to pre-pandemic levels. At the Port of Los Angeles and the Port of Long Beach, there are about 70 ships waiting to unload cargo, with about 20 ships waiting to unload in Europe at the Port of Rotterdam and Antwerp. This is not a pure U.S. or China phenomenon, it is global.”
The most critical determinant of 2022 U.S. growth will be whether consumer demand tapers off, or lessens in the face of higher prices, in the form of supply-side inflation, and, or if, the supply-side recovers before that happens, according to Gagne.
“I think it is very unlikely the latter will happen, at least for the first six-to-nine months of the year,” he said. “We are really talking about a question of whether household savings in terms of individual household balance sheets being higher than ever before, see demand taper off. We all know that the current combination of high demand, constrained supply, and accelerating prices is simply not a sustainable configuration. The only certainty remaining is volatility and uncertainty.”
Addressing other industry topics, Gagne said he expects: elevated freight rates to persist, given the broader supply chain dynamics; ongoing port backups, both in China and the U.S., to continue, and will impact global supply chains throughout most of the year; the labor shortage across many sectors, not just transportation and logistics, is exacerbated by Covid and will remain a key factor impacting the broader recovery, in terms of supply needed to keep up with the growth requirement; and the spike in e-commerce, with Covid leading to a significant pull-forward in e-commerce penetration.
On a longer-term basis, Gagne said there are a lot of questions regarding global trade flow and international relations, as seen in continued trade tensions between the U.S. and China, which he said will lead companies to reshape their supply chains.
“If you want to get into nearshoring and sourcing 3.0, where you are looking at manufacturing capacity, the reality is many companies will not be completely moving away from China in the short-term,” he said. “And even when we see Mexico ramping up, which I think is likely down the road, we are definitely going to see a need for components to support that nearshoring manufacturing. A lot of those components will still be coming out of China as we know.”
SOURCE: Logistics Management. By Jeff Berman, Group News Editor · February 3, 2022
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