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What to Expect from the Containerized Freight Network in 2022 and Beyond

By: Mike Gavle, Logistics Manager

Covid variants, extreme weather, and labor will continue to have a negative impact on all logistics operations as we head into 2022. Covid is again restricting air travel, which in turn impedes the air freight network. Much as forest fires did a few months ago, flooding in the Pacific Northwest has severely disrupted rail services. And labor factors are not trending positively. Operational planning in the near term should continue to be conservative in nature.

Here’s what logistics managers can expect in the near, mid, and long term from the containerized freight network.

Near-Term Outlook

Continued service volatility across the network should be expected in the near term. Empty containers are filling North American port complexes and makeshift storage yards along the East, West, and Gulf coasts. Expect empty container availability to deteriorate at origin, trending towards a severe constraint from now through Lunar New Year.

The normally positive impact of the Lunar New Year respite on US domestic operations will not occur this year. Where US port, rail, trucking, and warehouse operations have historically “cleared the deck” of volumes during the holiday, existing backlogs will prevent that benefit in the coming months.

Mid-Term Outlook

The most significant mid-term factor impacting the freight network is the negotiation of the 2022 labor contract between the International Longshore & Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). The ILWU is keenly aware of the record-breaking earnings among steamship line members of the PMA. During negotiations in 2014 and 2015, rather than conduct strikes and lockouts the ILWU proceeded with systematic “slowdowns” designed to apply pressure to the PMA while decreasing the risk of the government invoke the Taft-Hartley Act (which prohibits certain union practices). Cargo owners today do not have the opportunity to diversify away from the US West Coast in preparation for any contentiousness in the process.

Given these factors, the ILWU walks into these negotiations with strong leverage. The International Longshoremen’s Association (ILA), which represents labor on the US East and Gulf Coasts, will be closely watching developments, given that its current contract with the United States Maritime Alliance (USMX) expires in 2024. Should a highly favorable agreement be reached by the ILWU, the ILA may consider a reaction well before 2024.

Forwarders are left with little leverage. The new ocean freight contract season will be the first of its kind, with all bargaining power in the hands of steamship lines. What little leverage remains with forwarders, having diminished dearly over the last 18 months, continues to slip away. Regardless of where rates may end up, cargo owners who do not have existing multi-year agreements or tried-and-true partnerships could be completely left out. Leverage held by steamship lines is such that cargo owners may also face a new reality of financial penalties for any unused bookings.

Black Friday sales were down this year for the first time in history. Inflation is no longer “transitory,” according to analysts. Cash-to-cash cycles are already leveraged due to long transit times and global raw material and parts shortages. How will corporate lenders react to a downturn in consumer spending, and how could that reaction impact supply chains?

Long-Term Outlook

The long-term horizon may be the easiest to predict, with the upside of network consistency and capability. And that upside is not related to infrastructure investment by the government. Steamship lines have not demonstrated strong discipline in managing long-term capacity. Fueled by record earnings, new vessel orders are at historic levels. Once those vessels begin to come online in 2024-2025 carriers are more likely to resort to their old habits, where cargo owners benefit from price wars.

Many supply chains diversified origin footprints in response to trade wars with China. Following continued covid shutdowns, diversification continued. In addition, domestic and nearshore solutions have become more popular throughout the last 18 months. Should strong sourcing diversification remain in place, cargo owners can expect better consistency within the containerized freight network. New vessels are likely to be deployed to port pairs where demand is consistent.

A More Resilient Network

As creative solutions have become the new normal for supply chain professionals, North American port diversification is more prevalent than ever. Combined with more diverse sourcing origins, and assuming the combination remains a reality, the overall ability of the containerized freight network to react to one-off events like weather, trade wars, labor agreements, or health pandemics, should be improved greatly.

In the meantime, EQI can help you negotiate the significant challenges currently facing manufacturers as they try to secure parts on time and on budget. Contact us today to find out how EQI can simplify your supply chain.