As we head into Q4 of 2021, rounding out the second year impacted by the COVID-19 pandemic, shippers are still pressed with many issues that are disrupting supply chains, raising freight costs, and impacting the service they provide to their customers.
Logistics is all about planning, and as we move forward into a semi-uncertain future, we want you to be primed with everything you need to know about what may happen in the industry. We’ve parsed through the data, and here’s what you need to know.
Known issues in the logistics industry
As we look into Q4 and the Q1, 2022, these are the most prominent issues that could have a significant impact on the shipping industry.
- Tightening capacity: high demands and a lack of carriers have tightened capacity across the country. Carriers are limited with HOS regulations, and many trucking companies are reporting staffing shortages, which has resulted in increases in driver wages. Carriers are also reporting significant truck/trailer equipment shortages and rising insurance rates.
- Rising rates: because of tightening capacity, rates are up across full truckload’s spot and contract markets. The National Spot Market Rates are $0.42/mile higher than this time last year and $.062/mile higher than in 2018. Cost increases are impacting LTL lanes, even as service declines.
- Holiday peaks: it may not feel like it yet, but the holidays are upon us. Retailers are unsure about foot traffic, but consumer spending is up. E-commerce will reign this year, but small parcel carriers are looking ahead to another holiday peak in the coming months.
- Increased fuel prices: diesel fuel prices are on the rise, which is increasing the costs of shipping, goods, and materials. There is no sign of this trend reversing in the coming months.
- Dock congestion: many intermodal facilities are reporting delays at docks, creating bottlenecks at facilities and ports across the country.
- Winter weather: as we leave the summer months behind, winter weather will cause further delays in the northern states. Hurricanes, flooding, and severe storms are also impacting coastal areas and southern states.
- International shipping delays: international shipping still bears the weight of the global pandemic, exacerbating global supply chain disruption. More ships than ever are stuck at anchor off the coasts of the U.S.
The ocean freight issue
As imports continue to spike and break records, longer delays are being reported at ports on both coasts. There are currently 47 container ships at anchor or drifting off the ports of LA and Long Beach, which is a new all-time high (the previous was 40 earlier in the year). There are also 76 box ships either at berths, anchor or drifting, which is 4.8 times pre-Covid levels. The pre-Covid average was 16 container ships at berths or anchor.
As ships continue to pile up on the coasts, retail sales continue to outpace inventory replenishment. Sales are rising, and shelves are emptying. Inventories are falling as sales outpace them. The latest Institute for Supply Management (ISM) report includes that the sentiment on customer inventories fell to 25 points in July, the lowest level in its history. This could worsen as we head into the holiday shopping season.
The US economy fails to meet growth expectations
After high expectations for the US economy in Q2, US gross domestic product grew at an annualized rate of 6.5%, well short of the predicted 8.5%. Production bottlenecks and supply shortages are keeping the economy from growing as fast as expected, and there are still upwards of 11 million job openings, despite 8.7 million people being out of work. While output has fully retraced its virus-fueled drop, the labor market remains far from fully healed.
Early Q3 GDP forecasts put growth at 5.7%. Even if GDP growth meets expectations, the numbers would still be short of Q2’s disappointing growth.
How to prepare for the end of the year and into 2022
As you prepare your strategy for the coming months, keep in mind that:
- Spot market rates and contract rates will continue to rise and are forecasted to rise into 2022. Prepare your shipping budgets to help absorb these rate increases.
- Capacity is still tight, and driver shortages continue. It’s important to utilize a 3PL to diversify your carrier relations to help you negotiate better rates and have loads moved on time. Most importantly, keep docks clear to reduce congestion at warehouses. This helps entice carriers to continue picking up loads at your facilities.
- Demand remains extremely high: prep your supply chain to account for delayed shipments in order to keep inventory at appropriate levels.
- Intermodal congestion at rail facilities will continue through 2021, as will port congestion for container ships. Communicate increases in lead times to customers so that they know what to expect.
As always, King is here to help you plan for the future, mitigate costs, and bring efficiency to your supply chain. Want to talk solutions to an issue you are experiencing? Get in touch with us today.