The supply chain bottlenecks that have become a fixture of global trade will persist well into next year, according to industry forecasts, but are likely to ease by the start of 2023.
A sudden plunge in goods demand at the beginning of the coronavirus pandemic last year, followed by an equally sharp revival, helped set off massive disruptions in trade. The crisis has been worsened by the intermittent shuttering of production facilities and ports as governments around the world seek to curb spikes in Covid-19 cases.
The disruptions aren’t expected to ease until the second half of 2022 and will be fuelled globally by renewed coronavirus outbreaks, China’s strict virus containment policies and the Chinese New Year on February 1, according to a report from insurers Euler Hermes and Allianz.
But disruptions could last longer in Europe than in the US due to a lack of investment in shipping infrastructure capacity, the insurers predict.
“Without production capacity increases and investments in port infrastructure, the normalisation of supply bottlenecks in Europe could be delayed beyond 2022 as demand remains above potential,” the report’s authors write. In November the US government committed to spending US$17bn expanding port capacity.
Disruptions to shipping in China, a consumer goods manufacturing powerhouse, pushed freight prices to record highs this year. Small and medium enterprises in some sectors and markets avoided long-distance exports amid the price pinch.
But the Euler Hermes and Allianz report, published on December 9, suggests there is hope for global trade to settle into more predictable patterns during the second half of 2022.
The boom in demand for consumer goods driven by savings accumulated during the pandemic is likely to have peaked already, according to the report, although it will probably remain above trend into 2023.
Demand should also be kept in check because many of the consumer goods snapped up by shoppers over the last two years also won’t need to be replaced until well after next year, the report notes.
“In the short-term, we expect shipping costs to gradually decline from Q4 2021, in line with the futures markets for shipping, after peaking in September 2021 at levels six to seven times higher than before the Covid-19 crisis,” the report reads. “However, they will remain at elevated levels in 2022.”
Supply crunches may also be softened by plump inventories in many sectors, according to the insurers. “The good news is that the urgency to restock has clearly peaked over the past few months and the level of inventories is already above pre-crisis long-term averages among most sectors.”
The shipping industry is also forecasting another turbulent year.
Since late October the Drewry World Container Index, which measures the average price of a 40-foot shipping container, has remained largely steady and fallen off September peaks that shot past US$10,000 per container. But as of December 9 the composite index is still 170% higher than the same week last year.
The price spikes have been particularly high for routes originating in Asia. December 2021 prices for containers shipped from Shanghai to Genoa and Rotterdam are up by almost 200% on the same period in 2020.
In a survey released last week, 54% of shipping lines, container traders and other maritime cargo firms said they expect seaborne cargo service to remain at similar levels in 2022. According to 11% of the respondents, service will worsen.
Over two-thirds of the respondents to the survey of 800 firms, conducted by container trading platform Container xChange, said they “are rethinking their logistics strategy” such as eyeing more diverse sourcing or holding more inventory.
“The survey results indicate that the industry is expecting gloomy times for the container logistics industry,” Container xChange says of the results.
“We foresee that Covid-19 and its new variants will continue to disrupt the port operations and labour capacity as we progress into the year 2022,” says the company’s chief executive Christian Roeloffs.
“Persistent unpredictability is warranted. We’ve also started to observe container prices and leasing rates going down. Once prices slide significantly, they risk crashing. If we look at the current demand, we see that the demand for containers hasn’t increased significantly.”
But Roeloffs suggests a “return to normal” looks probable sometime in the second half of 2022.
The World Trade Organization (WTO) said in November that growth in goods trade is likely to be dampened by supply chain challenges for the rest of 2021 and into 2022. While trade growth differed across sectors, overall it is below the baseline trend, the WTO said.
Euler Hermes forecasts global trade volumes to grow by 5.4% in 2022 and 4% the following year.