With the global pandemic now in its third year, here’s what’s happening on the supply chain front in 2022 and what companies can expect for the remainder of the year.
Companies entered 2022 worried about container shortages, port congestion, capacity constraints, a lack of labor and various geopolitical issues. Other worries included the ongoing impacts of the global pandemic, supply chain disruptions and long order lead times, among other problems.
Some of these challenges are on their way to being solved, but others have since taken their place. Russia’s invasion of Ukraine in February, and its continued presence in the country, has impacted supply chains around the world. And while we’re hearing less about container shortages and port congestion these days, there are still some lingering issues from 2021 that are haunting supply chain managers right now.
One of the more notable among them is the semiconductor shortage, which was already happening pre-pandemic but has since escalated to global proportions. And because chips go into everything from mobile phones to medical devices to cars, the situation isn’t expected to ease until additional production capacity can be built and brought online. A pullback in consumer spending could also free up some chip supply, but for now at least demand for semiconductors remains high and supply remains low.
Driver and Equipment Shortages Persist
On the transportation front, the driver shortage, lack of equipment and rising fuel costs are all taking a toll on shippers’ wallets in 2022. This isn’t exactly a new story. American Trucking Associations (ATA) has been warning us about a looming shortage since 2005, at which point the dearth was about 20,000 drivers. After leveling off during the last recession, that number has been growing steadily. By the ATA’s most recent count, the shortage could surpass 160,000 by 2030.
The broader labor shortage is also impacting transportation, logistics and companies in general. Wage inflation is compounding the problem just as the availability and flow of goods begins to normalize domestically. WealthManagement.com reports that vessel backlogs at the ports of Los Angeles and Long Beach are down roughly 70% compared to what they were in January.
Now, as overall logistics costs rise, WealthManagement is also tracking a shortage of warehouse and distribution space in most US markets. And even though space is hard to come by, it says that the actual competition for space isn’t as fierce as it had been last year due to greater economic uncertainty.
Supply Chain Shortages
As we moved into the second half of 2022, sporadic supply chain shortages were still rearing their heads in certain industries and for specific products. In June, for example, Supply & Demand Chain Executive reported on how the scarcity of aluminum was impacting everything from breweries to general contractors to LED lighting manufacturers.
“These industries, and more, are being pushed to increase project costs and prices on popular end-user products,” it says. “While scarce aluminum may impact prices today, the price increases won’t be enough to affect markets, industries, or consumers permanently.” With China and Russia comprising over 60% of the global output of aluminum, the volatility in this particular corner of the market may endure through the remainder of the year.
In anticipation of customer demand, some companies are ordering and stockpiling more raw materials to offset the continued supply disruptions. “Supply chain management is entering a new era, with a scarcity of raw materials and delays in production being two of the biggest concerns,” S&DCE reports. “Stockpiling supplies to combat these challenges is one of the best approaches, but it requires liquidity and agility.”
More to Come
In its 2022 State of Logistics Report, the Council of Supply Chain Management Professionals (CSCMP) says that a drop in demand and rates in the second quarter of this year will squeeze carrier margins while shippers that are “miffed” by current service levels, including driver shortages, will invest in own trucking fleets.
The report revealed that motor carrier freight occupied the top US supply chain category with $830.5 billion last year (23.4% higher than 2020), followed by private/dedicated transportation ($415 billion, up 39.3%), full truckloads ($332.2 billion, 10.2% higher) and less-than-truckload ($83 billion, $13.2% greater), Transport Topics reports.
Now, CSCMP says shippers have been working to build new resilience and agility despite a challenging economic environment. They’re doing this through mergers and acquisitions, which have been a historically popular way that trucking companies, railroads and logistics providers use to increase capacity.
Looking ahead, CSCMP advised companies to commit more to multi-shoring or friend-shoring that requires better collaborative relationships between customers, suppliers and third-party providers as companies must coordinate more complex arrangements of transit modes and facilities.
“Stepping back for a moment, it may sound a bit odd to speak of ‘agitation’ and ‘pain’ in the context of year 2021 in which the logistics industry grew by 22.4% to $1.85 trillion, but this was growth accompanied by chaos and high costs,” the group concludes. “So far, 2022 seems to be offering little respite.”