NEWS & BLOG
Views: 68 Author: Site Editor Publish Time: 2022-07-01 Origin: Site
The wounds are still fresh: prolonged delay and elevated rates. When we bid farewell to 2021,we may harbor a secret wish: 2022 will be less fraught with disruption and chaos. Yet, barely one month into 2022, the well-intended hope was dashed by the grim reality: port congestion continues, and rates still hover at stratospheric levels. What, you may wonder, will it take to see an end to the seemingly endless supply chain choke points and logjam in Transpacific trade? A recession. Yes, a recession.
How we got here
Before you brush aside such ludicrous claim, let’s first delve into the intricacies that prompted the 18-month-long cargo rush in Asia-US trade. It’s commonly agreed that the pandemic-driven change in US consumer behavior, fueled by rounds of federal stimulus measures, triggered an avalanche of cargo import that simply overwhelmed US ports and landside supply chain infrastructures. Typically, a peak season would have lasted a quarter and things start to subside before the next peak arrives. The trajectory in the past 18 months was anything but typical: there were peaks upon peaks upon peaks, with essentially no easing in cargo import. The already-overstretched supply chain infrastructure has been operating under maximum capacity and never got a breathing time to reset the pace. The 90+ vessels waiting outside Los Angeles and Long Beach ports on any given day are a perfect illustration of how backed-up the whole supply chain ecosystem is.
If history is still any reference, we know it takes at least months, not weeks, to clear up congestions at US ports. The congestion that has wreaked havoc on importer’s supply chain is not going to disappear any time soon. It’s almost a certainty that the disruption on supply side is here to stay throughout much of 2022. It then begs the billion-dollar question: if the port congestion was caused by the almost-two-year-long import wave triggered by robust consumer demand, will the strong US consumer market remain buoyant in 2022?
A recession coming?
IHS Markit, the parent company of JOC.com, recently lowered 2022 US GDP growth from 4.3% to 4.1%. US GDP in 2021 is expected to increase by 5.7%. While 4.1% growth is certainly not gloomy, there are legitimate concerns about how long current strong US consumer spending can last. For starters, most federal stimulus measures ended last year. The rampant spread of the seemingly less deadly Omicron variant has inadvently accecelated the transition from pandemic to endemic. Along with the transition in our long fight with the COVID-19 pandemic, comes a gradual shift and re-balancing to “normal” consumer spending mix: from pandemic-driven goods buying spree to post-pandemic normalcy of more spending on services. While the timeline is still elusive as to when the shift in consumption will have a palpable curtailing impact on import volume, it’s something to be considered when importers gear up for future shipping space arrangements.
Another dark cloud that has been gathering for quite some time is the stubbornly high inflation. The Fed first dismissed the concern, calling it “transitory”. US inflation hit a 39-year high at 7% in 2021. However, the price increase in everyday goods like gas and groceries was more in the range of 20-30%. After the meeting on January 26, The Fed had given the clearest indication that they plan to raise the interest rate by a quarter-point as early as March. The earlier move was no surprise to everyone. More interest rate increases will be announced later this year. A higher interest rate will increase the money borrowing cost and hence dampen consumer spending.
Enough has been said about the bottlenecks on supply side: port congestion, lack of trucking power, etc. There is no quick fix, though, to these disruptions. Rome is not built in one day. A new port is not built in one year either. Another curveball is the upcoming ILWU labor contract negotiation. It’s quite unlikely the two sides can come to an agreement soon. When the negotiation bogs down, work slowdown will be staged to increase the negotiation leverage, further perpetuating the congestion. Simply put, the frustrating and costly delay will persist if there is no let-up in import volume. The only “hope” , sadly speaking, that we might see some easing in supply chain pains is a drop in import containers triggered by a possible recession. The question is when and how fast it will start slowing down the import.