Date: Thursday, January 13, 2022
Source: Sourcing Journal
It’s a new year with new unknowns as the fashion industry waits out an early read from the Lunar New Year holiday on what supply chain challenges could be in store this year.
Much remains up in the air as it relates to supply chain costs, congestion at America’s major ports, companies’ inventory levels and whether purchasing and logistics managers will face more headaches or an easing of tensions this year, according to a new report from Panjiva, the supply chain research division of S&P Global Market.
“This is the first look at what 2022 brings,” Eric Oak, Panjiva supply chain analyst, said of the coming Lunar New Year holiday celebrated throughout Asia.
Matt Cox, chair and CEO of ocean carrier Matson Inc., told analysts in November the Lunar New Year period would likely be far from a return to normal, speculating a shorter-than-usual holiday resulting from China’s zero-tolerance policy on Covid-19.
The holiday typically brings a slowdown in exports out of Asia as businesses shut down, potentially offering carriers some breathing room to clear their import backlog. High imports would be indicative of high demand and also congestion within the shipping system, Oak said. Continued congestion could mean more of the same challenges for companies.
In the Panjiva report, Oak painted a number of possible scenarios for the year ahead that would hinge on different moving parts impacting the supply chain.
Shipping costs ended the year at a high and it’s too early to know whether they’ll continue to tick up in 2022, but companies’ margins are likely to remain under pressure in the first part of this year, Oak said.
“Shipping is a cyclical industry, so eventually rates will fall,” he said. “When that happens, though, could be anybody’s guess.”
Oak suggests that apparel executives simply brace for more of the same as they plan their strategies.
“If you are a manager planning your year in terms of inventory, I think it would be easy to say the year looks probably the same as last year,” Oak said. “There are several competing factors there, obviously. In any supply chain there are risks. Generally, we can assume that, for now, things will proceed as normal. We have congestion. We have a vicious cycle in terms of order inflation for companies. We also have work from the U.S. government, from the ports, from logistics companies to alleviate some of the supply chain challenges. So, there are pressures going in both directions. It’s too early to know which side will win out in the end.”
U.S. Secretary of Transportation Pete Buttigieg toured the Port of Long Beach Tuesday, while touting the $17 billion earmarked for infrastructure improvement projects at the country’s ports and waterways under the Infrastructure Investment and Jobs Act. That includes $52 million for a rail facility at the Port of Long Beach’s Pier B.
Buttigieg’s visit came a day after the port of Long Beach and Port of Los Angeles’ decision to hold off on implementing a container dwell fee until Jan. 17, amid what the two ports said was a 45 percent combined decrease of aging cargo since the fee program was announced in October.
As policymakers look to pump capital into infrastructure improvements, industry watchers are also waiting to see how contract talks for longshoremen at Los Angeles and Long Beach go this year as any slowdown or shutdown resulting from those negotiations could weigh heavily on a system already at capacity.
“The ports of Los Angeles and Long Beach accounted for about 32 percent of U.S. imports in 2021, so obviously a shutdown of a third of U.S. activity would be catastrophic for supply chains,” Oak said. “There’s a million of unknowns here depending on the length of an action or severity of the action, so whether a shutdown or a slowdown. But, generally, if the ports shut down, companies would need to find alternative ways to ship goods, especially goods already on the water.”
The current contract between the Pacific Maritime Association and International Longshore and Warehouse Union is set to expire July 1.