Supply-Chain Problems Show Signs of Easing

Date: Monday, November 22, 2021
Source: The Wall Street Journal

Global supply-chain woes are beginning to recede, but shipping, manufacturing and retail executives say that they don’t expect a return to more-normal operations until next year and that cargo will continue to be delayed if Covid-19 outbreaks disrupt key distribution hubs.

In Asia, Covid-related factory closures, energy shortages and port-capacity limits have eased in recent weeks. In the U.S., major retailers say they have imported most of what they need for the holidays. Ocean freight rates have retreated from record levels.

Still, executives and economists say strong consumer demand for goods in the West, ongoing port congestion in the U.S., shortages of truck drivers and elevated global freight rates continue to hang over any recovery. The risk of more extreme weather and flare-ups of Covid-19 cases can also threaten to clog up supply chains again.

An easing of supply-chain choke points would allow production to move toward meeting strong demand and would lower logistics costs. If sustained, that, in turn, would help alleviate the upward pressure on inflation.

The number of ships waiting to unload at the ports of Los Angeles and Long Beach, the biggest U.S. gateway for imports from Asia, has improved but is still hovering near record levels. There were 71 container ships anchored offshore on Nov. 19, down from a peak of 86 three days before, according to the Marine Exchange of Southern California, and 17 more were expected to arrive within three days. Before the pandemic, it was unusual for any ships to anchor offshore.

Shipping and retail executives say they expect the U.S. port backlogs to clear in early 2022, after the holiday shopping season and when Lunar New Year shuts many factories for a week in February, slowing output.

German shipowner Jan Held said congestion, particularly in Asia, is getting better. His ships transport mainly industrial goods, like giant windmills, rather than containers, but would sometimes spend a month waiting outside of Asian ports.

Mr. Held said it would be some time before the global transport system normalizes. “For that, the pandemic has to end and that is not happening any time soon, in my opinion,” said Mr. Held, co-owner of Held Bereederungs GmbH & Co. KG, based in the north German city of Haren.

Trans-Pacific freight rates have cooled in recent weeks as most big U.S. retailers have imported what they need for the holiday season, gradually opening up space on the front end of the trip. The cost to move a container across the Pacific fell by more than a quarter in the week ended Nov. 12, the biggest decline in two years. Rates rose about 5% this week to about $14,700 per 40-foot container and are still more than three times year-ago levels, according to the Freightos Baltic Index.

“Globally speaking, the worst is behind us in terms of the supply-chain problems,” said Louis Kuijs, head of Asia economics at Oxford Economics. A survey by the research house among what it described as “country experts” covering 45 economies found that almost all believe supply-chain disruptions have peaked or will peak in the last quarter of this year.

Any hiccups, such as a repeat of the temporary closure of China’s Ningbo-Zhoushan Port in August due to a single Covid-19 infection, could send freight rates soaring again.

Many big chains, including Walmart Inc., Home Depot Inc. and Target Corp. , said this past week they are well stocked for the holidays, mainly because they imported goods earlier than usual this year. Some also chartered their own ships to get around bottlenecks.

Few executives said their problems are over, and in the most recent round of results, global companies continued to cite issues at ports and roads around the world. Several retailers reported lower profit margins, citing elevated freight costs to move their goods.

For Christine Humphreys, there seems to be no easing of the supply-chain chaos that means her U.K. drinks company has only half its stock for Christmas, her busiest period.

Journeys from Germany to the U.K. that would have taken two weeks are now taking six, said Ms. Humphreys, a co-founder of the Mindful Drinking Company Ltd., also known as The Alcohol-Free Shop. “Come on, it’s not a million miles away, it’s only across the water,” she said.

After slowdowns in production in recent months due to Covid-19 outbreaks, output at factories across Malaysia, Vietnam and other countries rebounded over the past month as Covid-19 cases declined and production limits were lifted, easing some bottlenecks that have choked output of semiconductors and textiles globally.

 

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