What’s the state of the supply chain? How constrained is it? How have shipping rates changed over the past few months, and what can we expect in the future?
Those were all questions answered by two expert speakers on a call set up by UBS.
Devin Burke is CEO of Universal Cargo Management, a Freight Forwarder and Ocean Transportation Intermediary, specializes in shipping home furnishings products. They handle ocean/air freight and inland distribution of inbound cargo from Asia to the U.S.
Chris Chase, marketing manager at Port of Los Angeles markets the services of the port to global container shipping companies.
So what did these two frontline experts have to say?
First, the supply chain has become increasingly challenged—as many of us already know. And they predict the supply chain will remain constrained until at least the end of this year.
And that’s not all. Carriers are planning for demand to continue outpacing capacity next year— new ships likely won’t come online until 2023—which would likely translate to elevated rates in 2022.
It’s not just home furnishings shipments that are bottlenecked, these experts said it’s all facets of the supply chain, and they both cited long wait times for product to make it onto a ship overseas. Many ships are then waiting eight or so days at anchor before off-loading in the U.S.
Chase also added that 40-plus ships are currently waiting to come in for off-load between the Port of LA and Long Beach, which compares to about 10 ships that were waiting around the 4th of July.
There’s also a long wait time once the containers enter the port due to a shortage of truck drivers, and in total, this brings the normal shipment time of two to three weeks from Shanghai to LA to one-and-a-half to two months.
Both contract and spot rates are increasing—with contract rates going up two to three times compared to 2020, and they predict contract rates will move higher again in 2022 if strong consumer demand persists.
That could push contract rates to $8,000-$10,000 per shipment. The experts said that most retailers are only able to fulfill 50% of their shipments through contracts, so they need to utilize the more expensive spot market with rates ranging from $15,000-$20,000.
In the future, the experts said a significant (around 15%) fall off in import volumes would be one of the only things allowing for a gradual return to more normal fluidity—which could still take six to eight weeks.
But overall, they predict 2022 will be tight as well, and shipping contracts for next year may see the rate increase two to three times to reflect these constraints and continued demand.
It’s going to be tough for the next year or so, especially for smaller companies, but if demand stays high and everyone plans and prepares now for the imminent constraints it’ll be easier to survive and thrive.
