As we inch closer to Christmas, you may be noticing longer processing or shipping times for items that you are purchasing as gifts—if they’re even available to purchase at all. Much of the inventory for retailers across the country is stuck on ships at port due to the continuing shipping crisis.
And to top it off an already stressful year, supply chain issues and port congestion are now affecting people’s bank accounts due to rising costs and inflation.
Could shipping logjams and congestion last into next year or even longer? Let’s find out.
A Guessing Game
Shipping industry experts and analysts are talking about scenarios where high ocean shipping costs and port congestion could persist well into next year, if not into 2023.
Due to the unchartered territory that the COVID pandemic has created, it’s a guessing game to determine when the shipping industry will get back to normal and congestion will ease.
2022 May Be Another Peak Season
Since the beginning of the pandemic, the shipping industry has been in a “never-ending” peak season where there is less supply than demand with multiple backlogs along the way. Back in October, it was estimated that if shippers didn’t have enough inventory on hand, then they were likely to sell out before the Christmas season because of all the delays. We are beginning to see this happen on retailers’ websites across the United States with many posting notices of backordered items or delays on shipments.
During October, the lead time for cargo sent from Asia to U.S ports using non-premium ocean liners and rail travel was estimated to be over 100 days.
It is believed that this shipping chaos will last well into 2022, and shippers should expect 2022 to play out similarly to this year.
Executives at the Port of Los Angeles foresee a very strong market through the end of 2021 into Lunar New Year, which begins during the first week of February 2022. After that, major retailers should be able to focus more on replenishing their inventories which could help the industry limp through the second quarter into the summertime of 2022. But if it goes longer than that, there may be a busy peak season again next year.
Further impacting the U.S. inventory restocking cycle could be the power crisis in China where the output of electricity is being curtailed in Chinese factories due to a shortfall of natural gas and coal supplies.
While You’re Here> Deepening Power Crisis in Europe and Asia: What Does it Mean for Shipping?
Shipper Contract Negotiations a Concern
If elevated port congestion and high shipping rates persist into 2022 and beyond, it brings up yet another concern for shippers—longshore and annual 2022 contract negotiations.
This year, shippers say a sharp increase in annual contract rates, and they are expected to increase yet again in 2022. This would add to the transport-cost inflation crisis and cause shippers to sign more multi-year contracts with carriers.
Contract negotiations between ocean liners and retailers have already begun for 2022 and there is talk that retailers are seeking to confirm contracts with freight liners for up to three years. The increased demand for multiyear contracts is an indication that liners may have a “stronger-for-longer” earnings profile than what was previously expected.
A large portion of the trans-Pacific market is likely to move towards enforceable contracts or multi-year contracts in 2022.
While this is a smart move for carriers and could be good for business in year one, by 2024, when there is an influx of new capacity coming in, they will have to make sure that they are prepared for potentially high losses.
Learn More> Import Boom Side Effect: More Container Ship Accidents
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