4 Stories Highlight 2021’s Supply Chain Disruptions, and What It Means for 2022

Q1 2021: A winter storm rocked Texas #

Supply chain leaders are no strangers to inclement weather, but 2021 was full of surprises. When a winter storm broke over Texas and the Southeast U.S. in February 2021, it disrupted local, regional, and national supply chains.

Grocery stores, traditionally operating on lean inventories, ran low on supplies, and the storm delayed cross-border shipments. Rail capacity slowed across the Southeast U.S. as Union Pacific shut down intermodal gates. National trucking capacity ground to a near halt. Service stations remained idle, roads were untraversable, and load-to-truck ratios rose 29% week-over-week. FedEx and UPS issued warnings to customers and temporarily limited or suspended services across eight states

The storm itself was national news in the short term. Many felt its impact long after temperatures warmed, however. For example, Austin semiconductor plants, including Samsung Electronics, NXP, and Infineon, shut down manufacturing. Facility closure created multimillion-dollar losses for industries reliant on semiconductor chips, due to the global scale and complexity of electronics manufacturing. Shortages and delays continued into 2022 for chip manufacturers due to a number of factors. Nvidia projected fulfillment of 2021’s existing orders by the second half of 2022.

Takeaways for 2022: #

• Future inclement weather events will be harder to predict, longer-lasting, and extend far beyond their initial acute impact

• Industries with complex supply chains will reassess their logistics partner portfolios to create greater buffers in at-risk regions

• Supply chain leaders will pursue risk mitigation by mapping their supply chains to understand where risks may exist—now and in the future. A more recent trend, supplier diversification, will likely continue as many companies examine how natural disasters impact supply chains

Q1 2021: The Ever Given blocked the Suez Canal #

In March 2021, The Ever Given, one of the largest container ships built to date (220,000 tons), made international headlines when it blocked the Suez Canal. Over six days, the blockage froze nearly $60 billion dollars in trade per day, as more than 352 ships waited on either side for passage.

The Suez Canal is a key ocean lane linking Asian manufacturing to western markets, as well as a primary channel for oil transportation. The Ever Given’s traffic-stopping situation demonstrated the potential pitfalls of just-in-time manufacturing during ongoing volatility. It also illustrated the fragility of ocean transportation in 2021 and its impact on the global economy.

Coverage was so mainstream that the stuck vessel became meme-fodder for the internet and even a temporary underdog mascot.

There was already record-high demand for manufactured goods, but the Suez Canal blockage exacerbated delays and immediately impacted enterprise retailers like Walmart, H&M, and PVH. Asian port congestion and shipping delays continued through Q3 2021, generating lane-rate increases and forcing major shippers to reassess ocean cargo forecasts.

Takeaways for 2022: #

• The Suez Canal blockage put a spotlight on logistics and ocean transportation, demonstrating the importance of complex supply chains to public audiences

• Though unique, the magnitude of the Suez Canal blockage demonstrated the pitfalls of just-in-time strategies, forcing many supply chain leaders to consider freight diversification as high demand for goods continues into 2022

Q1 - Q3 2021: Port congestion accelerated, threatening supply chains #

Freight congestion continued capturing public attention after the Suez Canal incident. Global ocean and air congestion increased throughout the spring and summer of 2021. Covid-19 containment and safety measures across Asian ports and airports limited throughput and slowed shipments.

Vietnam initiated containment measures in May 2021, slowing shipping across modes. Port workforces dropped by roughly 50% as the Covid-19 crisis accelerated in August and September. The four-month lockdown mostly impacted furniture and apparel brands.

In China, the Yantian International Container Terminal increased health and safety measures in June and July to slow the spread of Covid-19. And the impacts were significant.

• Dwell loading times increased 122% during the initial two-week lockdown period

• Dwell departure times increased 242% in the same period

• By one estimate, there were 300,000 twenty-foot equivalent units (TEUs) awaiting export during the containment period

Yantian is the third busiest gateway in the world, and the port’s reduced throughput constrained an already-extremely tight ocean cargo market.

Many shippers shifted to air cargo for critical goods. Air freight increased 23% in July 2021 versus 2020. However, disruption lay in wait for this shipping mode as well. In August, the Meishan Terminal (Ningbo, China) and the Shanghai airport closed temporarily due to Covid-19, further disrupting air cargo operations. The Shanghai terminal is a primary loading node in China, handling more than 3.1 million tons of cargo annually.

Volatility across shipping modes had an ongoing impact. Inventory delays and substantial cost increases for shippers accrued throughout 2021. Shippers had two options: Pay more or wait longer. Some retailers, such as Walmart, Home Depot, Costco, Ikea, and Target, paid for chartered ships. Chartered boats cost nearly twice as much as major cargo liners and tend to be far smaller—not a viable option for cost-conscious retailers.

Asian ports weren’t the only ones impacted by cargo volatility and congestion. The ports of Los Angeles-Long Beach, combined the largest container port in the U.S., saw accelerated imports after the initial Covid-19 lockdown in the U.S. This created congestion throughout the supply chain, from delayed container ships to a shortage of port warehousing and truck transportation.

• Through August, the Los Angeles-Long Beach port complex handled over 6.3 million TEUs of Asian imports, a 28.7% increase from the first eight months of 2020

• By September, over 60 container ships were anchored off the ports of L.A. and Long Beach waiting for berths, a pre-pandemic rarity

• The buildup of containerized goods at Southern California ports created intense demand for outbound truck capacity. Spot rates for dry-van tractor-trailers hit 12-month highs

Port congestion impacted brands and consumers through the end of 2021, with throughput rates declining again in November. L.A. imports continued to top records leading into December 2021, adding to an already volatile holiday shopping season.

Takeaways for 2022: #

• Manufacturing and transportation disruptions will continue, and more expensive solutions like chartered ships and air cargo are not viable long-term for many retailers and brands

• Cargo and port congestion will follow retailers into 2022; the average wait at anchor for container ships in the port of Los Angeles averaged 23.4 days as of early January 2022, beating December 2021’s record

• Covid-19 will continue to impact port labor forces in 2022, exacerbating existing port congestion. Positivity rates are climbing in the ports of Los Angeles and Long Beach as of early January

• Port congestion, transportation delays, and an imbalance between consumer demand and manufacturing supply will impact the cost of goods in 2022; many are estimating inflation and increased prices will pass to consumers in the new year

Q4 2021: Limited supply chain capacity and increased consumer demands created a volatile holiday shopping season #

Holiday shopping was not a festive affair in 2021. Up to 82% of Americans thought supply chain issues would “ruin their life plans” entering Q4 2021. Distressing media stories, retail stockouts, and shipping delays led consumers to buy early, online, and in bulk.

eCommerce surge: #

eCommerce shopping took center stage for consumers. In 2021, eCommerce accounted for roughly 21% of all holiday sales. Consumers spent approximately $1 in every $4 on online orders.

A key factor for keeping customers happy and loyal is on-time deliveries. Sixty-two percent of shoppers say delivery speeds influence their purchasing decisions, and 85% of online shoppers will go elsewhere if delivery speeds are too long. In a post-holiday consumer survey, nearly half (47%) of consumers mentioned that on-time and accurate delivery is more critical during the holidays than any other time of the year.

But on-time delivery was an issue for many brands. Parcel carriers struggled to navigate demand, and 33% of consumers blamed delivery companies for delays. A chassis shortage prevented middle-mile transportation providers from expanding their fleets. This led nearly a third of Top 100 retailers to list “cut-off” shipping dates on their homepages. Of these brands, 81% listed their cut-off dates on or before December 20.

Supply chain disruptions made headlines weekly leading up to 2021’s holiday season. Many consumers shopped early and online. Many started shopping as early as October. Nonetheless, the Black Friday / Cyber Monday (BFCM) weekend came with widespread stockouts and decreased in-store traffic. Consumers grew tired of inventory stockouts and delivery delays. Customer loyalty shifted in response to empty shelves and out-of-stock messages online. To avoid stockouts, 70% of consumers planned to switch retailers or brands.

Logistics capacity concerns: #

Brands and retailers faced rising space issues as the holiday season approached. eCommerce fulfillment made it worse. eCommerce fulfillment operations require three times the square footage needed for bulk-pallet storage and retail replenishment. Badly needed space was barely available. U.S. average warehouse vacancy rates fell to the record low of 4.8% by November 2021. This year proved once again that successful eCommerce fulfillment requires additional flexibility.

Logistics labor challenges: #

Labor supply didn’t meet demand across sectors in 2021, including the logistics industry. Seven in ten logistics service providers experienced difficulty hiring in 2021. With eCommerce demand surging, logistics service providers scrambled to hire and retain the roughly 3x increase in labor required for eCommerce fulfillment. Additionally, transportation partners, critical for last-mile delivery, struggled to navigate peak-season shopping.

Labor concerns extend beyond peak holiday demand. The average turnover rate for logistics service providers is 31%. Disruption is new normal for the supply chain industry, and labor shortages will only increase the pain.

Takeaways for 2022: #

• Consumer expectations for eCommerce shopping and fulfillment are high. Poor online shopping experiences, stockouts, and delivery delays impact customer satisfaction and loyalty

• If brands cannot meet customer expectations, clear communication across channels is necessary to reduce both cart abandonment and customer frustration

• Shipping delays will continue into 2022, as shippers respond to ongoing congestion, labor shortages exacerbated by the Covid-19 Omicron variant, and inclement weather in the U.S. FedEx pivoted to contingency plans as its FedEx Express air network experienced labor shortages and winter storms in early January 2022

• Warehouse capacity will remain tight through the beginning of 2022, and organizations may need to seek flexible solutions in addition to their existing networks

• Heightened demand for logistics labor will continue, with 73% of polled logistics service providers expecting hiring challenges through Q1 2022. Many will pursue wage and benefits increases to beat the bottleneck

The bottom line for 2022: #

No one can predict the future, but these four stories illustrate that ongoing disruption is the reality for the global supply chain.

Supply chain volatility provides opportunities to uncover new ways to navigate disruption. Organizations that work to transform their supply chains, specifically through technology, are outperforming. Many organizations will reexamine their supply chains in 2022, reconsidering each link from manufacturing through to consumption. Many will mitigate risk by diversifying supplier networks and investing in capacity and inventory buffers. Navigating volatility more effectively to preserve margins in the new year is the primary goal.

The bottom line: Success in the face of disruption requires agility. Brands and logistics service providers must create and maintain flexibility in the face of another year’s uncertainty.