Top Supply Chain Challenges in Q3 2021

 

 

Supply chains have become fragmented after a year of start-and-stop demand. From raw materials through finished goods, companies are now struggling to keep up with a surging economy and navigation of supply chain roadblocks.

2020 caused disruptions that most companies aren’t accustomed to seeing which now have continued into 2021 with Q3 experiencing some of the worst disruptions to date. Brexit negotiations are continuing with no end in sight and COVID-19 continues to test governments and businesses across the world. In addition, increasing environmental awareness is challenging companies to rethink the fundamental ways in which they operate.

No area of society will be untouched by these issues – and supply chains are no different especially following the Suez Canal blockage and Yantian lockdown. This had led to a strong case for diversification/localisation of supply chains, but it will be hard to reduce dependence on Asia.

Inflation once believed to be temporary is looking like it is here to stay and is a drag on consumer demand. Loosely translated, it suggests consumer-facing companies may have some very unpleasant news for markets when Q3 results start to roll in — primarily in the form of high prices that could be hiked even further.

In this post, we will explore the main market challenges affecting supply chains in Q3 2021.

 

Sea Freight

Carriers have indicated that the demand outlook remains strong through the end of the year. Congestion expected to remain severe due to deteriorating schedule integrity, void sailings, suspension of services major hubs due to lack of availability (e.g., China to EU via Dubai) and delays as well as equipment shortages in Asia. Equipment shortage is a growing issue as demand consistently exceeds supply.

Recommendation: Book 4-6 weeks in advance across all routes.

Port Congestion

Global schedule reliability has 44.6% of vessels arriving on time – with port rollovers a frequent occurrence. For fifth consecutive month, global schedule reliability has been the lowest YTD and the lowest since 2011 with an average delay in vessels of 7 days.

• ROTTERDAM PORT
  Rotterdam port is experiencing increased activity in port due to post COVID-19 pickup in trade. Coupled with reduced staff due to COVID-19 outbreaks has led to a 2-to-3-day delay with vessels docking in multiple ports.
• CHINA
  Port of Ningbo-Zhoushan underwent a partial lockdown due to COVID-19 outbreaks. A similar situation happened earlier this year, where the Port of Yantian went into lockdown. This created a ripple effect throughout the industry and pushed the container congestion to new heights.
  Ports in APAC region continue to be severely congested with continued high yard density issues and weather disruptions (3 typhoons and 6 tropical storms) since July. Port operational challenges are not expected to improve in the immediate future.
• SOUTH AFRICA
  Durban port in South Africa is still feeling the aftershocks of both the civil unrest in week 28 and cyber-attack in week 30.
  Civil unrest broke out across South Africa following the jailing of former president Jacob Zuma. Nationwide protests and violence following the arrest forced shipping lines to shut depots, warehouses, and cold stores in and around Durban and Johannesburg as well as the closure of terminals and delays to ship operations. While the situation has now stabilised, the port of Durban suffered major disruption leading to a port congestion issue. It is advised to monitor the situation closely due to further civil unrest a high possibility.
  Transnet, a state-owned South African rail, port, and pipeline company, has been forced to halt operations at container terminals in Durban, Ngqura, Port Elizabeth and Cape Town after a cyberattack hit the company in July. There has been minimal activity possible due to the attack resulting in port congestion and up to 6-week delays.
• IRELAND
  Dublin / Cork port delays are due to feeder vessels being delayed in Rotterdam and not departing on time. Once they arrive, offloading of full containers and readiness for collection is taking up to 24 hours to complete. Groupage containers are slower with 48-72 hours before containers are destuffed and cargo available for collection.
• UK
  The acute HGV driver shortage in the UK has extended container dwell times significantly in past weeks causing port congestion. Consequently, the UK’s main container ports are overwhelmed with unclaimed imports and starting to refuse the restitution of empty boxes urgently needed back in Asia. The issue continues to rapidly worsen into Q4.
• USA
  During Q3, LA Port did not take sea freight bookings for 2 weeks to allow port congestion to be reduced or cleared. The situation continues to escalate in Q4 with 87 container ships waiting to unload some 500,000 containers at Los Angeles/Long Beach (as of 22nd October 2021). US President Joe Biden has unveiled a plan to try to ease delays at the ports of Long Beach, California, and Los Angeles by expanding to round-the-clock operations which account for 40% of sea freight entering the United States. In addition, the twin ports of Los Angeles and Long Beach will charge carriers $100 per day for each container lingering past a given timeline starting Nov. 1 with the hope it will ease the intensifying gridlock of cargo ships.

Air Freight

Schedule reliability has fallen from 74% pre-pandemic, to 32% now due to increasing due to lack of capacity and rising demand. Industries that traditionally use sea transport are utilising air to keep supply chains moving and warehouses stocked. The bottlenecks in air freight are less cumbersome than those in ocean but it is not without its issues with capacity and labour shortages being most prevalent. There is an expected positive impact on capacity due to the return of passenger traffic however, this is slow to materialise as it is dependent upon increased passenger numbers to allow for regular flights on routes.

Recovery from the disruptions and delays to air freight shipments through China’s largest cargo airport, Shanghai Pudong International (PVG) remains an issue. Reduced handling and customs capacity, and triggered flight cancellations prompted multiple freight forwarders to divert to other destinations.

As a result, delays have been reported at several airports across China – particularly in Beijing, Shanghai, and Guangzhou – with increased transit times. The growing backlog of air cargo shipments and increasingly limited air cargo capacity is only expected to grow as new quarantine rules have come into effect under China’s zero-tolerance policy towards COVID-19 outbreaks. EU destinations are currently delayed by 2 to 3 days and ROW by 5 to 7 days.

 

Rail

Earlier in Q3, DB Schenker suspended rail service from China due to congestion and long lead times because of a lack of freight equipment being available. Customs clearance to departure took up to 4-6 weeks. While the situation has improved, border congestion due to high market demand may add between 1 and 3 days to Asia Land bridge.

A global demand for containers attributable to Ocean and Air capacity constraints continues to put significant pressure on rail assets across the region. 3PL providers continue to ensure lead-times are minimized and service levels maintained through “triage” prioritisation. However, congestion levels continue to fluctuate on Eurasia service for Rail and Road with 7+ days lead time on main routes.

Good news: Shanghai to Hamburg rail link opens. The maiden voyage of a new Shanghai-Hamburg freight train arrived in Germany (26th October) with more than 40 fully loaded shipping containers. The new rail link takes between 16 and 18 days which is significantly shorter than the average travel time of cargo traveling from China to Germany by ship. This service is in high demand with all inbound trains to Hamburg fully booked until the end of the year. One train per week will leave Shanghai for Hamburg which could increase to three with demand.

 

Lorry Driver Shortage

A shortage of 3,000 – 4,000 lorry drivers have put haulage firms under pressure to keep trucks on the road amid severe disruptions to the global supply chain because of the pandemic. This has exacerbated in western Europe by new post-Brexit border requirements. There is a fear that new upcoming regulations will lead to more drivers leaving the industry.

To ease this supply chain crisis, the UK plans to ease foreign trucker rules. Currently, drivers coming from the European Union can currently only make two pick-ups and drop-offs within seven days of arriving in Britain. Under the new rules, which the UK government hopes to implement before Christmas, they will be able to make unlimited trips during a two-week period.

 

Rising Costs

Rates remain at a record high level but have been reasonably stable throughout October 2021.

• Good to know: High rates do not equate to fast transit times.
• Possible increase of up to 20% in domestic road haulage due to fuel increases and increased labour costs thanks to lack of drivers.
• Sea Freight rates extremely volatile for containers. For example, current costs in China are ranging from $17-20k.
• In general, LCL only moving once container is full.
• Air freight rates are increasing. For example, North America is approximately $10-$16 per kg.

DID YOU KNOW? Every 1 in 3 containers globally is moved empty and costs the shipping industry up to $20 billion per year.

Energy Constraints

Energy constraints in China are having a knock-on effect across supply chains and economic recovery globally. A snapshot of the energy crisis in China:

Drought, extreme heat & increased demand as pandemic lifts has further exacerbated the issue. High temperatures have boosted air-conditioning demand, while low rainfall in Yunnan province means less hydropower supply.
Rationing of power now effecting 21 of 31 provinces (approx. 130 million people) in China.
Businesses and factories have been impacted with some being forced to shut several days a week, constraining their ability to fulfill orders. Several have turned to buying portable generators to keep the lights on. Heavy industries (such as, aluminium, steel, cement, and fertilizer production) have been asked to curb their use between 07:00 – 23:00 and alternate shutdowns every 2-3 days. The situation is causing more changes in shipping plans.

Priority to secure domestic supply to ensure basic livelihoods and to maintain supply chains as winter weather becomes a factor.
Despite being the world’s largest coal producer, China had only 14 days of coal stockpiles on hand in early October to power the country. Sourcing coal imports will be difficult and costly, partly due to a Chinese embargo imposed last year on coal imports from Australia, the world’s largest coal exporter. Beijing imposed the embargo in retaliation after Canberra called for an international investigation into the origins of the coronavirus.

 

Customs

UK customs post Brexit are still an issue due to lack of clarity. The U.K. has postponed the introduction of controls on EU imports twice, and now expects they won’t be fully in place until July 1, 2022, as no decision has yet been made on the levels of checks and paperwork needed.

Recommendation for road cargo from Europe to be routed via Dunkirk direct into Ireland where possible to avoid UK land bridge and customs complications.

Due to the US withdrawal from Afghanistan, a new mandate has been introduced for US airfreight stating that all cross-border cargo moving on freighters must be screened. On 1 July, the mandate from the International Civil Aviation Organisation for 100% screening of all international airfreight carried from member states on freighter aircraft came into effect. The new time-consuming screening of international shipments moving on freighters has resulted in increased delivery times globally.

There is no denying that supply chains must evolve to meet new demands and supply chain challenges, and supply chain managers need to plan to keep everything flowing smoothly. A combination of consumer expectations, more routes to market, international complexities and other factors create significant challenges throughout the supply chain network.

There is a need for increased communications and collaboration across the supply chain. The use of data analytics and digital sharing could bridge the gap between forwarders, systems and provide transparency within the supply chain.