Supply chain outlook in 2022 dims by higher shipping prices and dwell times

• A combination of factors such as higher shipping prices, regulation and Russia’s invasion of Ukraine will disrupt supply chains in 2022
• Various measures and indicators of supply chain disruption reached an all-time high during late 2021-early 2022 period
• To minimise impact of disruptions, corporations are expanding their share of local sourcing as well as diversifying supplier base globally. 

Higher shipping costs and container turnaround times exacerbated by port delays will weigh heavily on supply chain outlook in 2022. Besides these, factory automation, environmental, and social and governance (ESG) considerations and Russia’s invasion of Ukraine, which led to a number of companies halting operations as their indirect relationships with Tier 2 or Tier 3 suppliers particularly across energy and agriculture sectors get disrupted, are likely to contribute to the crisis as well.

Bolstered by demand for online commerce and disrupted by port closures and congestions, shipping costs and container turnaround times have been escalating the supply chain crisis well into 2022. According to United Nations Conference on Trade and Development (UNCTAD)’s latest Review of Maritime Transport report, supply chain crisis may hike global consumer price levels by an additional 1.5 percentage points. For instance, inflation in January 2022 rose to 7.5% in the United States (US) and 5.5% in the United Kingdom (UK), a 40- and 30- year high, respectively.

Harpex index, which tracks container shipping rate changes in the charter market for eight classes of all-container ships, was 4,407 points as of 25 Feb 2022 , up significantly from an average of 400 during June 2020. Prices on major east-west trade routes jumped by 80% year on year, estimated the Drewry’s composite World Container Index.

According to UNCTAD, a container now spends 20% more time in the system for a typical door-to-door trade transaction. Container xChange, a logistics technology company, reported that severe congestion in many destination ports caused container dwell times at depots to reach near-record levels in 2021. The average median time that containers spent in depots in 2021 was highest in the US and UK, also the countries where consumer prices inflated significantly towards the end of 2021. Average dwell times in the US and UK were 50 and 51 days, respectively. New York Fed’s Global Supply Chain Pressure Index (GSCPI), a metric that captures a comprehensive summary of potential disruptions affecting global supply chains, was still high at 4.24 in Dec 2021. Normalised to zero, the GSCPI’s positive values indicate the number of standard deviations that the index is above this average value.

To ensure a steady supply of raw materials, companies have had to acquire intermediate input facilities to minimise supply chain disruptions. They are looking for more direct oversight over parts of the supply chain to ensure resiliency. Hampered by semiconductor shortages, the automaker industry has taken a more direct role in sourcing chips and battery suppliers. From a long-term perspective, companies are also increasing their share of local sourcing while at the same time diversifying their global supplier base.

ESG considerations will continue to occupy the mind of corporates as regulatory pressure grows to ensure sustainability in their supply chains. That said, financing solutions conditioned on ESG performance criteria will gain traction as banks help companies improve sustainability of their supply chains. New supply chain regimes will be required to balance prices, stability and sustainability.