[TOP STORY] Another year of supply chain frustrations ahead

‘We could see some kind of stabilisation late in the year, and there are pockets of improvements that we do see from time to time’: Investec for Business logistics and pricing analyst Denys Hobson.

SIMON BROWN: I’m chatting now with Denys Hobson, logistics and pricing analyst at Investec for Business. Denys, I appreciate the early morning. We chatted back in September around logistic supply chains. It was tough. Since then we have had Omicron, which has sort of shut down borders again, shut down ports, etc. Has it hurt global supply chains even further since we last spoke, or are we seeing perhaps some improvement coming through?

DENYS HOBSON: Good morning, Simon. Yeah, I think the latest variant and outbreak has created further disruption to two supply chains, particularly with the labour shortages which have impacted your tracking services, created additional pressures on your terminal facilities, your warehousing, which has just led to further backlogs and congestion within the supply chains.

We’ve seen over December and early January a significant amount of flights being cancelled, which impacted the air-freight capacity. Then we’ve seen severe delays with sailing schedules, vessels not leaving on time due to the congestion within the ports, notably in the US, Los Angeles – that’s probably gotten worse; at any time there could be over a hundred vessels waiting to berth and we’ve seen lead times also increase and be very erratic and unpredictable.

So, to answer your question, it hasn’t really improved in any way.

SIMON BROWN: From what you’re saying, it’s pretty much across the board. It’s getting hit sort of everywhere. It’s not [a case of] maybe it’s just trucking, but air freight’s okay. As you mentioned, a lot of flights were cancelled and a lot of that cargo actually goes in the body of a plane with passengers at the top. That disappears. The sense is that this is broadly across everything, it remains congested. Is there hope for this clearing in the next six to 12 months, or is it a case of we are going to have to wait and see?

DENYS HOBSON: It’s very difficult to predict when we can expect some kind of stability. You just need one major event like we had last year, with either the Suez Canal blockage or the Yantian port being shut down to really go and disrupt things to another level.

There has been the expectation that we could see some kind of stabilisation late in the year, and there are pockets of improvements that we do see from time to time. I’ll give you an example. Last year was a big struggle with getting containers on time. So we’ve seen new container bills coming to the market, which has eased pressures there to degree.

But the biggest issue really is with the current congestion on the sea freight side: you’ve got plus/minus 12% of the global capacity being caught or stuck outside the ports. That has a knock-on effect on demand for air freight, for example.

Now you’ve got the labour shortages, which then create handling delays with air freight and flight cancellations. So everything kind of has a knock-on effect. We need to get past this Chinese New Year period to see what the situation is like post that. I know a lot of shipping lines are also waiting to see what demand looks like post the Chinese New Year.

So for now it’s a wait-and-see.

We have seen rate levels on the Far East to South Africa trade stabilise somewhat, and [we] expect those rate levels to soften slightly, which is good news; but the shipping lines will no doubt try and keep rates elevated. The pressure is on for them to maintain their record profits. So it’s going to be interesting.

SIMON BROWN: I think most had their best profits ever in the history of the business.

A quick last question. Locally Durban Harbour was a problem. We’ve seen some issues with Transnet as well with their rail lines. Are we seeing any improvements in those two?

DENYS HOBSON: Durban still remains a big headache for the industry. Again, labour shortages, a lack of skill at times. And then we’ve seen equipment failure or maintenance that wasn’t done, which has impacted the port productivity – and that has a knock-on effect in terms of delays [in] getting containers out of port; it creates congestion.

And then, again, you have shipping lines, the vessels having to wait longer outside the port before they berth. Sometimes those shipping lines decide to go and call at another port and then come back, which again creates additional lead time and frustrations.

SIMON BROWN: So, short answer, it is going to be another year of supply chains. We’ll keep an eye on that.

Denys Hobson, logistics and pricing analyst at Investec for Business, I appreciate the early morning.

Listen to today’s full MoneywebNOW podcast here.

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