“The global container distribution issue, regional reefer imbalances and a global shortage in the food supply chain of truck drivers and skilled labor will remain the major disruption threats in the near future,” the Dutch banking and financial services company puts forth in a recent report.
Citing events like the Suez Canal blockage, the Los Angeles-Long Beach port backlog, COVID-19-related port closures and power shortages in China, “Out of Stock: A Report on F&A Logistics” highlights the fragility of global supply chains and the “delicate line they have been treading since the inception of the pandemic.”
Strong retail demand and congested supply chains
Consumer spending continued to fuel demand in 2021, the report states, with monthly U.S. retail sales, including food service, growing 16.3 percent in October year-on-year and European retail following a similar path. Inflation and the demand for products are up, but the sales-to-inventory ratio is at its lowest since 2012.
“This strong global retail demand, together with imbalances in container distribution, will keep exerting pressure on ocean shipping,” says Xinnan Li, F&A supply chains analyst at Rabobank.
“Though there’s limited room for more rate growth, we still expect high rates and low reliability to challenge the market over the next six to 12 months.”
Specifically, these growing costs and refrigerated container (reefer) backlogs could upset fruit, vegetable and nut exports from the Americas during the upcoming season.
Showdown between shippers and carriers
Throughout 2020 and 2021, shipping costs reached record highs, with routes from China to the US west coast and to Europe increasing more than tenfold, a surge compounded by congestion and warehousing surcharges.
Shippers pushed back to force prices down, refusing to book containers at high rates, but the analysts say that price adjustments have done little to offset the total rate spike.
“Overall, we expect higher total transport costs to become the new normal for shippers, at least until the second half of 2022,” says Matteo Iagatti, F&A supply chains senior analyst at Rabobank.
Overcoming the ‘hiccups’
Rabobank warns that global food and agribusiness supply chains will have to look out for the reefer imbalances but notes the sustained growing volumes of global trade despite repeated blows.
Leading drivers, including continuously increasing pork exports from Europe to China and US corn exports, have contributed to the resilience.
“The bottom line is that the ocean freight sector managed to transport high volumes of food products despite widespread congestion and supply chain hiccups,” the report notes.
“The drivers of global food trade are still at play, regardless of disruptions.”
Rabobank recommendations: “supply chain transparency, early planning, and, more specifically, securing containers with contracts to avoid significant price fluctuations.”