Chris Jones, EVP Industry & Services, Descartes Systems Group. in an exclusive interview with Freightcomms talking about the consumer behavior in the US and present shipping crises.
1. Other than the present statistics on the spike of import volumes for the month of May, what factors do you think are responsible for the global shipping crisis?
The high import volumes are a symptom and not the root cause. Consumer behavior and an overloaded logistics infrastructure are the larger influences. Consumers have not really slowed down their purchasing of durable goods. If you look at the chart below you will see that the February 2020 figure for personal expenditures of durable consumer goods is $1,550 billion. In April 2022, the most recent published numbers from the U.S. Federal Reserve, the figure is $2,179 billion or a 41% increase in a little over two years. If you take into account that the U.S. port infrastructure was already capacity constrained at the end of 2019, it’s easy to understand why there has been so much disruption.
Exclusive Interview: Chris Jones, EVP Industry & Services, Descartes Systems Group. Image: Descartes Systems Group
2. While there is a spike in import volumes, many retailers are now with excess inventory. How do you think the balance of demand and supply will be maintained?
There isn’t a balance of demand and supply and probably won’t be for quite some time. The challenge is that there are multiple factors at play and the situation varies by industry. For example, the chip supply is still heavily constraining automotive manufacturers and other industries. China is bringing on manufacturing capacity as it emerges from the recent COVID lockdowns, which will help address the backlog for many goods and increase exports to the U.S. Logistics assets (e.g., containers) are still not in the right positions to maintain efficient flow of goods. Some retailers are indicating high inventory levels, but not necessarily the right inventory. There are many popular items that still have extremely limited availability such as gaming consoles.
3. How will the supply and demand balance impact volumes in the next quarter? If there’s an excess inventory situation, what do you think the peak season will look like?
There are a number of counter balancing factors that are making peak season shipping volumes hard to read, but we are likely to see a continuation of port supply chain disruptions. High inflation and rising interest rates could depress retailers’ plans to import goods. However, China opening up will drive more imports for items that have been in backlog and there are still items in high demand that will need to come in to support peak season shopping. Whether import volumes in the summer and early fall continue their record pace is up for debate, but they would have to decline considerably to make a difference. Given that the container import volumes are so high, even if they do not continue the record trend or surpass 2021 volumes, there is likely to still be congestion and disruption. We have been tracking container import volumes through the pandemic and, since the U.S. broke 2.4 million containers in April of 2021, port congestion has been a significant problem. May was over 2.6 million containers, a new all-time record.