Port congestion & supply disruption: What are the reasons behind it and how is the sector adapting?

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Port Congestion & Supply Chain Disruption: What are the Reasons Behind It and How is the Sector Adapting?

By Mateo Wiegold, Content Producer, TOC Worldwide

For more than two years, we have witnessed unprecedented disruption across the supply chain. While the most apparent reason for this would be the pandemic that brought world economies to a hiatus, the explanation is more complex.

Lockdowns worldwide from the pandemic have contributed to a significnt growth of E-Commerce, increasing consumption rates exponentially. However, with major production facilities concentrated in South East Asia, and this region - and specially China- has been experiencing continuous closures in an attempt to contain new Covid-19 outbreaks, shippers have not been able to replenish inventories, making to stakeholders across the supply chain being unable to meet demand. According to the Wall Street Journal, in early 2022 inventories were at their lowest levels in 10 years, despite retailers making a big effort to build up stocks. Moreover, with ongoing conflicts and tensions around the world and the threat of Covid-19 still not completely gone, the loading and unloading of cargo has been further slowed down, leading to congestion and additional disruption in the supply chain.

Shipping lines have been adjusting and changing their routes to reduce port calls while using larger vessels, with more cargo capacity. Although this strategy seems beneficial for shippers, ports are faced with the need to race through their operations in order to stay competitive and thus, attractive enough to be included in these somewhat ‘express trade routes’. The result has led up to terminal operators unable to meet deadlines, and containers being stationed at the yard; port congestion becomes constant and freight rates go high, risking inflation across the supply chain. Even despite the extra efforts to increment the capacity in the Asia-North Europe route, seasonal bottlenecks, climate change factors and blockade episodes have worsened this situation: According to RBC Capital Markets, 77% of ports were experiencing congestion heading into the holiday season in Q4 of 2021, and with the Chinese New Year shortly after, the disruption in the supply chain was far from over – can we assume that the same will happen in Q4 of 2022?

Eva Yan Liu, North China Team Leader at Maersk-owned company, Twill, said that we are also seeing a change in the approach to supply chain management, from a just-in-time model to just-in-case. In her views, customers should now plan and book early, bearing in mind a 10-to-20-day delay in their order, as well as diversifying their sources. In October 2021, Peter Levesque, President at Ports America stressed the need for the supply chain to become resilient and highlighted the diversification of sources as one of the key actions to follow. This should present an opportunity to other countries in the region, particularly Vietnam, which has recently approved an investment of VND3.4 trillion (US$147 million) for building infrastructure at the

Lien Chieu port in Da Nang. This will increase Vietnam’s exports and make the country a viable alternative to established manufacturers like India or China.

Further to its intensive infrastructure investment, China has also been setting its trade strategy, both in the continent and into the Indo-Pacific: Not only did trade between China and ASEAN countries grow 48% in the first six months of 2021, but the Asian giant has also been seeking to expand its trade arrangements in the Indo-Pacific by seeking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Looking to compete with China, Vietnam - as well as other Asian countries - is currently displaying a potential to become a manufacturing leader. However, the modernisation and sustainable development of their port and logistics infrastructure is vital for such end.

Finally, when looking at the broader international landscape, recent conflicts such as the war between Russia & Ukraine – and its economic implications that we have witnessed in recent months –, or the escalation of tensions in August between China and Taiwan due to Nancy Pelosi’s visit to the island, pose a greater threat to global maritime trade that we would have imagined. One wonders whether regionalisation of supply chains could become an alternative to the globalisation of the world in which we live in.

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