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FINGERS CROSSED

Why supply chain woes will ease in 2022

Reuters/Hannah McKay
In transit.
By Nicolás Rivero

Tech Reporter based in New York

Published Last updated

In 2021, global supply chains reached their breaking point, spawning shortages, price hikes, and maritime traffic jams that could be seen from space. But in 2022—if all goes well (and that’s a big if)—supply chains will have a chance to slowly recover, and the worst economic impacts will be behind us. Either way, we can be certain that companies will spend the year rethinking the ways they move goods around the globe.

Supply chain woes will (hopefully) ease in 2022

In February, after Christmas and the Lunar New Year have passed, the holiday shopping rush will subside and supply chains around the world will finally have a chance to recover: Trucks and trains will haul away the containers that have spilled from overstuffed ports into surrounding neighborhoods. Dockworkers will unload ships that have been waiting outside ports for weeks. Retailers will restock their shelves, clearing out room in their warehouses to receive all these backlogged goods.

Normally, this post-holiday lull is a moment of calm, when activity at the world’s ports dwindles and everyone gets a chance to catch their breath. That won’t happen in 2022. Logistics companies will strain at full capacity year-round in hopes of clearing the bottlenecks in time to avoid another disastrous holiday season next year. But that’s assuming that another mega-ship won’t block the Suez Canal, and that outbreaks of the omicron variant don’t shutter factories and ports like delta did, and that no other unforeseen disasters strike that will gum up the works of global trade. Every time another calamity happens, it pushes back a return to normal a little farther.

No matter what, expect slow progress. Analysts are predicting that it may take two years for shipping rates to fall back to normal levels. Some early signs that backlogs are easing have proven illusory. And many retailers have locked themselves into long-term shipping contracts at exorbitant rates, which will keep prices up throughout the year.

Freight companies will use their pandemic profits to reinvent themselves

Shipping lines have taken advantage of the chaos to hike prices and rake in record profits. Over the next year, they’ll use those profits to expand into new markets: They’re launching airlines, building fleets of cruise ships, buying port terminals, and breaking into trucking. Maersk, the largest shipping line, is determined to become a global one-stop shop for freight by acquiring companies at every step of the supply chain.

Amazon also made massive profits during the pandemic, and the e-commerce giant is investing its windfall in building out its internal logistics network. Those investments will help Amazon wean itself off of its dependence on third-party freight companies. But analysts also speculate that Amazon could be laying the groundwork to launch its own logistics service to rival couriers like FedEx and DHL as early as next year—and eventually set Amazon up for a showdown with Maersk for control of the global freight market.

Businesses have a chance to rethink their supply chains

As supply chain worries have become more salient for corporate boards and CEOs, businesses are starting to rethink their basic approach to sourcing the raw materials and products they need to operate. The prevailing model of lean, just-in-time supply chains—which seek to minimize costs by delivering the bare minimum volume of goods needed to keep a business running—are starting to fall out of favor. Instead, businesses are starting to consider more resilient “just in case” supply chains, which build in a bit of costly redundancy to give businesses more wiggle room when they face supply disruptions.

Meanwhile, air freight executives expect 2022 to be another banner year. Skyrocketing shipping prices and delays at seaports have prompted many businesses to embrace air freight as a faster alternative to shipping. Passenger airlines, particularly United, have responded by converting passenger planes into air freighters and scheduling cargo-only flights. If demand for air cargo remains high past the holidays, 2022 could be a watershed year, foreshadowing the increasing role that cargo planes will play in moving goods around the global economy in an age of e-commerce and one-day shipping.