Is the Global Supply Chain Back to Normal?
Answers differ between shipping lanes as progress is made toward regaining stability.
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By Nicole Wisniewski
Contributor
After three years of pandemic-related disruptions, the global supply chain is starting to even out into a new normal. But what defines that standard is still developing.
Gone are the weeks of backlogs of cargo ships at large ports. Ocean shipping rates have dropped to pre-pandemic levels in some shipping lanes.
But have global supply changes returned to normal?
“Certainly, in terms of getting hold of available capacity, and normal lead times to secure a shipment and process through the docks, I would say it’s definitely business as usual again,” said Keith Holdsworth, Director and Senior Supply Chain Consultant for Perfection Ltd., and Senior Associate at AWP Associates, based in the United Kingdom. “But, that said, it’s hard to really say what was normal.”
And it might not be the growth of global supply capacity that’s really improving as much as the weak demand and oversupply is causing the reduction in freight costs, adds David Li, Marketing Director for SPM Biosciences in Beijing, China.
Today, as shipping delays, port congestion, and limited containers ease up, agrochemical companies learn how to navigate this new world of lower transportation costs, reduced shipping rates, improved reliability, increased competition, and weaker demand.
Years of Ups and Downs
During COVID-19’s first waves in 2020, there was a total shutdown — no manufacturing, no shipments, no demand. A semi-surge through the traditional holiday
peak at the end of 2020 couldn’t “prepare us for what then became a full year of rate increases,” Holdsworth said.
This was due to supply chain disruptions that led to a shortage, resulting in panicked buying in overseas markets and driving a significant increase in pesticide sales, Li said.
“That only really abated once the Chinese New Year spike in February 2022 passed,” Holdsworth said.
Since then, it has been a “total reverse story, with effectively all of those late-2020 and 2021 increases now removed out of the system,” Holdsworth explained.
When it comes to shipping costs, “we’re not back to pre-pandemic rates, but, in all honesty, I think carriers have become better, swifter at trying to manage supply versus demand having experienced the COVID impact — and are now looking to try to retain some of the improved margin they secured as a result of the pandemic,” Holdsworth said.
Normalizing Shipping Rates
While most shipping lanes have followed a similar price pattern, “some of the individual lanes have fared somewhat better than others in holding onto some of the peak
pricing built over the past 18 months,” Holdsworth said.
One example is China to Northern Europe, where the balance of supply and demand has left the current rate still around 170% of the end of October 2020 price.
But China to U.S. lanes have plummeted recently. The current U.S. West Coast rate is 27% of that end of October 2020 level — and is, in fact, the lowest rate since March 2018. The U.S. East Coast is at 49% of the end of October 2020 price — the lowest rates since November 2019.
“On those lanes, therefore, you can see why they consider they have returned to pre-pandemic levels,” Holdsworth said.
China to Brazil and China to South Africa have followed similar patterns. China to Brazil is at 23% of the October 2020 level and is back at the rate from July 2020, “so somewhere between these two other markets in terms of how far back its price compares to,” Holdsworth said.
“Only the Intra-Asia lanes appear to buck the trend, as what were traditionally very low-cost ocean legs really took a step-change around the start of 2021, and have only lost a fraction of those gains through the past year,” he added.
A lot of pricing debate also comes into play around contracted versus spot-rate market dynamics. “In the past, I think carriers sought contracted rates for even annual terms, but through the pandemic challenges, almost the entire market went to spot rates as space availability and price weren’t even guaranteed for the highest contracted rates,” Holdsworth said. “Long-term contracts are definitely back on the table now, but there do appear to be premium options available in exchange for reliable capacity.”
Overall, “it is definitely getting closer” to normal, Holdsworth said. Some individual lanes “are moving back faster than others due to the specific balance of supply and demand on those lanes, and the economic environment in the receiving market,” he explained. “Some of that economic uncertainty is what makes it difficult to truly predict the outcome, but my opinion is that I don’t imagine rates dropping back very much further providing the carriers don’t go into an all-out volume-chasing strategy.”
Other Supply Chain Impacts and Lessons Learned
Another result of supply chain reshaping after COVID-19 is increased competition in regional agribusiness markets, Li said.
Multinational crop protection companies are selecting long-term strategic partners in China to produce market-strategic patent molecules using proprietary processes before patents expire. They are also “becoming more open to outsourcing cooperation in the production of formulations,” said David Li, Marketing Director for SPM Biosciences
“Third-party licensing of proprietary compounds for mix formulations has led to increased competition in the local market,” he added. “The result of this increased competition is likely to favor the top two crop protection companies, while it is likely to be the third-ranked competitors that will suffer the most.”
The pandemic also brought improved technology, meaning tracking shipment movements has become easier. This will continue to be a useful tool going forward. “Track shipments so goods don’t inadvertently remain stuck at a point in the chain,” Holdsworth said. “And always track the real lead time you experience on given lanes. The distribution curves of shipment lead time and the real time from dispatch to receipt are very important to track to ensure proper inventory planning on raw materials.”
Finally, two major shippers — Maersk and MSC — recently announced they are ending their “2M alliance,” where they shared vessels and berthing slots to improve efficiency and utilization, once it expires in 2025. The companies want to follow separate, unique strategies — Maersk wants to provide full end-to-end supply chain capability and MSC has invested heavily in additional ocean capacity. “No one is quite sure whether other carriers may follow suit and exit some of the other alliances that exist,” Holdsworth said, “and equally no one is sure what it will ultimately mean for capacity and rates.”
Return of Demand
The difficulty now is predicting when demand may return. “At the moment, carriers appear to be willing to negotiate to reduce the [shipping] price in favor of keeping revenues relatively stable,” Holdsworth said. But “so many consumer markets appear to be sitting on high inventories, and with the inflation and recession backdrop, it’s not clear how long some of those will take to clear through.”
Take China as an example. According to the China Custom data, even though the China Entry and Exit Shipments increased around 25% from 2021, the absolute value did not return to the level before the outbreak of COVID-19 in January 2020. “As a world manufacturing center,” Li said, “China’s export and import could show us the demand is far below pre-COVID-19.”
The current challenge then is dealing with stagflation — persistent high inflation combined with slow economic growth and stagnant demand — that, as Li explained, “could be more complicated to manage.” •
Photos: From top to bottom
Enanuchit – stock.adobe.com
Keith Holdsworth
Aerial-drone – stock.adobe.com
Namning – stock.adobe.com
Wetzkaz – stock.adobe.com
Photo of David Li courtesy of SPM BIOSCIENCES (BEIJING) INC.
Photo of Keith Holdsworth courtesy of Perfection Limited