McKinsey urges constrained shippers to 'get creative'

McKinsey report into global shipping congestion & inflation urges businesses to refashion supply chains and find creative ways around port congestion

Container freight rates will remain high throughout 2022 because of ongoing low capacity, warns McKinsey, who also offers shippers advice on how to navigate the disruption to emerge stronger.

Global supply chains have seen unprecedented disruption, and container freight rates are at record highs. Shippers continue to face acute shortages of vessel space, container boxes, warehouse space, intermodal capacity, and labour. 

Shippers who have managed to secure access to the constrained capacity are experiencing delays that, in the past year, have doubled globally.

COVID-19 caused substantial fluctuations in containerized goods demand that upset the global containerized logistics supply. Restrictions and shutdowns imposed by most countries early in the pandemic decreased container trade and demand. Demand recovered in Q3 2020 across the globe, particularly in North America that saw import volumes jump an average of approximately 20 percent throughout 2021 when compared to 2019. By comparison, global import volumes have grown around 3 percent when compared to 2019 

McKinsey says it is “almost impossible” to predict when supply chains will normalise, and with this in mind it has developed four possible rate-outcome scenarios, using established drivers of container demand and capacity that create the market’s dynamics.

These include: 

  • Container demand, which is driven by end consumer spending and the desire of businsess to continue stocking inventory.
  • Container capacity, which is dependent on logistics and equipment availability, ocean capacity and the availability of equipment and labour. 

McKinsey shipping recovery scenarios

McKinsey the fashions two shipping market scenarios - one in which there is a rapid recovery to 2019 levels, and another in which recovery is far slower.

In the rapid recovery scenario, McKinsey projects logistics capacity having already begun in Q1 2022, with full recovery possible by Q3 2022. 

In reality, it says, for this to happen, demand must ease, to allow logistics operators to clear container inventories, and there can be no further external disruptions, suhc as major lockdowns or labour challenges).

In the slower recovery scenario, it projects a containerised logistics capacity recovery by Q1 2024. 

McKinsey says that regardless of which scenario occurs, shippers can take immediate steps to improve supply-chain resilience right now.

Seek creative new ways to move goods - McKinsey

Its first piece of advice is for shippers to avoid high spot-prices being demanded by forwarders and ocean carriers by deferring or cancelling shipments, especially for lower-value goods. 

It also says there are opportunities to be creative with supply routes, and points to the fact that some shippers have found Canadian ports less congested than those in Southern California. These ports still provide rail services into the US Midwest.

Other shippers, it says, are using all-water services to East Coast ports, where congestion is less severe. As another alternative, some shippers have shifted away from inland point intermodal container movements, towards transloads in the immediate port vicinity.

The report adds: “Some larger shippers have made the move to chartering their own vessels. Shippers looking to charter their own vessels need to find other ship types which, while not designed specifically for container carriage, can carry between 500 and 1,000 containers.” 

Shift supply chains or rethink product design

In further advice, McKinsey says shippers can, in the medium-term, should look to cultivate alternative suppliers. It says successful strategies might include near-shoring options, or using suppliers in India and South America that reduce exposure to the main Transpacific trade lane.

The report continues: “Manufacturers can also rethink product design, particularly to limit highly customisable components that are complex to source. 

“Assessing products and redesigning packaging is often a quick win and can help to improve efficiency in container space utilisation.

“Shippers can also re-evaluate their overall supply-chain design and strategy. The past 12 months have reminded shippers that relying on just-in-time supply from container shipping can be risky. 

“Companies may need to increase inventories and safety buffers, both at departure and at arrival ports. This adds costs to the supply chain, which may lead to broader redesigns in product sourcing and manufacturing.”

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