The calendar is changing, and for parcel shippers that may be the only thing that does.
E-commerce volumes will continue to rise, and with it demand for parcel fulfillment and delivery services. Carriers will again control the pricing narrative. Capacity will expand, but with volumes growing at a faster clip, the higher productivity levels that accompany infrastructure enhancements will not translate into price reductions for shippers.
Enterprise shippers with big volumes again won’t have many options. Regional delivery carriers are at or near maximum capacity and may be reluctant to onboard new business for fear of compromising their service reliability. Amazon.com Inc. could move the needle by launching a delivery service aimed at businesses not using its retail or fulfillment services. However, Amazon has a lot on its plate just meeting the logistics demands of its existing customers.
The U.S. Postal Service will bring a stronger parcel-delivery presence to the table in 2022. The question is whether big shippers have enough confidence in the Postal Service to rely on it heavily outside of the holiday peak.
Maybe the biggest story of the new year will be whether U.S. ground-delivery unit, can regain its mojo. The unit had a difficult calendar 2021 as staffing shortages led to higher costs, delivery disruptions and shrinking operating margins. The ship will be righted during the first half of calendar 2022 as staffing levels increase. A lot of folks are holding the company to that pledge.
COVID will remain a central variable for ocean shipping in 2022. The longer the pandemic lasts, the longer ocean supply chains will be disrupted and the longer freight rates will stay exceptionally high. The near-term risk for U.S. importers is more about goods availability than cost: If China sticks to its “zero COVID” policy and omicron spreads, Chinese exports are in danger.
Other key issues to watch: how the U.S. changes its regulation of ocean carriers and what unintended consequences emerge; how the retail inventory-to-sales ratio evolves; how geopolitical tensions play out with Russia, China and Iran; and what happens with international regulation of shipping emissions.
Will new emissions rules actually have any teeth? If so, it could push freight rates even higher.
The growth trajectory for air cargo is likely to continue in 2022. Demand growth may dip from 9% in 2021 (compared to 2019), but it will be a seller’s market again.
The global economy is rapidly growing, inventory levels are still relatively low and international capacity for passenger airlines will not fully recover, especially with the omicron variant holding back flight schedules. Demand should be very strong leading up to Chinese New Year with a modest decline before soaring again for the fall peak season.
Freight forwarders will continue to control more capacity by entering more charter arrangements with carriers. There is a permanent threat to cargo capacity developing as airlines operate fewer frequencies with single-aisle planes. It is one reason, along with the trade growth and the surge in e-commerce, that demand for converted and new freighters will continue to boom in 2022.
For the rails, the Surface Transportation Board, which is the federal regulatory body governing rail-related economic regulations, will be looking at a number of hot-button issues in 2022. Some of these issues are about whether big railroad companies should merge and what that merged company would look like for shippers, competing railroads, employees and the local communities served. Other issues have been brought forth by shippers asking the board to define service or data parameters.
The STB is a five-member board. Democrats now represent three members of the board, and so it will be interesting to see if and/or how this change will influence or affect the board’s actions in 2022.
In 2020, supply chain innovation brought new ways to get goods without having to risk our families’ health and safety. As life became more normal in 2021, consumers ran with those innovations, which brought better visibility into where goods come from and even enabled drones to deliver goods to doorsteps.
In 2022, new technology — including livestream shopping experiences, influencer-driven marketplaces and deeper investment in local microfulfillment centers — will completely change the way consumers interact with retailers.
If 2021 has taught the United States-Mexico trade community anything, it’s to expect the unexpected. Global semiconductor shortages hampered the U.S.-Mexico automotive supply chain, causing delays and work stoppages in auto factories on both sides of the border all year long. Some predict Mexico’s automotive industry won’t return to pre-pandemic production levels until the end of 2023.
As the global economy continues to recover from COVID-19, more companies continue to look to move their operations from Asia to nearer shores such as Mexico for manufacturing and distribution. Global investments in Mexico’s manufacturing sector will likely continue through 2022, with more companies nearshoring operations south of the border.
Another key development in cross-border trade is the Mexican government’s new regulations for shippers, carriers and third-party logistics providers known as the carta porte. The regulations from the Mexican Tax Authority are aimed at reducing cargo theft across the country. It was set to go into effect Saturday but was recently extended to March 31. Some have criticized the new requirements, saying it will add unnecessary paperwork and more costs to cross-border shipments.
The Canadian freight market — inextricably linked to $700 billion in annual cross-border trade with the U.S. — is poised for a year marked by higher pricing. As the CEO of Alberta-based trucking giant Mullen Group, told analysts in October, “Prices must rise.”
Despite tight capacity and strong volumes, particularly in consumer products, base freight rates in 2021 have moved up only marginally, according to Nulogx’s Canadian General Freight Index. So what’s going to move pricing?
Everything is getting more expensive, including labor. Meanwhile, the federal government has phased out major pandemic support programs, including a wage subsidy. The COVID-19 vaccine mandate coming in January likely will take drivers out of cross-border operations — by some projections more than 20%.
While some industry insiders think the real number will be significantly lower, the existing capacity constraints mean that even a small reduction will put upward pressure on rates.
Another driver: Canada’s ELD mandate. Once enforcement begins — currently slated for June — busy domestic lanes including Toronto-Montreal likely will get more expensive as exceeding hours of service rules becomes more difficult.
It will be exciting to see how supply chain players advance sustainability trends in 2022. The COP26 climate conference in November spurred governments and companies to take action against climate change. Which companies will lead the way? Which sustainable fuels will gain market share in each mode of transport in 2022?
Aviation, maritime, rail and trucking each have different mixes of low- and zero-carbon fuels emerging. Environmental groups will continue to stress the importance of using life cycle analyses from well to wheel to evaluate the sustainability and emissions of alternative fuels such as green hydrogen, ammonia, renewable diesel, battery-electric, renewable natural gas and methanol.
So far this season, above normal snowfall has slammed areas of the West, especially in the Sierra Nevada. However, based on the mid-December outlook from the Climate Prediction Center, precipitation is likely to return to normal levels for the January through March time period.
During the same time period, waves of supply chain delays will be possible in the Northwest and Midwest, where above normal precipitation is likely. The Midwest could be quite wet and warm at times during the spring and summer while the Northwest dries out.
Temperatures could remain largely above normal in parts of the West and Southwest through summer, leading to another potentially devastating wildfire year. Areas of the South and East may also experience many periods of unseasonable warmth, while most of the cold weather is confined to portions of the West and Northwest.
CRIMES and COURTS
It’s hard to predict what will happen on the crime and courts beat in 2022, but expect more trucking company failures, including drayage carriers, if the supply chain crisis continues.
The ports and terminal operators must find ways to improve efficiency and allow drayage companies to pull customers’ containers and return the empties. Drayage truckers claim their financial situations are becoming dire and it will get worse in 2022 if port congestion isn’t cleared out during the Lunar New Year in February.