Outlook 2022: A spotlight on the supply chain

The COVID-19 pandemic revealed the vulnerability of supply chains to disruption as businesses struggled to keep up with consumer demand and depleted stocks amid one of the most unique and challenging periods in global economic history.

But as the global economy enters a period of recoveryⁱ—uneven due mainly to the spread of Omicron and rising inflation—Canadian businesses want to know: When will supply chain bottlenecks start to ease?

There are a number of early indicators that supply chain pressures may already be easing, including:

1. Decreasing container rates: While still high, container spot freight rates have come down in recent months. Rates from Asia to North America’s West Coast have decreased by about 20% from September 2021 levels to around USD$16,000 per 40-ft container. Rates from Asia to North Europe have remained steady at the same price point. While there’s a risk surrounding higher spot rates leading to higher long-term contract rates, businesses are increasingly entering into longer-term multi-year contracts, indicating the need to lock in certainty around freight rates.
2. Relief on input cost pressures: Input cost pressures remain high but began to ease slightly at the beginning of this year, according to business surveys. However, higher energy and raw materials prices risk increasing price pressures further for businesses around the world.
3. Improved supplier delivery times: Although still significantly extended, supplier delivery times are improving slightly in 2022.
4. Decongesting ports: While several main ports remain congested, particularly along the U.S. West Coast, new queuing systems and the risk of additional container handling fees to encourage faster clearance of cargo are helping to ease congestion.

While these indicators are welcome news for businesses impacted by trade disruptions and bottlenecks, the ripple effect of persistent and integrated challenges distributed across global supply chains means we’re not out of the woods yet.
HSBC Trade Economist Shanella Rajanayagam believes it may still be a while before significant and sustainable easing begins.
“It’s more likely that trade disruptions will only start to ease broadly in the second half of 2022,” says Rajanayagam. “And even then it will still take many months for supply chains to normalize, and it could be an uneven recovery for different sectors, particularly as pent-up demand for certain goods affected by input shortages returns at different times.”
There remain four key issues that will continue to lead to short-term supply chain disruption over the coming months, including:

1. Input shortages: Businesses continue to grapple with both labour and inventory shortages, from seafarers and truck drivers to semiconductors and lumberⁱⁱ.
2. Land site challenges: Critical input shortages are compounded by persistent capacity and logistics challenges at arrival ports, where containers remain extremely backed up. At Vancouver’s port, vessels waiting to berth can expect a 28-day delay. At Long Beach, waiting times have been up to 36 days.
3. Delivery delays: Delivery times remain extended for several sectors, particularly technology affected by chip shortages, but also across a range of industrial and consumer goods.
4. Omicron and COVID-19 restrictions in Asia: The spread of the Omicron variant and COVID-19 movement restrictions posed a renewed risk to port and factory operations throughout the region. Automakers had to idle production, and some ports diverted key cargo to other destinations due to lockdowns.

So what strategies can Canadian businesses take to navigate the near future as supply chains re-establish stability?

Businesses can take several shorter-term approaches, from shifting production to alternative facilities and maintaining strong relationships with suppliers, to shifting from a just-in-time (JIC) to a just-in-case (JIC) strategy of stockpiling critical input inventories as a buffer against shortages. By looking at operational changes that can be applied in short-order, many can ease some of the burdens on their supply chains while we wait for a return to “normal.”

Ultimately the key to reducing supply chain pressures will be in reducing demand.  With government-backed fiscal stimulus measures rolling back, demand should begin to stabilize along with the markets. While it will still take some to unwind, we should be reaching a turning point for trade disruptions in the not-to-distant future.

Worried about how supply chain uncertainties could impact your business this year? From Receivables Finance, Trade Finance to Export Financing solutions, HSBC Bank Canada has a number of ways to support you. Contact HSBC Bank Canada to discuss strategies and services that could help.