01 Performance

Logistics gains and disrupted supply chains: will there be any winners?

Global supply chains were heavily impacted in 2021. An adverse union of weather events, route blockages, crew displacements, trade lane imbalances, operational shutdowns and stimulus-induced demand created the perfect storm, for both shippers and procurement professionals alike.

At an international level the misalignment of supply and demand, together with global reallocation of capacity between trade lanes/regions has continued to support inflated freight rates into 2022. Whilst demand is easing slightly, this disruption in material flow has seen many commentators all but abandon earlier predictions of a return to balance, at least in the short term. These factors negatively impact landed costs for purchasers but have simultaneously created a historically positive environment for asset carriers and shipping lines. Drewry has recently upgraded their forecasts for the sector and now estimate that the 2022 full year sector performance is likely to be $USD200 billion EBIT at a margin of around 37%.

Despite record profitability across the sector, service performance continues to drag with recent statistics revealing that c.32% of global vessels arrived on time during December 2021. Combined with equipment (i.e. containers) shortages, port delays, congestion, and high freight rates, it is a difficult time to rely on international transit.

Domestically, we are seeing increased focus on asset utilisation, scalability, technology investment, and automation as firms chase efficiencies to offset the cost increases being experienced offshore. Heightened localisation and/or near shoring initiatives are perceived as logical de-risking strategies leading to informal discussions on sovereign manufacturing. Other mitigants like increased local storage, described by David Martin-Guzman as “just in case” storage, and supplementary considerations are playing out in board rooms and planning departments. But what implications and limitations do these potential approaches have regarding existing trade agreements, access to skilled labour, production input security, training gaps and lack of domestic substitutes?

Will there be any winners to the supply chain obstructions in 2022? Global carriers continue to build war chests and are deploying these into strategic M&A transactions. Major logistics players will continue to be acquired as firms vertically integrate their service offering to move closer to the customer. Favourable tail winds for e-commerce volumes and improved acceptance of home delivery solutions will continue to expand courier volumes, with resultant valuation uplifts in strategic infrastructure assets and industrial real estate. Welcome to the land of supply chain threats (and opportunities).