As we move from 2021 to 2022 how will Supply Chains look? – Howard Knott

There is no part of the Physical Supply Chain either on a global basis or a local one that has not been buffeted by serious problems during 2021 and there is little visibility that 2022 will be a calmer year in which the life of Supply Chain Managers will return to anything like normal. For this document, we will focus on some developments and issues that would affect Irish located exporting companies and users of material from abroad.

While we will discuss these developments under discrete headings there is a very considerable degree of, what you might call, cross-contamination between the factors, thus complicating matters. To move on to the main headings:

Brexit. The major impact here has been the significant reduction in volumes of goods being shipped on Irish Sea ferry services between Republic of Ireland (ROI) Ports and those in Britain. IMDO reports that these traffics now account for 67% of ferry traffic, compared to 84% in 2019. There is clear evidence of distortion of trading patterns with significantly larger volumes being shipped on GB/NI routes. Uncertainty about when and how the full schedule of Border Controls required to be implemented under the Brexit agreements will actually happen makes it difficult to forecast how these distortions will diminish or increase in 2022. It does appear likely that none of the Ferry Companies operated on the ROI routes, Irish Ferries, Stena, Seatruck or P&O will make major schedule changes in 2022. It is also unclear as to whether the “Landbridge,” mainly driver-accompanied, services will be displaced by operations on direct routes. The purchase by Irish Ferries owner, ICG, of two additional ferries to serve their recently opened Dover/Calais route would appear to be a bet on the continued success of the “Landbridge.”

IMDO reports that Ro-Ro traffic on the direct Continental ferry routes from Ireland is 52% up on the figure for the equivalent period in 2019. Volumes shipped on Lo-Lo services direct to the Continent have also surged, increasing by over 10% in the same period. CLdN has significantly increased capacity on routes from Dublin to Rotterdam, Zeebrugge and Santander and is planning further increases in 2022. CLdN also increased their Cork-Zeebrugge service to twice weekly while Grimaldi Line will increase frequency on their Cork/Zeebrugge and Antwerp service to four times weekly in 2022. Brittany Ferries also plan to re-introduce a twice weekly Cork/Roscoff ferry in 2022.

The trend in trailer operators moving from driver-accompanied to unaccompanied accelerated during 2021 with about three-quarters of trailers being unaccompanied on Irish services at end 2021. This trend is likely to continue and will put increasing pressure on the Shipping Lines attempting to secure quick turnarounds at Ports to meet schedules, and on Port Operators due to greater volumes of trailer standing space required when the driver is not with the trailer. The change does, however, release what would have been single-occupancy cabins on board ferries which have been very much a feature of COVID time operation, to allow tourist passenger traffic to re-commence in 2022.

Pre-Brexit many Hauliers operated their Landbridge services based on shipping a full load from Irish exporter to a customer on the continent, then took a load from there to Britain before picking up a further load to Ireland. Running into and out of Britain exposes the haulier to significant risks of delays and extra costs. The bulking together of freight at Irish and continental distribution centres would enable direct shipment and there are now significant numbers of such facilities under construction at or close to port locations such as Dunkirk, Rosslare, and Dublin.

Where companies are shipping product to or from Britain the key message must be that shipment size and value should be maximized to spread the administrative costs. Where possible, the terms of shipment should be set to give the Irish company control of the transaction.

COVID-19. While the effects of Brexit have been most severe on European trade, Covid has impacted globally. At the heart of the problem has been the switch in consumer spending from being a mix of purchase of goods and services to a pattern in which goods purchases have increased significantly with much of the increased volume being sourced in Asia. Add to this the impact of Covid lockdowns and other control measures in the producer companies and the pattern of distribution becomes significantly disrupted. Clear evidence of this is the fact that shipping lines are reporting a reduction in vessel productivity as sailings are cancelled and waiting times at ports increase. The problems appear to be at their most dramatic in the USA with the inability of the ports to cope with the traffic volumes and of the inland distribution service, trucks, trains, and warehouses to cope with the volumes while the companies concerned face their own Covid lockdown challenges.

All this pressure has led to major bidding up of freight prices by traders, not only on the Seafreight but also the inland costs.

Increased freight prices have led to large profit gains by the Shipping Lines. The extra cash is being put into purchase of new equipment and in developing their commercial offering towards being door-to-door carriers, in some cases to the exclusion of the Freight Forwarders. Not only are Lines purchasing Container terminals but, as in the cases of CMA-CGM and Maersk Line are building significant airfreight businesses. The progress towards the full digitalisation of shipping processes has accelerated in the pursuit of greater efficiency.

Will 2022 see a return to “normality” on the Deep-Sea Shipping scene? The answer must be “No.” While spot rates for single shipments will decline from their present highs the contract rates under which over 60% of such freight is carried will continue to increase. Even if Covid does recede, for that to free up the situation, Covid will have to clear at all points on the Supply Chain, something that looks increasingly unlikely to happen. Also, the growth in volume of goods being shipped will continue to put shipping capacity under pressure, a situation that will not be resolved until 2023 when significant numbers of newbuildings are delivered.

One “safety valve” that is becoming increasingly useful for companies trading with Asia, has been the development of network of rail services which are achieving high levels of efficiency in delivering door-to-door at reasonable cost.

Airfreight. Over the past number of years, the bulk of airfreight has been carried in the lower holds of passenger aircraft. The remainder has shipped with Integrators including DHL, UPS, Fedex etc. or specialist cargo airlines including Cargolux.

This has worked well in a world in which the passenger aircraft being flown were large wide-bodies that could carry -say- 300 passengers and twenty-five tonnes of cargo. As narrowbody aircraft capable of flying long distances have come into service, airlines have increasingly offered more frequent services using smaller aircraft, some of which would have little or no cargo capacity.

It is unlikely that even when Covid is beaten, and passenger traffic returns to pre-pandemic levels, that airfreight will also return to normal. There has, within the last year, been a major surge in orders placed by airlines for Boeing 737/800 and Airbus A321 passenger aircraft conversions to full cargo aircraft and these will commence to be delivered in 2022.

Climate Action. The elephant in the room is the imperative to minimize the carbon footprint of supply chains. In this respect all freight transport modes are making significant progress. Examples include the introduction by Brittany Ferries and by CLdN of LNG powered ferries in early 2022, the use by Samskip of Biofuel to power their Containership, “Samskip Express”, the introduction by a number of Hauliers and by Parcel carriers of CNG and Battery powered vehicles – though that transition is being frustrated to an extent by computer chip and other component shortages –  and a switch back to use of rail, not only for long distance freight but also for more local shunts. In this connection the proposed rail freight development project that has been brought to Government by Irish Rail has the potential to decarbonize much domestic haulage over the coming years.

Clearly, the major player in the emission reduction activity has to be the trader. If supply chains were shortened by near-sourcing of goods and if all containers were loaded to their maximum capacity and if loading and discharging points were operating on a 24/7 basis enabling full nighttime working, then large carbon reductions would be achieved.

Driver Shortages. This has become a major issue in all developed and other significant trading economies. It is unlikely that the development of Autonomous vehicles will significantly impact on the problem which has been increased by the effects of COVID and of Brexit along with the development of home delivery. A switch to unaccompanied Trailers on ferries would help to ease the shortage as would the use of rail for trunking services. Effective use of IT that would eliminate waiting times at ports, distribution centres etc. would also be helpful as would more targeted and effective driver and supply chain training.

Overall, 2022 promises to be a difficult Supply Chain year.



This opinion piece was written by logistics consultant, Howard Knott