The Year of Capacity

The Year of Capacity

All signs indicate that 2022 will be the year of capacity—not just for air, ocean, ground, and final-mile parcel, but also in terms of labor and the customer experience, SEKO executives stressed in a media call discussing Chinese New Year’s impact on the supply chain.

Delays are simply routine now, and have steadily increased on routes from China to the U.S. West Coast since October 2021, the logistics company says. Meanwhile, consumers continue to purchase at a healthy clip.

Many of the delays in China are the result of its zero-tolerance COVID policy imposed by port authorities at key ports. “A lot of the impact has been on the land side, with aggressive testing regimens and requirements for truckers,” says Akhil Nair, vice president of global carrier management for SEKO. “In some cases, this reduces the available trucking capacity up to 50%.”

In the United States, the most critical determinant of growth will be whether consumer demand tapers in the face of supply-side inflation, or if the supply side recovers before that happens. “It’s unlikely the latter will happen at least for the first six to nine months of the year,” says James Gagne, president and chief executive officer at SEKO. “The current combination of high demand, constrained supply, and accelerating prices is simply not a sustainable configuration.”

The ongoing labor shortage across sectors will remain a key factor impacting recovery. The pandemic was a catalyst for truck drivers’ early retirement, especially on the long haul, Gagne says. As for nearshoring, many companies will not completely part with China in the short term. Even as Mexico ramps up, for example, there’s still a need for components to support that manufacturing, he adds.

Marketplaces such as Amazon continue to bring distribution activity in house by building their own fleets, and the rise in digital transformation to streamline operations and improve the customer experience has never been more apparent. The proliferation of global cross-border parcel creates a massive need for a more tech-enabled consumer experience and predictive data, which fills the gap between the airport gateway and the consumer’s doorstep. “We’re coming into the future of automation,” Gagne says.

Meanwhile, some undercurrents are quietly creating churn. Winter storms are increasing trucking prices, e-commerce demand has created a shift from over-the-road to local transport, and there’s less receiving capacity at distribution centers. “If you visualize an iceberg, there are many things below the waterline that aren’t top of mind that affect price and capacity,” says Rick Lee, chief operations officer.

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