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3 HSBC charts show just how bad supply chain issues are right now

·5 min read

Supply chain constraints are affecting economies across the world, with trucking and shipping lines besieged by delays. A new note from HSBC illustrates just how bad the situation has become.

Exporters and importers are "currently in the throes of the peak container shipping season," the bank stated in its September 30 note. And as demand vastly outstrips supply, there's a major backup that's causing widespread effects. 

For instance, the volume of goods traded between Asia to North America in the first seven months this year was nearly 1.3 times that of the same period pre-pandemic. Meanwhile, coronavirus restrictions have led to increased congestion.

"As we look across the landscape, whether it be surface transportation here in North America or... on a global basis when we look at air and ocean, we continue to see challenges," Robert Biesterfeld, CEO of C. H. Robinson, a freight broker, told Yahoo Finance Live (video above). "We continue to see very, very strong demand in the market being met by a very constrained capacity environment."

As the first chart below indicates, the most congested ports globally are the ports of Los Angeles and Long Beach. HSBC notes that at the time of writing, "there were 66 container ships waiting offshore to unload cargo and a further 30 at berth according to Marine Exchange of Southern California data."

Waiting time for vessels to berth has gone up to over 10 days — last year, it was less than 2.

HSBC note from September 30.
HSBC note from September 30.

The cost of shipping has correspondingly risen.

"If you start with the ocean, unfortunately, service reliability on the water has never really been lower than it is today... we're seeing service reliability in the range of 35%, in terms of on-time on the water," Biesterfeld explained. "Whereas at this time last year, that was closer to 80%. And once that product gets to port ... whether it be in Long Beach or on the East Coast ports, unfortunately, the product is having to wait before it can get unloaded."

HSBC note from September 30.
HSBC note from September 30.

Trucking woes

Sea routes aren't the only channels experiencing a backup — trucking lines are also seeing major slowdowns, made worse due to labor shortages in parts of the world, such as the United Kingdom.

The third chart below shows how tight trucking capacity has become in the U.S. in recent months.

"In the US, active truck utilisation is around 100%, while the UK is facing its own issues around the availability of lorry drivers due to a combination of Brexit, COVID-19 and the industry’s ageing workforce," HSBC noted.

Biesterfeld said that the truck shortage in the U.S. was also a labor issue. "We're seeing less truck drivers today than we had pre-pandemic. We're down some 25,000 drivers," Biesterfeld noted, adding that "there are estimates that say we're going to need to add over a million truck drivers over the course of the next decade, just to meet the needs of the existing demand."

HSBC note from September 30.
HSBC note from September 30.

Inventories hit by supply delays

Though businesses have been lamenting supply chain difficulties for a while now, experts expect the delays to drag on into December.

"Recall, on the latest round of earnings conference calls, almost all companies in our coverage cited supply chain disruptions as a significant headwind that is likely to last through the remainder of the year," Morgan Stanley analysts stated in a September 29 note. 

"And during our store checks last week we observed suboptimal inventory levels at a number of banners including Abercrombie & Fitch, Anthropologie, lululemon, Old Navy, Torrid, Under Armour women’s apparel (department stores), Urban Outfitters, and Victoria’s Secret," they added. 

The MS analysts cautioned that "retail traffic improvement could be limited in the upcoming weeks given our expectation that in-stock levels could deteriorate further from here." 

Economic indicators for production also hint at more pain: In the latest ISM manufacturing survey, the average lead time for materials used in the production process rose to 91 days in August. That 91-day wait is the highest in the series dating back to 1987, Oxford Economics noted. In other words, factories are having to wait a lot longer before they get the materials they need.

Companies have reacted to the supply chain hits with one big move — price increases. Even the iconic Dollar Tree has decided to charge higher prices due to external pressures.

A US flag flies near containers stacked high on a cargo ship at the Port of Los  Angeles on September 28, 2021 in Los Angeles, California. - A record number of cargo ships are stuck floating and waiting off the southern California coast amid a supply chain crisis which could mean fewer gifts and toys for Christmas this year as a combination of growing volumes of cargo, Covid-19 related saftey measures and a labor shortage slow the handling and processing of cargo from each ship. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A US flag flies near containers stacked high on a cargo ship stuck waiting as a supply chain crisis continues at the Port of Los Angeles on September 28, 2021 in Los Angeles, California. (Photo by FREDERIC J. BROWN/AFP via Getty Images)

Ironing out these supply chain bottlenecks isn't going to be a quick fix. 

"There just simply isn't a silver bullet," Biesterfeld of C. H. Robinson said. "There's been a lot of talk about the ports and how do we lessen the delays at the ports. Should we have 24-hour gates at the ports? But it's simply not that easy."

The constraints on the supply chain extend way beyond that, Biesterfeld added, from the availability of chassis to trucks to rail containers. 

"We've got labor constraints at every node of the supply chain," Biesterfeld stressed. "So really, to me, this comes down to labor. ... There's a tremendous labor shortage at all points of the supply chain. So until we can solve for labor and the continued demand associated with replenishing the inventory cycle, I think we're in this situation for a while."

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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