Supply Chains in 2021 and What to Expect in 2022

Supply Chains in 2021 and What to Expect in 2022

The year 2020 presented the world with some incredible challenges, especially in the world of supply chain. Almost two years later, the COVID-19 pandemic and supply chain issues remain a major challenge for the entire globe. Now that 2021 has come to an end, we want to look back on what happened last year and talk about what we expect to see in 2022.

2021 Recap

There is a lot to cover when looking back at supply chain and logistics in 2021 but we want to focus on two major topics that cover many different areas.

Cost Increases

A huge theme of 2021 was the continued increases to all costs across supply chain and logistics. Within transportation, we saw parcel carriers continue to hike up rates, while LTL and Truckload rates also continued to rise. One of the main drivers to the higher rates is that the demand for shipping remains way above the current capacity that exists. Perhaps the most extreme case of this was seen within the ocean container shipping industry. The cost to ship an ocean container at the end of 2021 was 3-7 times more expensive than in 2020, depending on the route. In addition, the congestion seen at the ports is causing dwell times to escalate, resulting in more costs due to the incurred fees.

The transportation industry was not the only area within supply chain and logistics to see cost increases. We also saw 3PL prices and warehouse rates increase dramatically. Many of our clients saw 3PLs increase transactional costs by up to 30%. The cost of leasing and owning a warehouse also increased across the board, especially in areas like southern California. This reflects the demand for warehouses and 3PLs growing faster than the availability.

Throughout the year, labor shortages also became a major headline in all industries, especially in warehousing and manufacturing. To maintain a sufficient workforce, many companies were forced to increase wages, adding even more costs to the supply chain.

Investment in the Supply Chain

Many of the reasons for the cost increases discussed in the previous section were due to demand being greater than the supply. This caused people and companies to take action, as investment in the supply chain and logistics was another main theme that was seen in 2021 and that we expect to see continue going forward.

In years past, reducing supply chain costs was always the main focus for our clients during supply chain network optimization projects. This year, service level and transit time to customers was emphasized more and more, even if it meant higher costs. Two of the world’s largest companies, Walmart and Amazon are a perfect example of this. Walmart has credited some of their 2021 growth to an increased focus on their e-commerce business and omni-channel development. To increase their ability to fulfill orders quickly, Amazon opened nearly 300 facilities in 2020 and the 2021 number is expected to be large as well.

Companies are also looking at supply chain optimization as a more competitive tool, focusing on organizing supply chains globally and across all business units rather than each region/business operating independently. This will require some heavy investments up front in order to improve the business over the long term.

In addition to companies investing in their own supply chains, investment firms also have been investing in transportation and warehousing. This is a direct result of the high demand for transportation and warehousing outweighing the existing capacity. These investments should bring additional capacity to the market in the years to come.

Investments in sustainability also became a major focus in 2021, with numerous companies making pledges towards net zero emissions. Over 200 companies globally have joined The Climate Pledge, to have zero net emissions by 2040.

What to Expect in 2022

We expect many of the trends and challenges from 2021 to continue but ease a bit in 2022.

More Capacity for Freight and Warehousing

We expect to see a lot of new capacity entering the market in transportation and warehousing thanks to the investments seen in the supply chain industry in 2021. This should cause trucking rates and ocean rates to continue to plateau and eventually be reduced but rates are expected to remain elevated in 2022. We expect to see a very similar trend in the warehousing and 3PL market as the additional capacity coming onto the scene should level out the price increases and eventually cause costs to drop slightly. However, like transportation costs, we think prices will continue to be elevated.

Increased Compensation

We anticipate more companies offering better pay and benefits to compensate for the labor shortages and attract a more capable work force.

Continued Investment in the Supply Chain

With the huge demand for carriers, 3PLs and warehouse space, we expect to see continued investment in supply chain. We also expect companies to continue to focus on warehousing and building out their distribution networks to increase their service levels to their customers. Many companies, especially online retailers, saw rapid growth over the past year. This has made warehousing a top priority for a lot of companies as they are quickly outgrowing their current operations. Many companies will not be able to support their growth without optimization, automation, and expansion.

Continued Growth in 3PL Demand

With e-commerce producing so many new companies and altering the business models of existing companies, the need for warehousing space is at an all-time high. For many companies, it makes sense to outsource this to experts rather than try and build a warehouse operation internally, so we expect an even greater desire for 3PLs in 2022.

A Focus on Global Supply Chains

We expect companies to continue using fulfillment and logistics as a competitive tool; companies are going to start looking at all business units and supply chain functions together to leverage any opportunities to integrate, optimize and reduce costs. We also anticipate the growth of nearshoring and more local and diverse sourcing to continue. This become a topic of conversation in 2020 and we started to see this come into action in 2021 but restructuring of this size takes a long time so results will not be seen until we get a bit further down the road.

A Continued Shift Towards Sustainability

We also expect to see a continued focus on sustainability in 2022 and beyond as restructuring supply chains can have a massive impact on a company’s greenhouse gas emissions.

By Anthony Mandraccia at Establish Inc NY Office

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