All Tide Up: Rethinking the Supply Chain

The Cowen Insight

A COVID-induced supply chain tailspin should change the way shippers think about their logistics network, as early signs begin to play out. A multitude of factors are contributing to elevated pricing across most modes of transportation. We see congestion throughout the supply chain through much of ’22 which will likely benefit some transport names and come at the expense of certain shippers.

Several Factors Caused Volatility

While headlines often use port congestion as an overall barometer for the North American supply chain, numerous pain points throughout the logistics network teed shippers up for significant volatility. This report examines:

  1. How we got here
  2. How it will likely impact companies & consumers
  3. How long it should last
  4. How to best position portfolios for the anticipated impact

Where We Stand

Based on Cowen’s propriety surveys and cross sector work to get a larger grip on the now commonplace term of the supply chain, our base case calls for congestion through 2022 but will likely be more pronounced in the first half of the year. Congestion related costs will likely remain high for shippers with expectations for up to double-digit rate increases for trucking & intermodal moves. While we expect ocean spot rates to abate, we do not see them getting as low as pre-congestion levels.

Recent port data suggests early indications of easing congestion at the West Coast ports due to shipper’s proactive pull-forward of inventory in preparation for a unique peak season. However, rates remain significantly above average levels and may not normalize before the Lunar New Year rush begins in January. Port congestion and higher ocean freight rates is making air freight an acceptable alternative. Demand could continue to outstrip supply in automotive/industrial semiconductors well into 2023.

Cowen’s proprietary surveys and management commentary through third quarter earnings point to early signs of a reformed school of thought surrounding new inventory strategies and onshoring plans.

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