There is a natural tendency for people to take a recent experience and project it out into the future. But things don’t generally work that way. Similar to all shortages, the current supply chain crisis will come to an end. The challenge, from a forecasting standpoint, is deciding when the inflection will come and how sharp the turn will be. If previous experience is any guide, it could be sooner and sharper than we think.

In June of 2018, at the height of the electronic logging device (ELD) trucking capacity shortage, BNSF Railway conducted a survey of the attendees at their annual Supply Chain Summit. These senior-level supply chain and intermodal professionals were asked a simple question: In 12 months, will truck capacity be tighter, the same, or looser than today? Of the respondents, 57 percent thought that truck capacity would end up being “tighter” in June of 2019 than in June 2018. Another 39 percent thought it would be “about the same.” Only 4 percent picked the third choice, “looser.” Now, with 20/20 hindsight, we know what happened in 2019. That lonely 4 percent were correct. Capacity was much looser, even abundant, a year after the survey was conducted.

It seems counterintuitive to be talking about inflection when the ship queue in Southern California has just set another new record. But there are signs of a turn. A generalized supply chain crisis may be morphing into a more localized West Coast, or even Los Angeles-Long Beach, problem.

One of the more sensitive and timely indicators is the Drayage Demand Index (DDI) produced jointly by Gross Transportation Consulting and Drayage.com. This is a pressure index that monitors the number of clicks generated by users seeking dray capacity. The more clicks, the higher the index. A level of 100 is “normal” and anything above 200 is “tight.” Currently, the DDI is in nosebleed territory, with a reading of 503 in the first week of November. But this is down from 600 two weeks earlier.

More significant are the varying trends by metro market. The pressure in the LA-LB market has been increasing steadily since early May and most recently stood at an astronomical level of 1,164. The DDI for Savannah had been even higher than that at one point, reaching a pinnacle of 1,262 back in mid-August. But it has retreated sharply since and most recently stood at a level of 543. This is still very high, but the trend is downward. In general, the pressure in East Coast and interior dray markets is slowly easing, while West Coast markets remain extremely tight.

The Gordian knot in LA-LB won’t get untied until these ports get a break in the inbound volume. This can come from lower overall import flows or diversion to other ports. There is ample evidence accumulating that diversion is occurring in IPI flows. The share of import TEU that are moving out of the ports intact on rail has dropped significantly. More empties appear to be flowing in than loads flowing out. This has created its own set of problems. But transloading’s share of loaded TEU being received has increased. This is an attempt by importers to retain flexibility and speed to market. But the import herd is once again finding that what makes sense individually doesn’t work collectively. They are all trying to crowd through a relatively small Southern California keyhole.

Forecasts hampered by significant unknowns

There are significant unknowns. Low levels of retail inventory are being reported, but what will these numbers look like when all the freight currently bottled up on the water has been delivered? Further, how much of the freight currently arriving has been shipped earlier than normal in an attempt to compensate for anticipated delays? Here again, an attempt to deal with the problem may have ended up aggravating it.

One problem is that importers need to make their bets on port routings early. A decision to route via Southern California looked considerably better a couple of months ago when East Coast ports looked like they were going down the same problematic congestion path as the West Coast. But it hasn’t worked out that way, at least not yet. It’s devilishly hard to know what the situation is going to look like in a few months when the situation is so volatile.

Much depends on events that are intrinsically unforecastable. Will the virus continue to ebb, or will another variant create another wave of infections? Assuming the former, will consumers resume more normal behavior regarding purchases of services versus material goods? In short, will the cargo surge begin to ebb, and if so, when?

What does seem likely is that when the fever breaks, things will change in a hurry. Tremendous amounts of capacity will be unlocked simply by getting things back to normal. Assets and people will suddenly become much more productive. This capacity increase could well collide with cooler freight demand as all the goods currently delayed in the pipeline finally make it to the stores, perhaps too late to make the selling season.

The die is already cast for 2021. But 2022 is still a wide-open question. The turn may happen in Q1, or perhaps the situation is so bad that relief won’t be felt until sometime in Q2. But I don’t think it will stretch beyond that. History doesn’t necessarily repeat. But in deciding whether “this time it’s different” or “past is prologue,” my money is on the latter.