By Brendan Murray (Bloomberg) Few observers have had a better perch to watch the pandemic slowly clog — and now unleash — one of the greatest arteries of world commerce than Captain J. Kipling “Kip” Louttit.

Two years ago this week, as fully laden container ships gathered off the coast of Southern California, Louttit’s team of Vessel Traffic Managers for the Ports of Los Angeles and Long Beach began to keep daily records on a spreadsheet that now measures 736 rows and 13 columns. Their mission: to organize a queuing system to ensure that ships as long as the Empire State Building navigate San Pedro Bay in a safe and orderly manner.

The bottleneck started with five ships on October 15, 2020, then exceeded 40 in February 2021 as Americans purchased goods for their Covid containment. The line fell to nine in June 2021, then topped 60 this time last year before peaking at 109 in January. But like many supply chain pressure benchmarks of late, this one is easing. Only eight ships were on the arrival manifest at the end of last week.

Even Louttit’s staff feel relieved from the pressure.

“Our workforce is now managing reasonable levels and stress levels are down,” said Louttit, a former Coast Guard officer who is the executive director of the Marine Exchange of Southern California & Vessel Traffic Service Los Angeles. and Long Beach. “We’re back in the right place.”

In supply chain circles battered by two years of chaos, the word “normal” creeps into the outlook for 2023. According to the latest Logistics Managers Index, “September future forecasts suggest normalization and a back to business as usual over the next year.”

This does not mean that everything will soon run smoothly in the global economy. Businesses continue to struggle with parts and labor shortages. Fragile supply chains are heading into another holiday season vulnerable to shocks ranging from freak weather and dockworker strikes to Covid lockdowns in China and Russia’s war in Ukraine.

‘Always Bad’

“International transportation capacity has improved significantly,” said Jason Miller, an associate professor of supply chain management at Michigan State University, who cautions against becoming too optimistic about the speed of recovery. For U.S. companies trying to secure raw materials and components, “things are still bad and haven’t materially improved,” he said.

The following charts show progress in ending the standoff, starting with analysts from Copenhagen-based Sea-Intelligence. They noted in a report last week that about half of the maritime congestion had been resolved and, based on one measure, “a full return to normality should occur in March 2023”. Another Sea-Intelligence model that compares the current situation to the rumblings experienced in 2015 confirmed that “normal” is within reach in early 2023, barring more unexpected disruptions:

Evidence of the shipping slowdown can also be seen in weekly traffic figures at the busiest US port of Los Angeles, where 17 container ships were docked on Thursday, down from around 30 at the start of 2022. The slowdown has been gradual and nearby intermodal depots are still operating. due to arrears, but weekly import volumes have recently fallen below year-ago levels. Part of this can be attributed to storing inventory earlier than expected this summer, as well as re-routing goods through East Coast ports to avoid a possible strike:

Port congestion is also on the mend in Germany, according to the latest reading of the Kiel Trade Indicator. The reason has as much to do with demand as it does with improvements on the supply side. “September trade was characterized by weak demand for goods from China via Europe and North America,” according to Vincent Stamer, head of trade gauge Kiel. But there is still work to be done to free up cargo that is bogged down around the world on waiting ships, with some of the figures from Kiel showing that many freighters are still stuck:

Here’s another disruption indicator, from Swiss freight forwarder Kuehne+Nagel International AG, showing a similar trend: Ocean freight congestion is below its peak in early 2022, but delays are still high in times of economic volatility:

Bloomberg Economics was among several groups of private sector forecasters to release a supply stress monitor, and our global heatmap shows conditions cooling from pressures that were flashing red earlier this year. Metrics such as lead times and producer prices have peaked, and most are trending yellow and green:

Similarly, an Oxford Economics indicator of US supply tensions peaked in February and slowly but steadily improved through September. It helps that consumers in developed economies are tightening their purse strings. “Supply chain conditions are expected to remain on a more encouraging trajectory in the home stretch of 2022 and into 2023. One of the benefits of weaker demand is that it will ease stress in supply chains. ‘supply,’ said Oren Klachkin, Oxford’s chief US economist.

Even the guardians of the global financial system are watching, with the Federal Reserve Bank of New York launching its own global supply chain strain index in January. The measure showed September marked the fifth consecutive month of decline, a broad-based improvement led by a drop in container ship charter rates. The index’s overall trajectory this year suggests “that global supply chain pressures are starting to return to historic levels”:

By some measures, the unraveling of transportation issues is happening as quickly as the system knotted itself last year. That’s not good news for businesses that have thrived on chaos. Shipping container spot rates have fallen about 60% this year as carriers grapple with the opposite problem they faced a year ago: excess capacity. Like airlines canceling half-booked flights, carriers are reducing the number of individual trips in a practice called “blank navigating” – or cutting full service loops altogether – to match their space available on demand, according to Drewry’s figures:

For shipowners, the drop in tariffs is mitigating the spur of the record prices of the past two years. But it also ends the most profitable period in the history of container shipping. Moody’s Investors Service last week cut its outlook for the industry to negative to stable as supply and demand imbalances return to the detriment of carriers in a weaker global economy.

The launch of new ships in 2023 and 2024 could accelerate the reversal of the industry’s fortunes. The order book-to-fleet ratio of 28% is the highest since 2010, according to Moody’s, and this increase in capacity will exceed forecasts for global trade volumes. “While service reliability issues and high freight rates will likely persist well into 2023 as the transportation ecosystem continues to recover, we believe carrier revenues have now peaked as a supply increased number of vessels responds to declining demand,” the Moody’s report said. Here’s what that mismatch looks like this year and next:

by Brendan Murray in London © 2022 Bloomberg LP