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Bullwhip effect of the supply chain appears

FreightWaves, a freight intelligence and data analysis website, said the supply chain was experiencing the bullwhip effect of the COVID-19 and had built up large inventories. A slowdown in consumer spending due to inflation and a potential recession will have a huge impact on freight demand and prolong inventory draw downs.

The "bullwhip effect" is a supply chain term that refers to a temporary surge in retail demand amplified by upstream manufacturers and suppliers who rapidly ramp up production far beyond what consumers can support. Eventually, retailers found themselves with more inventory than they could sell, and the initial shortage of merchandise eventually turned into a surplus.

The following chart shows the bullwhip effect of a supply chain:




The graph shows the imported cargo index based on the number of bills of lading (blue) and the corresponding number of containers in TEUs (green). The two indices show how the ratio of containers to shipments has evolved during the pandemic.


Before the emergence of the COVID-19, the container ratio of each shipment was quite stable, and the two indices moved in tandem. Starting in 2020, the container-to-shipment ratio has exploded as large retailers add more containers to their scheduled shipments.This continues into the fourth quarter of 2021, when large retailers return to their previous ratios, presumably they think they have enough inventory on hand to meet demand. At that point, if consumer demand remains stable, the bullwhip effect fades away as retailers burn through more inventory over time.


But on February 24, 2022, the world changed, with the Russian-Ukrainian conflict, energy and food prices rising, triggering high inflation. As inflation continued to accelerate into the spring, consumers scaled back spending. The retailer found itself with higher inventory levels than previously forecast, and accounted for this in its earnings report.


The weakness in the container market will have a major impact on trucking in July as container traffic at North American ports slows. There's also a fight for warehouse space, with existing inventory not selling at expected prices, forcing businesses to find warehouses to store newly arrived inventory. Shippers have slowed moving containers out of port, resulting in longer container dwell times.


Container spot freight rates continued to decline. Weekly container spot freight rates from China to the U.S. West Coast have fallen 41 percent from $15,764 on April 15 to $9,195 on June 17, according to Baltic Sea Freight Index data. FreightWaves does not expect ocean container rates to surge, but to continue to decline.



Shenzhen Xunlaitong specializes in shipping export from Shenzhen to Australia & New Zealand, Germany, Netherlands and more business