At the Port of Los Angeles, cargo volume was up 50% in the second half of 2020 compared with the first half of the year, a reflection of the pandemic-driven shift in consumer spending from services to goods. The surge of imports—plus COVID-19 infections and shortages of containers and chassis—has created bottlenecks throughout the entire supply chain, leaving shippers to contend with delays and soaring fees.
So when will the situation improve, and what can be done in the meantime? We’re breaking down the challenges shippers are facing, if/when relief is expected and tips for mitigating the impact.
West Coast port congestion sends ripples throughout the supply chain
The word “unprecedented” has been used a lot over the past year, and it’s now being used to describe congestion at the Ports of L.A. and Long Beach brought by surging imports, labor shortages and the rush to get goods in before Chinese New Year.
Although the country’s busiest import gateway has dealt with gridlocks before, this is the first time since 2004 that “drift zones” have been used to manage traffic into neighboring ports. Cargo ships are bigger now and take longer to unload, and for queued ships, the wait appears to range from several days to nearly two weeks.
At the terminals, operators are stacking containers higher and wider in container yards, delaying the release of containers from the complex to distribution centers and rail ramps. As a result, shippers face mounting detention and demurrage charges as well as higher spot rates and surcharges by rail carriers.
Port congestion, now spreading north to Oakland, has been exacerbated by labor shortages brought by COVID-19. Coronavirus infection rates among Los Angeles/Long Beach dockworkers have been called “catastrophic,” as nearly 700 dockworkers have contracted the virus and hundreds more have taken virus-related leaves.
“It’s impossible for dockworkers to ride in shuttle buses between terminals and work together to load and unload ships without having contact with hundreds of people per shift,” said ILWU Coast Committeeman Frank Ponce De Leon. “The rate of infection is growing quickly.”
Outlook: According to Maritime Executive, analysts foresee “little letup” in bottlenecks and port congestion. Volumes are expected to remain strong as the ecommerce explosion continues, and we may even see another surge during the summer months. Fees and delays are likely to remain as the influx of import containers grows and ports continue to operate with limited labor and split shifts due to COVID-19.
To ease congestion at Los Angeles/Long Beach, the Federal Maritime Commission is recommending that shippers import their freight into Tacoma and Seattle, which means warehouse capacity in the Pacific Northwest is likely to tighten. Visible’s 250,000-square-foot facility in Fife, WA has capacity if you need space for storage/distribution or transload support to get your freight moving inland. Please contact your Visible representative to secure space while it is available.
Shippers “priced out of the market” as costs skyrocket amid container shortage
In addition to congestion and COVID-19 outbreaks, the Port of Los Angeles is dealing with a container shortage, leading to soaring shipping costs and delays of goods purchased from China. In order to get space on containers, shippers are paying historically high rates; in fact, demand has pushed rates from China to the U.S. West Coast beyond $4,000 per container. The container shortage and resulting premiums are forcing retailers to decide whether to push back delivery or pay the premium and absorb these costs or pass them onto customers.
“Carriers in their pricing behavior have prioritized short-term profitability over customer relationships,” said Sea-Intelligence CEO Alan Murphy. “For shippers with low-value commodities, the development is nothing short of a disaster, as they are effectively being priced out of the market.”
Not only are shippers paying record-high rates, but they are also getting “sub-standard” service. In December, 44.6% of vessels arrived on time, down from 76.3% a year earlier and the lowest level in a decade.
The container shortage is not just affecting importers. Shipping lines are rushing containers back to China empty rather than waiting for them to travel inland to reach exporters and return to the coast, creating equipment shortages for U.S. exporters. In October and November, carriers rejected U.S. agricultural export containers worth hundreds of millions of dollars and sent empty containers back to China to be filled with more profitable Chinese exports.
Outlook: Container xChange predicts further volatility in coming weeks “with every element of the transpacific ocean freight supply chain under unprecedented pressure.”
“Shippers have options to pay the priority premium for bookings and equipment, but no guarantees,” said Karen Koide, Visible director and global trade compliance expert. “Our team is closely monitoring the situation at the ports and working with our agents to secure the best bookings available.”
While the container shortage isn’t necessarily new, it has reached critical levels and is driving the need for more flexible shipping options. Demand for less-than-container load (LCL) service is likely to grow as shippers attempt to secure space but wish to avoid exorbitant air freight costs. To explore LCL as an option for your business, contact your Visible representative and we will connect you with our team of ocean freight experts.
Congestion, chassis shortages causing further delays as freight moves inland
When COVID-19 first took hold, rail experienced a rapid decline in volume followed by a significant volume rebound. The surge in intermodal volumes between the Southwest and Midwest is challenging inland operations, and an ongoing chassis shortage is causing delays in cargo getting onto the rail.
Chicago, the largest U.S. interior rail hub, is facing record-breaking container volumes and increased dwell times due to the constrained chassis supply. This disruption has spread to St. Paul, Minnesota, where containers have had to idle in BNSF Railway’s St. Paul terminal until chassis become available.
Intermodal carrier J.B. Hunt Transport Services said costs will rise for intermodal service to support investment in new containers, drivers and other equipment needed to mitigate congestion challenges.
Outlook: Even when congestion eases in Southern California, shippers will see contract rates rise to offset the costs of higher container dwell times. While rail service providers are working together to find capacity and equipment solutions, the industry also faces a drayage shortage that is likely to continue. As noted by the Journal of Commerce, COVID-19 has slowed the training of new drivers, as social distancing and other health restrictions limit the number of trainees in a cab with a trainer.
Barge and feeder services are suspended in South China, tightening truck capacity in the Pearl River Delta
To control the spread of the coronavirus ahead of Chinese New Year, the Chinese government is suspending feeder services in South China lasting through February. This creates further supply chain disruption for shippers, as these feeder vessel services allow for containers to move from the smaller ports to central container terminals where they can be loaded onto larger vessels. While trucking may be an alternative, capacity is limited. A shortage of truck drivers lasting longer than normal is expected due to quarantine rules for those who travel during the holiday.
If you have suppliers located in the Pearl River Delta, please work with them as well as your Visible representatives to find alternative routing and/or transportation methods for cargo.
Air is an option, but space remains tight out of China
Due to port/rail congestion and the global container shortage, some companies are opting to pay for faster shipping options like air cargo. Air freight space remains tight from China, and flights to the U.S. will be in greater demand closer to Chinese New Year. As a result, air freight rates are increasing daily and even by the hour.
Globally, rates are more than double, and they are 2.5 times higher from China to Europe and the U.S. than a year ago. According to World ACD, rates soared 80% in December, from $1.80 per kilogram to $3.27, before tapering off 10% going into January.
Outlook: Experts predict the air cargo market will be back to pre-pandemic levels by the end of March due to the strong demand. The passenger side of the airline industry, on the other hand, is expected to remain “depressed” until vaccinations become more widespread in Q3 and Q4. International travel is likely to return slowly, which means fewer aircraft to assist with long-haul trade. Airline industry officials say they don’t expect a full recovery until 2024.
What can shippers do to mitigate these challenges?
Although supply chain challenges are expected to worsen before they get better, we’ve compiled a list of tips and strategies to help mitigate the impact:
- Get orders in as soon as possible—ideally six weeks in advance of the vessel leaving. Early orders mean greater access to bookings and better rates.
- The difference between long-term contract rates and spot rates is “unprecedented,” but shippers can limit the damage by accurately predicting volumes. According to Flexport, “predicting the volumes you are going to ship has never been as important as it is this year.”
- Diversify your ocean freight suppliers.
- Have emergency stock on hand so you can wait longer between bookings if needed.
- Transload freight to get goods to regional markets more quickly.
- Bring freight into alternate ports. Although there is some congestion in the Ports of Tacoma and Seattle, the situation is less severe than in the Ports of Long Beach and Los Angeles.
- Postpone bookings until after Chinese New Year if possible.
- Keep in mind that air freight is still an option. Book as early as possible and jump on good rates if/when you can get them.
It is also important to have a supply chain partner with a strong global network of agents and carriers for a better chance of securing space and getting your freight moving as soon as possible. As COVID-19 continues its streak of supply chain disruption, having an experienced and agile partner you can count on is a serious competitive advantage. Visible has trusted agents all over the world, strong carrier relationships and fulfillment centers across the country to get product to your customers as efficiently as possible.
Our comprehensive suite of supply chain services includes:
- Ocean/air freight solutions
- Domestic transportation
- In-house customs brokerage
Check out our video to learn more about our solutions and how Visible helps customers overcome supply chain challenges: Tackle Supply Chain Challenges with Visible SCM – YouTube
Visible is here to get your freight moving. For more information about our services, contact our experts at 877.728.5328 or fill out our contact form today.