Sorting Out The Logistics Mess
It’s evident to anyone who depends on logistics—in other words, pretty much everyone—that the supply chain is in a mess.
We now know, according to figures newly released by the Federal Reserve, that the lockdown recession formally ended in April of last year, making it the shortest recession on record. But the logistics impacts extended much longer. Orders and supply chains slowed as buyers hoarded their dollars and switched their purchases during the lockdown. Truck drivers were laid off, including short-haul or drayage drivers, exacerbating what was already a shortage of truck drivers. When the economy began to recover, causing huge imbalances of imports and exports, many of those laid-off drivers had already decided to retire or find other work, worsening the driver shortage.
A worldwide container snarl has been one result. On June 15, the Federal Maritime Commission released the results of its Fact Finding 29 report, initiated at the request of shippers who complain of being unable to export some ag products due to container unavailability, and of being charged fees called detention and demurrage, levied when shippers don’t get their containers to a terminal within a certain time window.
For some containerized products, the fees can accumulate up to 20 times the value of the cargo, or $100 a day. The ocean carriers retort that the fees incentivize efficient usage of their cargo space and fuel and reduce emissions to boot. According to one logistics site, such fees were rare 10 years ago but are much more common today.
The Fact Finding 29 report notes, “[T]here is reason to believe that not all regulated entities may have acted reasonably as required by 46 U.S.C. § 41102(c), including with respect to demurrage and detention in light of the May 2020 guidance. … As rising cargo volumes have increasingly put pressure on port and terminal performance, demurrage and detention charges have tended to increase. Shippers and trucking companies have asserted that those increases often have little or nothing to do with creating effective incentives. They view such non-incentive charges as, in effect, little more than a forced subsidy for continued inefficiency.”
The issues affect all transportation modes. The freight journal Freightwaves recently reported that the Union Pacific railroad suspended shipments of containers from the West Coast to Chicago while it tries to ease congestion.
While some aspects of the mess are clear enough, what’s much less clear is what needs to be done about it. The Fact Finding 29 report has few concrete solutions. The FMC has urged carriers to quickly communicate information to shippers, which they say they are already doing. A bill currently being shaped in Congress would give more powers to the FMC to impose penalties, and an executive order recently issued by President Joe Biden also directs the FMC to use its power to try to address the container snarls. But it remains unclear whether the problems are really the result of lack of competition, as the Biden administration alleges, or trade imbalances that will lessen over time.
Among its findings, the FMC team noted that despite the logistics issues, agricultural exports overall went up from 2019 to 2020. That would surely not have been the case were it not for lower-cost barge transportation available to agricultural bulk shippers.