Now that the holidays are approaching, we are hearing a steady drumbeat of stories about the shipping jam on the West Coast, inflation and prices increases, along with demands for political leaders to “do something” or denunciations of them for not doing something.
What tools do politicians have to work with, though? It’s a global problem. According to a just-released report by the United Nations Conference on Trade and Development, global maritime trade contracted by 3.8 percent in 2020, reflecting the initial COVID shock, but rebounded later in the year and is projected to increase by 4.3 percent in 2021. The medium-term outlook for maritime trade remains positive but subject to “mounting risks and uncertainties,” said UNCTAD.
The White House announced an agreement to get the port of Los Angeles to work 24/7. But no agreement by itself can increase the supply of truck drivers or dock workers. As of November 16, the port director of Los Angeles reported that the port has only the “capability” of 24/7 operations, according to The Guardian. He said special fees designed to penalize containers staying in the yards for more than nine days appear to be slowly working. The fees are escalating, with a $100 charge for the first day after the nine-day window, $200 for the second, and so on. Since the nine-day fees came into effect, the port of Los Angeles reported a drop of 29 percent in cargo sitting nine days or longer.
A primary cause of the logistics crisis is the persistence and resurgence of COVID-19. COVID-19 reduced the labor pool in transportation, while providing relief payments that restored consumer confidence and increased demand for goods. When the COVID outbreak began, it caused a slowdown of container movements. That exacerbated an already existing container imbalance. Too many empties were stuck in Europe, and China couldn’t get enough when it reopened its economy, resulting in huge increases in fees for containers within China.
Renewed flare-ups of the Delta variant in China have resulted in new regional lockdowns of ports and factories, which cause cascading bottlenecks and slow the movements of goods. The online freight publication Optimoroute reports that waiting times for vessels to berth at Yantian port in the Chinese port of Shenzhen have jumped from 0.5 days to 16 days. According to Bloomberg (October 25), container contract rates between Asia and North America were hovering around $2,500 to $3,000 per TEU, or 25 percent to 40 percent higher than a year ago. Bloomberg is predicting that shipping rates will stay high through 2022 and even into 2023.
Ports are now saying the build-up of empties is one of their biggest problems. The Port of Los Angeles says it has 65,000 empties waiting to move. At its most recent meeting, the Federal Maritime Commission announced that Commissioner Rebecca F. Dye will head six supply chain innovation teams to identify and implement improvements to the process and timing of return and delivery of containers to marine terminals. The teams, which will include executives from each ocean carrier operating in a shipping alliance and from the marine terminal operators that serve them, will focus on improving conditions at the Ports of Los Angeles and Long Beach, New York and New Jersey. The first meetings of the teams is on December 1.
If the teams are interested in diversifying the transport system and reducing bottlenecks, it could be an opportunity for Gulf ports to benefit. The inland waterways have long-term capacity for more cargo that other modes don’t. For the entire system to be resilient, investing in the Gulf makes sense and allows us to better take advantage of the natural advantages of our nation’s waterways.