While the media currently spotlights a growing number of vessels at anchor at California ports, supply chain congestion is not limited to just the transpacific trade. Many factors this year have contributed to the major slowing of container velocity through all channels, worldwide—starting with the Ever Given blocking the Suez Canal, and continuing with winter storms; COVID-19 outbreaks in Yantian, Ningbo, Vietnam and Malaysia this summer; and more recently, rolling power outages in parts of China.
The Current Situation
The biggest factor in the United States remains the lack of available labor across all sectors, including dockworkers, railroad workers, truckers, and warehouse handlers. Even with the expiration of unemployment benefits, we still have a 30 percent reduction in truck drivers, who are desperately needed to move product from overloaded warehouses and fill empty shelves at retail facilities. Without adequate truck drivers and warehouse workers, warehouses cannot flow more cargo in or out—therefore the entire process bogs down.
The slowing of velocity at marine terminals creates waves of incoming containers to be stored on top of other containers that were discharged from prior vessels. As vessel operations slow in the ports, more vessels go to anchor to await a berth. This is not only happening at U.S. ports, but is also occurring in Asia and Europe, where an excess of 200 containerships may be at anchor worldwide. Dwell times are hitting record levels of three to four weeks at USWC ports and over a week in some USEC ports. The knock-on effect of these disrupted vessel schedules is generally seen as void or blank sailings on their next rotation.
Flow to inland destinations is also impacted by the inability to move containers out and accept empty containers or loads back to the ports. The longer this goes on, the worse it gets, as each delayed segment negatively impacts the others. When there is no room at the terminals to accept empty containers, like the vessels that carried them, those containers cannot return to regular rotation, and the chassis they hold captive—as they dwell atop of them—reduce the overall chassis pool, until the containers are returned. This contributes greatly to the nationwide shortage of the critical piece of equipment needed to move containers, furthering the slowing of overall velocity in a vicious cycle.
Spot market pricing may have peaked with the recent holiday week in China, which has rates moving a bit lower. Contract rates going into 2022, on the other hand, are anticipated to be up over last year’s rates come May 2022, the start of the next contracting season. Like last year, contract availability will be limited. We are paying more today for lesser quality service and in many cases, severely delayed delivery. It will not change soon.
What Can be Done?
The government solutions of moving to 24/7 operations at the ports is a bit of window dressing, at best. Without the availability of more drivers, the extended operating hours will not result in more flow. Even if we could find enough drivers, there is still inadequate labor availability at the warehouses and retail destinations to handle the cargo. Driver hours of service and near zero demand for warehouse availability on Sundays further limit the initiative.
There are some other proposals being considered. The Ocean Shipping Reform Act (OSRA21 or H.R. 4996) was introduced in August to challenge and shape ocean carrier behavior. The behavior of ocean carriers—the application of demurrage and detention charges, and rejected export cargo—has been brought before the Federal Maritime Commission (FMC) and has even been elevated to Congressmen and Senators. Similarly, the FMC has put forward their own recommendations and is in the process of releasing an Advance Notice of Proposed Rulemaking (ANPRM) with new stipulations regarding carrier behavior. Although this does not directly address the excessive rates being charged, these initiatives should help mitigate the current situation.
Simon Heaney of Drewry reported in a webinar that they have extended their forecast of recovery timeline through the end of 2022. Heaney mentioned that “time and investment is needed to improve infrastructure.” He also confirmed the problems “are not caused by a single sector.” Carriers are not singularly to blame. Nor are the ports. Instead, as we manage projected demand growth of 8.2% this year and 5.2% in 2022, each sector must manage what is in their purview, as best as possible.
Drivers and warehouse workers must be actively recruited—likely through increased wages. Carriers have already invested in container newbuilds that are scheduled for delivery in Spring of 2022. They have also added containerships to the order books for delivery in 2023 and 2024 that should outpace demand. Meanwhile, importers need to be responsible with procurement, using restraint in over-ordering product that artificially increases demand. Digitalization across the supply chain is also needed to create more efficient operations that embrace artificial intelligence and similar initiatives, so staff can be better deployed to handle other necessary tasks.
Time Will Tell
We are working through a broken system that is not getting better on its own. There is no silver bullet to end it, instead, all sectors must do their part. Minimal and measured government involvement is required to help get the labor pool back to work, and possibly provide a framework to control extraneous costs that come from carrier abuse. Heavy recruiting of labor is needed across all sectors. Restraint in ordering reserve or excess quantities should be practiced. And in time, gridlock will reduce, and flow will return to a new normal that we can better operate given improvements in infrastructure and capacity.