Is It The Calm Before The Storm For The US West Coast?
While imports reaching the WC were diverted due to bottlenecks and the labor contract negotiation, the region’s ports continue to process historically high imports amidst heavy intermodal challenges.
A hearty welcome to the 54th edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
Over the first half of 2022, sanity gradually returned across the US West Coast as its ports quietly cleared up the long queues of vessels anchored off their shore over most of 2021. This was thanks in part to COVID-19 raging across China in regions like Shenzhen and Shanghai, sending them into lockdown and paralyzing much of their manufaing and logistics activity. This temporary reprieve in the number of vessels calling the US ports helped the ports of LA and LB siphon off their queued vessels, as they registered their best months historically in terms of processed import TEUs.
The still-continuing labor contract negotiation between the International Longshoremen and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) has also helped divert containerized imports away from the West Coast, as shippers wary of labor unrest moved their freight via the US East Coast and Gulf Coast ports.
However, California might be in for some fresh chaos, as its luck seems to be running out. For one, the longer it takes to resolve the ILWU contract renegotiation, the more the chances of a labor strike to pan out. While both parties involved have promised to act responsibly and not exacerbate the stress supply chains are already under, there is no crystal ball to predict if things could go south. Labor strikes across the US West Coast would hit at the heart of the US supply chain, with every day of stoppage expected to extend import delays by a week.
Labor strikes across the US West Coast would hit at the heart of the US supply chain, with every day of stoppage expected to extend import delays by a week.
The US container import volume registered its best June ever, even as China continued to hold firm as its industries returned to normalcy after a series of strict lockdowns in H1 ‘22. Year-over-year Chinese imports continue to climb, up 2.7% from June ‘21. That said, these container imports have already cleared customs and do not reflect the future of retail demand.
So are imports expected to fall in the next few months? The answer would be no. New order volumes from shippers and manufacturers continue to stay above volumes of delivered shipments, reflecting a market showing no signs of slowing down. An illustration of the value of new orders versus unfilled orders from Jason Miller, associate professor of logistics at Michigan State University, shows that new unfilled orders have consistently remained above delivered shipments since mid-2021.
As demand remains elevated and is expected to remain so over the second half of ‘22, US ports can anticipate consistently high containerized imports reaching their shore over the following months.
While the US West Coast has managed to keep the vessel count on queue low, it might be in for some rough weather. The spotlight is on the ports of LA and LB, where import dwell times have remained higher than last year all through H1 ‘22, even when trucking capacity has significantly loosened over this year.
The spotlight is on the ports of LA and LB, where import dwell times have remained higher than last year all through H1 ‘22, even when trucking capacity has significantly loosened over this year.
Import dwell times have climbed even when there is noticeable loosening in trucking capacity, thanks to intermodal rail movement that has seen severe bottlenecks this year. Inland terminals like Joliet in Chicago have trains backed up for miles, with railroad operators BNSF and Union Pacific metering the containers they haul from the ports of LA and LB to ensure they contain the chaos unraveling in the US midwest.
But this has meant that import containers dwell longer at the marine terminals, reducing the space available for unloading fresh containers off berthed vessels. PMA data shows that container dwell times stood at 13.3 days on average in June, which is the highest on record. Last year, excessive accumulation of empty containers at the port premises was one strong reason for delays, as operators struggled to find space to offload containers.
The number of vessels queuing off the coast of US ports has increased 36% month-over-month in June to 125 — a signal of imports continuing to remain strong. The US East Coast ports now take a larger share of the vessel traffic and, ergo, witness longer ship queues and higher delays. The port of Savannah saw 40 vessels in the queue, compared to the port of LA, which recorded roughly 24 vessels at anchor. Shippers might soon find themselves in a spot where redirecting from the US West Coast might not make sense if delays exacerbate across the East Coast.
Shippers might soon find themselves in a spot where redirecting from the US West Coast might not make sense if delays exacerbate across the East Coast.
On the trucking side of things, California is now rocked by the AB5 regulation that stops owner-operators who worked as independent contractors from plying their trade as usual. This has led to trucker protests, with the port of Oakland (the third largest on the US West Coast) being blockaded by truck drivers protesting against AB5.
With warehouses overflowing (sometimes with bloated retail inventory), drop-and-hook of trailers has been a lot more common today than pre-pandemic. Truckers desperate to stay on time and maximize their hours of service offload chassis with containers atop them, leading to a shortage of chassis at the port, which is threatening to get worse.
Overwhelmed intermodal lanes and desperate shippers looking to front-load inventories in time for the shopping season will see more volumes move via the truckload market. In essence, all the visible headwinds to movement within the state of California point to difficult times over the second half of this year for supply chains stemming from the US West Coast.
The Weekly Roundup
Shippers and truckers operating in the North-Eastern US are in crisis mode. Both have made a plea to the Federal Maritime Commission (FMC) to halt container lines from charging detention and demurrage fees for the ports of New York and New Jersey, as the backlog of containers is hindering the ability to retrieve import loads. Given the lack of empty container storage, import loads are left to sit longer, racking up hefty per-diem fees.
Tanker fleets are in decline, which could add to the current global energy shortage over the next three years. It was speculated that the tanker market had hit bottom and was due for a rebound; tanker owners are still being cautious when considering new orders. The shrinking fleet size could mean a cap in crude production as the current fleet will be unable to keep up with current demand.
Despite port congestion on the US East Coast, spot rates for Asia to Europe and Asia to the US are on the decline. With a soft peak season, freight rates from China fell on 19 out of the 21 routes covered by the Ningbo Containerized Freight Index (NCFI.) Many carriers are left with little option but to offer discounts as spot rates continue to tumble.
If 2021 was a feast for owner-operators, 2022 is quickly turning into a famine. High inflation, dropping demand, and an aggressive rate hike from the Federal Reserve could have many owner-operators tightening their belts as the year progresses. However, it’s not a total nightmare scenario quite yet. Given the boom that was the ‘21 trucking season, a slight market contraction would still leave room for many operators to run profitable businesses.
…said who?
“We’ve more than doubled the demand that we had in prepandemic on the import side. That is driving some congestion on the berthing side.”
- Griff Lynch, executive director of the Georgia Ports Authority, commenting on a rapid increase vessel queuing outside the port of Savannah due to freight redirected from the US West Coast.
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