The Peak Shipping Season Of ‘22 Is As Dramatic As It Was Last Year
While freight prices have continued tipping down, shippers are still in a fix to ensure inventories reach them in time for the holiday season
A hearty welcome to the 57th 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.
The peak retail season is here, and for shippers, there’s a sense of deja vu — considering their ordered inventories might not arrive in time for the holiday season for the second consecutive year. While the consequences are eerily similar, the logistics bottlenecks that led to this dilemma differ.
Last year this time, capacity was incredibly tight — both on land and at sea — spiking freight rates and delaying order fulfillment as shippers fought for limited capacity. The US West Coast was clogged with roughly 100 vessels at anchor in the San Pedro Bay, as terminals struggled to offload ships at berth due to a lack of space to place containers at terminal yards.
This time around, demand has largely plateaued, and so have freight rates. While maritime spot rates had fallen sharply over the last few months, contract tender prices have recently shown signs of cooling.
The US West Coast has cleared up its long vessel queues, partly achieved with shippers redirecting their cargo — eastward to the Gulf and East Coast ports or up north to Canadian ports. Expectedly, this inflated vessel queues outside ports like Savannah, Charleston, New York, and Vancouver.
The US West Coast has cleared up its long vessel queues, partly achieved with shippers redirecting their cargo — eastward to the Gulf and East Coast ports or up north to Canadian ports.
And then comes the possibility of labor strikes. For shippers to transition out of the US West Coast needed a strong reason, and the ILWU gave them one. The International Longshoremen and Warehouse Union (ILWU), which represents the interests of over 22,000 port workers across the West Coast ports, has been in a series of talks with the Pacific Maritime Association (PMA) for over two months, discussing a pay increase to reflect the industry’s good fortune and factor in rising inflation.
This discussion has not yielded convincing results, with concerns of a resulting port labor strike during peak shipping season pushing anxious shippers to redirect their freight out of the region. Over the last few weeks, this situation compounded with concerns of a railroad labor strike materializing, which has been averted with a last-minute deal brokered by the Biden government. Nonetheless, railroad operators have cut down their services, straining intermodal movement that is already severely backed up.
But shipper woes start much before their freight lands on US soil. As manufacturing activity across China was picking up after its spate of COVID-19 lockdowns, the country witnessed an energy crisis brought about by a severe drop in hydropower production due to widespread drought.
This led to a fall in production, with Chinese PMI indicators showing a contraction in manufacturing for the first time this month since the breakout COVID-19 wave in ‘20. The Golden Week being around the corner will not help either, as industries would stay shut for a week in the middle of the peak shipping season.
Chinese PMI indicators showing a contraction in manufacturing for the first time this month since the breakout COVID-19 wave in ‘20.
“We can still expect China to shut down regions that see a rise in COVID cases, thanks to the country’s zero-COVID norms. With everything going on in there, plus the things we see in the US, it could be tough for shippers and retailers to get things in time for the holiday season,” said Darin Miller, National Marine Manager at Sedgwick.
On the flip side, with less freight coming from China, there can be some breathing space for the US East and Gulf Coast ports. Repositioning empties has been another problem this year. Container lines were incentivized last year to move empties out of the US ports and to the Chinese mainland ports, as eastward trans-Pacific movement was multiple times more lucrative.
The incentive is a lot less this year, with maritime freight rates slipping. That aside, ‘22 saw a distinct uptick in container manufacturing that left Asia with enough container supply for their export needs. This has resulted in a surge of empties across the US East Coast, as container vessels look to quickly leave for Asia after unloading containers. This is largely an attempt by carriers to salvage their schedule reliability figures that tanked last year and is slowly rising in the last few months.
‘22 saw a distinct uptick in container manufacturing that left Asia with enough container supply for their export needs.
The empties predicament has meant the time vessels spend at berth has been progressively increasing. This can be seen in the data from project44, where the US East Coast, Gulf Coast, and Canada recorded 11.2%, 16.1%, and 26.9% increases, respectively, year-over-year.
Increasing berthing times and container dwell times would mean shippers receive their goods a few weeks late. “That could make a big difference,” contended Miller. “We’re fast approaching Halloween, and there could be things that could come in a few weeks late, missing the sales window or getting their inventories at the very tail end of it. There’s definitely a chance for overstocking issues to continue this year as well.”
Legislature can’t help much either. While Biden signed the Ocean Shipping Reform Act in June to prompt transparency and prohibit ocean carriers from predatory practices, the impact is yet to be seen on ground zero. “We even saw regulators extending hours in some of the port facilities, but there are so many layers to this onion that it didn’t work quite well due to other downstream bottlenecks. I don’t know how long it will take or if we will ever see pre-COVID normalcy in logistics,” said Miller.
The Weekly Roundup
Tensions remain high regarding the impending rail strike. The Biden administration is confident they’ve brokered a deal between unions and the rail companies, but not all unions are on board. Union members have agreed to delay strike actions until September 29th if an agreement isn’t reached.
Cargo theft incidents on Labor Day have been on the rise. This year there were 17 reported theft incidents, maintaining a fairly consistent upward trend since the beginning of the pandemic. Cargo theft prevention network, CargoNet, says the extended holiday weekend makes it an appealing time to would-be cargo thieves.
Import volumes hitting the West Coast ports are finally beginning to drop. The Port of Los Angeles has reported a 16.8% drop in imports, year-over-year, and down a similar percentage from reported volumes through the month of July. Inflation, softening demand, and an earlier-than-usual peak season are all contributing factors to the decline.
The Port of Long Beach had its first opportunity to refuel a liquified natural gas (LNG) powered ship recently. Pasha Hawaii’s MV George III is the first LNG-powered ship to call on the port and is a good indicator of what’s to come for the future of green supply chains. An LNG-fueled ship produces 25% less carbon dioxide in addition to drastic reductions in both nitrogen oxides and diesel particulate matter.
“...announcement of a tentative agreement between the railroads and their workers is a welcome relief. Manufacturers had been putting into place contingency plans as they were facing disruptions with moving their supplies and products.”
— National Association of Manufacturers President and CEO Jay Timmons, commenting on how the industry prepared for a potential rail strike didn’t materialize
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