Since November of 2020, we have been reading about congestion at the ports of Los Angeles and Long Beach and the effect that the bottleneck is having on cargo owners and ultimately retail prices. High import levels are driving the congestion and an easing of volumes is not in sight.
Unfortunately this congestion has spread from Southern California up the coast and onto the East Coast and to inland hubs such as Chicago and Memphis . The entire US container shipping network has been affected just as the economy continues to heat up and retailers are anticipating back-to-school shopping, Halloween, and the winter holiday season. Fortunately, this week the San Pedro ports are reporting a decrease in their backlog and are projecting that by the end of June the congestion will be eased.
There is a long blame list for the port delays in Southern California starting with Covid-19 reduced work crew productivity; ships piling up in San Pedro Bay; overflowing container yards; shortages of boxes and chassis, and a now a shortage of railcars. The railways are blaming the railcar shortage on the high volume of cargo straining the system stemming from the bad weather in February. And, it was reported last week that the terminal operators at PoLA and PoLB are now concerned that increasing rail container dwell times at their facilities will severely compromise their ability to handle import volumes during the upcoming peak season.
The Federal Government is Concerned
The Surface Transportation Board also expressed concern several weeks about the Class 1 railroads ability to meet demands for service as the economy recovers from the pandemic. In a letter sent to each Class 1, Chairman Martin Oberman wrote, “I am requesting an updated and detailed description of your preparedness to meet anticipated future demand, including (1) the availability of train crew, yard, and maintenance employees (active, reserve, and furloughed workers) and your plans and time frames for employees to return to work and any re-training, if necessary, and (2) the availability of equipment resources (active and short-term / long-term stored locomotives and rail cars)”.
A competitive advantage for the San Pedro ports historically has been that shippers have been able to discharge to on-dock rail for inland movement. The ability to be at an inland rail ramp five to seven days later eclipsed anything that a ship traveling through the Panama Canal could manage for time to market.
But with rail delays in Southern California, congested ports, overloaded transload warehouses and scarce and expensive trucking, that competitive advantage is being eroded. The question is whether the port operators will be able to ease the congestion before the August peak season starts.
Is Congestion Causing A Mode Shift to Air?
Meanwhile very quickly ocean freight costs are nearing the cost for airfreight. The bottleneck at ports has added costs to maritime shipping that make airfreight, which is normally significantly more costly, look like a bargain, especially when factoring in the transit time saved. As containers pile up at sea terminals, cargo owners are paying the toll.
Vessel operators continue to levy detention charges, the fees paid for using a container outside of the port beyond a free allowable period. This is happening even when marine terminal operators have no room for empty containers. Meanwhile, truckers are waiting hours for port access, which is incurring significant charges for forwarders and shippers . As a result, shippers are increasingly using airfreight to avoid bottlenecks in their supply chains.
Only time will tell, but it appears now that for the right type of cargo, and certainly the right value, air is absolutely becoming a much more enticing option for the future.