Supply chain reliability – Since November 2020, congestion at the Ports of Los Angeles and Long Beach has been creating a bottleneck which is having on effect on cargo owners and ultimately retail prices. High import levels are driving the congestion and an easing of volumes is not in sight. The National Retail Federation is projecting an increase in retail sales this year of between 6.5% and 8.2% and has predicted record volumes at least into 2022.
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 have been anticipating back-to-school shopping, Halloween and the winter holiday season. Supply chain reliability is no longer assumed in today’s environment.
Why the Congestion?
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 Becoming Increasingly Concerned
The Surface Transportation Board has also expressed concern 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 and bottlenecks exist throughout the logistics system. Supply chain disruptions are substantially impacting a range of industries, now resulting in retail store stock supply outages and production disruptions in industries including in automotive, industrial machinery, construction materials and components, appliances/durable goods, and many others. These supply chain reliability impacts have now produced quite negative consequences for Wall Street and have contributed to the current Dow Jones/NASDAQ sell-off.
In response to this, the White House has focused energies to define needed fixes to a severely underpowered US logistics infrastructure/system. While the system has managed to function well-enough under “normal” circumstances is not working well-enough now to support the domestic consumption and production market. A new “port czar” has been appointed within the Department of Transportation and is now undertaking to define short-term “fixes” that can help to alleviate these problems. The problem is that there are few material easy solutions and with no real national logistics system strategy, the US economy is suffering. We strongly believe that GLDPartners work to develop TradePort districts at strategic logistics hubs are key elements of a larger future national strategy – and projects are taking shape now in California and in New Mexico. These TradePorts are purpose-built trade and logistics hubs that integrate rail, road, air and ocean transportation networks with high-efficiency and zero-emission equipment technology. The massive new efficiencies associated with these next-generation master planned logistics hubs will serve as anchors to industry that will enjoy far greater supply reliability than exists today.
Will There Be 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, even when marine terminal operators have no room for empty containers. Meanwhile, truckers are waiting hours for port access, and as a result, forwarders and shippers are incurring significant charges for their time. 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.
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