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Looking Ahead, Plenty to Worry About at the Ports

Much of last year was defined by struggles at sea and a backlog of vessels at the ports. Unfortunately, it doesn’t appear relief is coming anytime soon.

Ocean schedule reliability across global trade lanes hit a record low of 32 percent to close out 2021, meaning only one in three vessels are arriving when expected, according to data from maritime trade advisory service Sea-Intelligence. These worldwide rates are down dramatically from nearly 80 percent reliability in June 2020.

But December 2021’s record lows look even worse when accounting for certain individual trade routes from Asia to the U.S. West Coast, which has seen reliability rates plummet to just 10 percent. Cargo going from Asia to Northern Europe has fared better, but still poorly, at 23 percent.

In a recent webinar hosted by freight forwarder Flexport, Bjorn Vang Jensen, vice president of advisory services, global supply chain at Sea-Intelligence, put the situation bluntly: “I don’t see anything that could in the short term bring these numbers up in any meaningful way.”

The excess ocean freight has led to massive surge in blank sailings, with 32 percent of weekly ocean capacity blanked from Asia to the West Coast, according to Sea-Intelligence.

Chinese New Year, short staffing compound current concerns

And with production in China already negatively impacted by Covid-19 outbreaks that have hampered factories and ports alike, a new concern hits the supply chain. Chinese New Year is on the horizon, meaning that the countries’ factories have already started closing for the public holiday.

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“In the happiest of circumstances, you would see the normal seasonal slump after Chinese New Year. But even in that scenario, that would still mean that exports would stop out of China in the beginning of February, so this would only impact us a month or month-and-a-half down the line,” said Lars Jensen, CEO of Vespucci Maritime. “[In the current scenario,] this will continue to get worse for a couple of months, then it will begin to taper off. That is assuming we get no curveballs, and in all likelihood, we very much will get more curveballs, starting with a high chance of shutting down the ports and terminals in China.”

Adding to the problems, there simply is no added capacity when it comes to new available containers. The congestion at sea is reducing available 20-foot equivalent unit (TEU) container shipping capacity in the market by anywhere between 10 and 14 percent, or roughly the equivalent of the entire fleet of ocean carrier giants CMA CGM or COSCO disappearing, according to Vang Jensen.

The resurgence of Covid-19 in the form of the Omicron variant only contributed further to the bearish opinions of the two panelists, particularly in its impact on port operations. Citing a Wall Street Journal report, Vang Jensen noted that 1,700 dock workers at the Los Angeles and Long Beach ports have tested positive for the virus, which is more cases detected than all of 2021 combined.

And on the European front, Jensen highlighted that the Port of Rotterdam have approximately 15 percent of their staff out with Covid-19, while Antwerp has floated even higher totals between 40 and 50 percent.

Labor shortages can’t be ignored

Even as the Covid-19 concerns continue, easing any congestion at the West Coast ports still will come down to the human element and the roles workers play on land. Flexport tallied 108 vessels waiting at anchor at the Port of Los Angeles and the Port of Long Beach, with the ships waiting an average time to unload of 18 days. In total, when calculating both the number of total TEUs waiting at anchor (886,000) and dividing it by TEU port capacity per week (178,000), the two ports have a total of five weeks’ worth of backlog.

One of these elements is the trucker shortage, which is expected to increase to more than 100,000 by 2024, according to the American Trucking Association. Fewer trucks in circulation means there will be less pickups and likely a longer time between not just taking the carrier, but returning the empty one to the port.

“Just to make a ridiculous example, assume as of tomorrow, you’re going to pay the truck drivers half-a-million dollars per year,” Vang Jensen said. “I guarantee you won’t have a truck driver shortage. Part of the resolution in this is, everybody has to get used to the fact that the supply chain is going to be more expensive that we’ve been used to, both on the vessels and on the land side. That’s what’s actually going to solve the truck driver shortage. It’s supply and demand.”

The trucking industry isn’t the only one stakeholders should be focused on, especially with an uncertain labor negotiation upcoming in July, when a contract between the International Longshore and Warehouse Union (ILWU) and the West Coast port operators is set to expire.

Jensen pointed out two instances where the two sides failed to reach an agreement, with the first in 2002 resulting in the complete shutdown of all West Coast terminals for 10 days, and a second in 2014-2015 that resulted in a pileup of 40 vessels outside the ports, “which was seen as a disaster at the time.”

He anticipates a deal occurring despite likely theatrics that may take place ahead of the deadline, but it will be a more expensive one where costs are passed on to the shippers.

“The key bone of contention here is going to be over automation, which the union will fight tooth and nail against,” Jensen said. “What we’re likely going to end up with is a deal where there will be much higher salaries for the port workers. There will be more of an open door towards automation as long as it doesn’t cost a single job.”

The optics of a union “completely paralyzing” the West Coast ports would pose problems as well that make the negotiations more likely to be resolved, according to Sea-Intelligence’s Vang Jensen.

“Even the cashier at the local supermarket is knowledgeable about supply chain issues when he explains to you that why something is not installed,” said Vang Jensen. “The political pressure on them is going to be enormous.”

“Data is the new oil” means everyone should “play ball”

Another factor holding back any improvements at the ports is there are too many cooks in the kitchen who aren’t always working with the same interests at hand, whether it be railroad operators, truck drivers, dock workers, the terminal operators or the importers. Vang Jensen suggested that while a system that “incentivizes every single player to play ball” should be put in place, he acknowledged that this is a long-term concern that couldn’t be solved in six months.

Vespucci’s Jensen highlighted that the chief pain point is that these stakeholders don’t have a centralized data hub, and still don’t have any real interest in sharing what they currently have.

While the 21st century phrase “data is the new oil” has gained popularity in tech circles, he believes many supply chain stakeholders misinterpret it to mean they shouldn’t share the data with anyone unless they were paid to use it.

“That’s a complete misunderstanding because there is no value to anyone. It’s a matter of sharing all that data. The data is a new oil for those who are then very good at using the data. That’s what you need to compete on,” Jensen said. “You have to have full access to all information across all stakeholders. Move the competition away from who is better at keeping the information hidden to who is better able to use the data. Right now, all anybody can do is to sub-optimize their own position, which looks great on their own KPIs, but it’s overall detrimental.”