Port Disruptions and Lack of Capacity
The success of the ports is undeniably tied to the success of the global economy. The Los Angeles port has experienced 49% growth since 2020, the biggest increase in nine years based on data compiled by Bloomberg. Long Beach shipping expanded 29% during the same period, such that the two ports now account for 37% of the US market since the pandemic, more than double the share of the Port of New York and New Jersey, the closest competitor. This makes the LA Port a particularly vulnerable factor in global supply chains. In addition, my discussions with individuals close to ports are stating that unions are also leveraging the pressure at the ports to request rate increases, and demanding overtime pay that is higher than in the past. Truck drivers are also rejecting more loads, especially at night, and are picking those loads that are favorable to them.
Container shortages are pervasive. For the first time in the rail container volume index history, nonholiday empty containers outnumber the loaded container volumes heading into Los Angeles. This occurred briefly at the beginning of 2019 around New Year’s when the trade war with China was escalating. Empty international containers are controlled mainly by the maritime operators and can signal growth in import volumes. The current situation is much more dire than 2019. Events such as a grounded container ship’s blockage of the Suez Canal in March, the shutdown of a key port in southern China in May and June that left some 350,000 containers idle and big backups at ports in the U.S. and Europe have added to the strains.
Knowing who controls the containers is the key to understanding what to make of their movement patterns. The international container flow is governed by shipping operators and people who deal with international trade orders. They need to position the containers in places where they can be filled. In this case, most of that is across the Pacific Ocean in China and other Asian countries.
The port conglomerate of Los Angeles and Long Beach is the primary gateway between Asia and the U.S. and has been a bellwether for freight pattern shifts over the past two to three years — basically the main convergence zone of freight in the U.S. The two ports handle almost 40% of all imports into the United States. Increased durable goods demand has exacerbated the trade imbalance between the U.S. and China and caused shipping rates to hit record levels moving across the Pacific. This has also led to maritime operators neglecting U.S. exporters by moving empty containers back to Asia without cargo in order to take advantage of the pricier and more lucrative freight moving east.
Moving international containers domestically can be tricky as most of the equipment is set up to handle the domestic trailer sizes. This makes it cumbersome for the international community to get the empty containers where they need to be for U.S.-based pickups. It is far more economical just to move it by rail back to the port and ship it back to China when rates are this high. What is more concerning is that this may not be the worst of it from a cost and supply chain bottleneck perspective. Just last month Hapag-Lloyd said it had ordered 150,000 TEUs (Twenty-foot Equivalent Units) of standard and refrigerated containers from a Chinese manufacturer to be delivered this year. The majority of the containers are expected to be delivered in the third quarter.
The supply of container equipment is currently one of the shipping industry’s biggest challenges and demands full attention. To counteract the container shortage and to offer customers a better service — shippers need to continue to invest in their container fleets. Lack of containers and slow turn times are particularly apparent during U.S. import surges. As of October 19, the backlog off the port complex now extends to 112 container ships, with 25 more set to arrive in coming days, with more than . There is not enough days to make up before Christmas - importers are missing their ship-on dates. Walmart is reportedly canceling orders that are on the water, knowing that the shipments will not reach their DC’s by December 10, which is the time required to deliver by Christmas.
Unfortunately, there are few alternatives for Los Angeles. Many east coast ports cannot solve the west coast port congestion – for instance, the deepest port Jacksonville, FL is at 47’ but ships need 50’ clearance on high tide to receive these large vessels.
COVID has also hit a number of key ports, like the port of Yantian, which is a major outbound port for shipping products to the US. Once a port shuts down, ships and containers back up, and this bottleneck is difficult to catch up with. There are also periodic port closures in other parts of the world, again due to the proliferation of the Delta variant. There have also been major container shortages, the shutdown of the Chinese port in Shenzhen, and the longer dwell times in ports, that is resulting in container prices jumping to $6300 and sticking there. The closure at China’s giant Ningbo port is rippling through already strained supply chains. Some 10% of all containers are stacked on ships waiting at congested ports around the world. This is driving up costs of imports from China. And many US ports are slowing down, because of the labor shortage! There aren’t enough workers to unload the ships. Then there are the container issues. The problem with containers is that most of them are stuck in the US, but need to be at ports and manufacturers in China! For the first time in the rail container volume index history, non-holiday empty containers outnumber the loaded container volumes heading into Los Angeles. This occurred briefly at the beginning of 2019 around New Year’s when the trade war with China was escalating. Empty international containers are controlled mainly by the maritime operators and can signal growth in import volumes. This one, however, may just illustrate how dire the situation really is. Another factor to consider is how the spread of COVID-19 and its variants have made it harder for trucks to cross borders. A report by Moody’s Analytics said the differences among countries’ efforts to control the coronavirus have gummed up the movement of transportation workers at ports and other freight hubs, contributing to a problem that will get worse before it gets better.
The more important factor to recognize is that the Los Angeles port is significantly overloaded in terms of its capacity. West Coast ports were barely keeping up with the growth in freight before the pandemic and had no ability to absorb disruption. Without enough trucks to carry them off, containers piled up on docks, and more kept coming — each new ship brings in 10,000 to 21,000 containers. The two major ports of Los Angeles and Long Beach were unable to handle the growing number of ships, so vessels were spending about as much time waiting to anchor and unload — about two weeks, the time to cross the Pacific ocean from China.
There are operational issues that are also hindering operations. Although the Biden administration has opened up the 3AM – 6 AM time window for drivers to enter the port, this is not going to address the logjam of ships that are lining up outside the port. The issues aren’t easily resolvable. Expanding these hours at the Port of Los Angeles was a step in the right direction, but a small one aimed at just one part of the supply chain. Unions can’t ramp up the number of workers, and truck drivers don’t want to work at night. Some piers only receive empty containers at night and can’t pick up full containers unless the driver has the correct size chassis. Drivers also don’t want to pick up containers at night, as the warehouses nearby are typically closed, and there is nowhere for them to drop off their load. They are reluctant to begin their 14 hour shift knowing that there is excess wait time when they are not being paid. The labor and infrastructure of the port render it operationally impossible to operate on a 24/7 basis. As a result, berth productivity rates at Long Beach hover around 74, compared to levels between 120-135 in China.1 Achieving these higher rates will require investments in improved technology, , including the use of taller cranes, optical character readers and global positioning tracking and a computerized terminal operating system.