Why the thousand mile stare?
A Trans-Pacific PO is not to be trifled with. Scarcity of raw materials and labor in and around factories, ports and warehouses is not changing with the tides. Unpredictable transportation cost spikes are the new normal – all is fair in love and capacity crunches.
A Can, A Box, Panama
It will be a long time before current port congestion problems are a distant memory. The process of picking up a container or returning an empty can resemble the procedural absurdity of a Kafkaesque nightmare except only a lot more expensive. Flotillas of container ships waiting outside of ports are functionally high-ticket floating warehouses and you can be assured that steamship lines will be able to keep container prices high if the white-hot ship charter market continues to be any indication. Will rising interest rates create an inventory turnover equation that increases pressure on those charged with improvement of intermodal terminal throughput?
With all the anxiety, waiting and mounting bills, successfully getting a container loaded on an ocean vessel is no longer a moment of relief. Rather, being notified that your ‘can’ is on the ocean might be akin to hearing a pistol cocked for your turn in a game of Russian Roulette.
Catch a Tiger By the Toe
Did tangled global supply chains benefit from the relative lull in Trans-Pacific traffic during the Lunar New Year and the Olympics? The flood of imports that was feeding port congestion well before the traditional peak season is nowhere near cleared and unyielding consumer demand is keeping the pipeline full.
On the West Coast, the International Longshoremen and Warehousemen’s Union (ILWU) suffered a wave of Omicron infections so severe that January absentee rates at the ports of Los Angeles and Long Beach outpaced the total days of labor lost to Covid at LAX/LGB during the entirety of 2021. One more grievance for ongoing ILWU contract negotiations that guarantee a volatile spring for shippers coming into the West Coast.
We will see more vessels heading to the East Coast as shippers try to circumvent the guaranteed headache at LAX/LGB. Will you be beating a path to get in line at Charleston, where at least 30 vessels sit waiting for a berth at the port?
Don’t forget to hedge your hedges!
Nobody Expects the English Armada
A coalition of law enforcement bodies from the English-speaking world have announced the active pursuit of cartel conduct and collusion among the biggest supply chain players.
After a number of fits and starts by authorities to come to the defense of shippers, this coordinated multinational action might have some bite behind the bark.
Death and Tariffs
1.5% of China’s population – over 20 million people – were in lockdown across the country at points prior to the Lunar New Year.
Even before Canadian truckers acted to shut down international trade along key North American corridors of the automotive supply chain, Covid outbreaks in Dalian and Tianjin forced automakers including Toyota and VW to suspend production.
A trade spat with Australia has coincided with the rise of iron ore prices by 60% since November 2021 is not helping manufacturing price indices. The Chinese government has taken steps to prevent the hoarding, price gouging and speculation that has moved the domestic market. Raw material inflation and supply shortages do not favor a reduction in inflationary pressures.
Hold the Phone
China’s Covid-zero policy is a clear and present threat to predictable trade flows as recent history will attest.
Countries like Vietnam are committed to avoiding Covid 19 lockdowns (or at least taking more active measures to keep factories open) due to their confidence in the national vaccination rate and the reduced severity of the dominant Omicron infections. This commitment might inspire confidence about production diversification strategies because Chinese manufacturing output continues to suffer from a more cautious Zero Covid approach.
Chinese ports have become even more congested than they were at the start of the year. Blank sailings by the shipping lines neither repositioned sufficient empty containers at Chinese ports nor gave real relief or resolution to the productivity and congestion problems at U.S. ports. Expect whiplash as the clearing of the Chinese backlog hits the existing US backlog with a fresh influx of ships loaded with imports.
Where did you come from? Where did you go?
At the beginning of the year, cargo owners diverted freight away from China’s Ningbo port to Shanghai and Xiamen as the world’s third-largest container gateway grappled with a Covid outbreak which sent the entire Beilun district into lockdown.
The Ningbo port was established in 1738, but has roots as far back as the Tang Dynasty (618-907), It lies on the coastal plain of the Yong River roughly 93 miles south of the Port of Shanghai. After the 2006 merger of Ningbo with the neighboring Zhoushan, the combined port totalled 191 berths. In 2017 Ningbo became the first port to ever handle 1 billion tons of cargo in a single year and has risen to the #3 port in world by volume. The types of vessels it services breaks down to: Cargo (31%), Container Ship (28%), Tanker (7%), Fishing (6%), Bulk Carrier (5%).
While Ningbo’s five container terminals continued to operate normally, it was impossible to move product to and from factories in the lockdown areas due to trucker shortages and warehouse closures. Only drivers with access passes were able to move in and out, and only 20% of truckers were given access permits, with the rest stuck in quarantine.
The Unbearable Lightness of Quarantine Rules
Record spot rates on the world’s major air cargo trade lanes will not ease until widespread long-haul passenger flights return to service key Asian markets. However, many countries in Asia have essentially closed their borders to travelers or instituted severe quarantine requirements for months, effectively removing reliable, scheduled cargo capacity. Most notably, Hong Kong based Cathay Pacific Airways has been crushed by local Covid restrictions.
Getting your shipment across the Pacific from China will continue to be dicy. Supply chain leaders more actively explore how they can diversify their routing to mitigate risk. It may be impossible to change suppliers overnight, but might it be profitable to consider diversifying your chosen destinations?
The Hair of the Tiger That Bit You
You can roll the dice that a 10 day wait at Charleston can’t be worse than the buzzsaw you will run into LAX/LGB. However, if you are willing to roll the dice on Charleston, do you have the volume and flexibility to play two hands by diverting some of those containers to Jacksonville or Savannah?
Restricted capacity, canceled sailings and flights, and equipment shortages are not going away. Delays are unpredictable, and setbacks are inevitable.
Stay up to date about conditions on the ground and make sure you communicate with partners on the ground that you can trust. Reliability is in short supply and rest assured that any ETA that a steamship quotes can be taken with a grain of salt and several tons of ballast.
If you are unsure how to proceed and ensure your shipments arrive as soon as possible, CargoTrans has an experienced and friendly team waiting to guide you.
All you have to do is contact us.
— Shipping Magnate