Crisis Spurs Calls for Shipping Reforms

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Crisis Spurs Calls for Shipping Reforms
Loading cranes stack shipping containers from cargo ships into a terminal at the Port of Long Beach in California. © TonelsonProductions

Ongoing global supply chain disruptions caused by the COVID-19 pandemic and a surge in shipping container volumes since July 2020 highlight the need for the United States to revamp policies concerning supply chain logistics, speakers said during an online webinar yesterday.

During an Auto Care Association webinar, a speaker panel discussed global supply chain disruptions, movement of goods and ways to mitigate and navigate supply chain disruptions moving forward.

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Noel Hacegaba, deputy executive director for administration and operations for the Port of Long Beach, California, called for a U.S. national freight plan. “Canada has one, Mexico has a framework,” he noted. “We desperately need the federal government to have a strategy that integrates all nodes in the supply chain and approaches goods movement from the highest levels in a very holistic way. I think that’s the only way we’re going to be able to move our supply chain forward.”

Peter Tirschwell, vice president for maritime and trade at IHS Markit and editor of its Journal of Commerce publication, pointed out that the port systems in the U.S. are completely decentralized. “It’s run by municipalities, and it’s run by states, and they compete against each other,” he said. “The decentralized nature of the system has long resisted centralized planning. And as a result of that, the federal government over many years has been able to ignore systemic problems that exist. It needs to be looked at, evaluated and be solved, at least on the national level.”

Weston LaBar, head of strategy at Cargomatic, a transportation marketplace technology company, echoed the need for policy reform. “Policies and regulations that regulate our industry haven’t been updated since 1998, and the industry has changed a lot,” he said. “So we need to make sure policies meant to incentivize movement of equipment and cargo do that.”

According to Tirschwell, ocean container carriers are profiting handsomely from circumstances. “They are well on the road to the most profitable period perhaps in their entire history,” he said. “Everybody who’s a customer of container carriers knows why it is making so much money.” He explained this relates to how individual containers today are quoted sometimes upwards of $15,000 or $20,000. “The numbers are all over the map,” he said. “One thing they share in common is they are all two, three, four, five times higher than they used to be.”

Although this means ocean carriers are having a great year financially, he said the situation makes customer service a challenge. “From my experience dealing with them, like every other service business, they do want to do a good job, they do want to support their customers, they do want to create value in the supply chain for their customers, and they’re having a very hard time doing that right now,” he said.

Shipping container equipment is very hard to come by right now, he noted. “The reason is that as the containers flow, they circulate all over the world,” he explained “The entire circulatory flow of containers has slowed, and it’s slowed because of a couple of key reasons. One is that there are ships sitting off the ports at anchor, and they can’t move. The containers have been brought to distribution centers, but they can’t be unloaded.” He added that such distribution centers are often completely full because their volumes are through the roof or because COVID restrictions limit the actual productivity of the warehouses.

Meanwhile, the surge in container volumes coming into the United States remains unprecedented, he said, including double-digit percentage increases in volumes from Asia for every month going back to July 2020. “We’re seeing the double-digit increases during a normally slow period of time, that is now going to marry up with the normal peak season of the container flow, which is in the second half of year,” he said, starting from around July-August and going through October. “That means with the conditions we’re seeing, it’s really hard to envision any significant sort of easing of this extremely tight situation that we have before later in the year.”

Hacegaba said that the pandemic triggered a system wide container equipment imbalance, which was then exacerbated by a global surge in shipping since last July. “Right now we have 22 ships at anchorage, and every single one of our berths in San Pedro bay are being utilized,” he said. “We have never seen a surge quite like this. In fact, since July of last year, we’ve been setting records on a month-to-month basis. I think it’s safe to say that every port, no matter where in the U.S., is dealing with some form of congestion.”

He said the Long Beach port, since first feeling effects of the pandemic in early 2020, started a business recovery task force. Its sole mission is to troubleshoot, mitigate, anticipate and apply solutions to make sure the port serves those ships as quickly as possible.

Actions included maximizing gate hours for terminals on the ground at the port and chassis providers injecting additional assets. A chassis is a rubber-tired trailer under-frame on which a container is mounted for street or highway transport. “Today there are over 90,000 chassis circulating in the complex to service the southern California gateway,” Hacegaba said. “Given the volumes we’re handling, even 90,000 chassis are not quite enough.”

Another change is that railroads at the port are loosening restrictions on the number of cars they require to move containers out of the terminals. “That’s allowing them to move more boxes via rail more quickly out of our terminals,” he added.

The port is also working with its terminals to dramatically increase the overall percentage of “dual transactions.” This occurs when a truck arrives to a port and on the same visit that it picks up an inbound container, it also drops off an export load or empty container. “We have terminals today that are posting 70% plus dual transactions,” he said. Since October, the port has also used a 40-acre site there to stage and sort containers.

LaBar said one major theme affecting supply chains is scarcity. It doesn’t matter what level of the supply chain you’re trying to move cargo through, there’s more demand than there is supply,” LaBar said. “That’s true with trucking, it’s obviously true with rail and it’s true with ocean shipping.

He noted a co-dependency throughout the supply chain. “When something seems broken, folks come together and try to solve the problem,” LaBar said. “But you can’t plan for things like weather in the Midwest that creates a rail disruption that leads to an 11-12 day rail dwell, when it’s typically a two to three day rail dwell at a marine terminal.” He said that takes up space, makes it hard to return an empty container, and then doesn’t free up a chassis, so the imported cargo then can’t be picked up.

“We’re all so codependent on one another, and if one area is struggling, it quickly snowballs outward to everybody else,” he said. “That’s why it’s so important that ports take a leadership role.”

He emphasized the need for an impartial body that brings supply chain stakeholders together and focuses on the need to move their collective customers’ freight efficiently. “We need to come up with long-term comprehensive macro strategies that fix the systemic problems that we’ve had for quite some time now,” LaBar said. “We just haven’t seen a peak season that’s lasted 18 months in the history of the ports. We’ve seen these types of disruptions happen every time there’s a cargo surge – it’s just typically you don’t see it for more than a few weeks or a few months at most.”

He also emphasized the need for supply chains to move to virtual integration where logistics providers have the ability to share data and for the easy hand-off of such data from one segment to the next segment.