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North America shipping under strain

[ June 24, 2021   //   ]

Shipping into North America is under pressure as never before, and things could well get worse before they get better, says experts at Seko Logistics. They told a market update in late June that while some of the immediate causes of the problems in world shipping, including the blockage of the Suez Canal and the Covid outbreak and subsequent curtailment of operations at the Chinese port of Yantian may have been resolved, the backlog of waiting containers waiting to be loaded onto ships of moved through ports could still take many weeks or even months to resolve.

Indeed, as Yantian is unblocked, this could lead to further problems if there is a surge of containers heading to North America that cannot be handled by the available port and inland transport systems.

The industry is also getting perilously close to the start of the Christmas peak season, which normally starts to gear up from September onwards.

The situation outside the ports of Los Angeles and Long Beach had improved in the short term, said managing director for Los Angeles, Brian Baskin, but there were still numerous problems on the landside, with congested port gates and a shortage of truck drivers leading to an increase in drayage (road haulage) rates. Because of the congestion, many truckers were imposing surcharges, he said, as they were unable to produce as many road trips to and from the port as previously, he said.

Seko’s chief growth officer Brian Bourke added that the issues at the key ports of LA and Long Beach had also spread northwards to Oakland. Many carriers had switched to the northerly port – or retained their Oakland call while dropping LA/Long Beach – which had thrust increased increased volumes onto Oakland. And, such is the interconnected nature of shipping, many of the problems had been transferred across to the East Coast too.

Senior vice-president global ocean Craig Grossgart added said that with Los Angles handling record monthly container volume, there was little sign of any downturn in demand in the immediate future, especially with schools returning and people generally emerging from months of lockdown. This had had an effect on rates, with one shipper reportedly being quoted $32,000 for a dry van from Shanghai to Los Angeles and many other carriers cancelling sailings.

Vice president of global carrier management in Hong Kong, Akhil Nair said that rates could reach a point that shippers of some commodities might decide not to bother any more – perhaps going for ‘near shore’ options like Mexico, although the Seko panel was unsure just how far this process was likely to go. All the alternatives to China had their issues, such as limited infrastructure, as in Vietnam, of much higher costs, as in Mexico.

Perhaps there was some scope for historically very low US consumer prices to increase, or simply to absorb the higher shipping charges, suggested Grossgart, citing the 7-8 cents cost of shipping a pair of shoes from the Far East, now increased to 16-18c – something that would hardly be noticed by most consumers. However, it was acknowledged that the increased cost of shipping from some, more bulky goods such as refrigerators, was much higher at around $70 a piece.

The US had in fact started to look at alternatives to China during the Trump-induced trade spats with that country, including Vietnam, but that country’s current exports were only 10% those of its much larger neighbour’s. Its port and inland transport infrastructure was limited and it would be a long time, if ever, before it could match the Chinese powerhouse.

Mexico had attracted some interest as a source of manufacture or as a staging post to the US, but it was hampered by higher costs.

Some shippers had switched to airfreight, and indeed this was an important part of many firms’ supply chains, but costs were still up to three times higher than even the inflated seafreight costs. Some importers would pay the premium if only to be able to guarantee availability to their customers, or some cases because they stood to lease contracts with retailers if they did not keep shelves filled, but there were also capacity shortages in the air. Many carriers had cancelled passenger flights which, with their bellyhold capacity were most shippers’ preferred choice.

Difficulties were also mounting up in North America itself. Containers that would normally be moved by train between the ports and inland depots were either piling up or being held at intermediate points.

The supply chain issues were also being manifested in shortage of warehouse space and labour, both of which were in very short supply at the time of writing. Rick Lee, chief operating officer for North America, said warehouse availability was current under 2% across the country, but even lower anywhere in the vicinity of major ports. As luck would have it, the current shortage of space had coincided with large number of leases coming up for renewal and many landlords were demanding increases of up to 28%. Labour costs were also up by around 15-18%.

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