Analyzing Congestion at U.S. Ports
Current Port Conditions
The maritime shipping industry comprises approximately 90% of the global supply chain and any operational disruptions have significant effects on the entire ecosystem. Congestion at the ports, especially in southern California, has steadily increased. While shipping traditionally took 20-30 days, it is now closer to 60-75 days with a cost increase of up to ten times pre-pandemic rates. Ships waiting at anchor have increased 129% with nearly triple YoY waiting at anchor in Ql 2021. Delays are a result of massive volume increases. In February, Long Beach broke a record with a 43.3% increase in TEU YoY. The ongoing challenges and disruptions from heavy port congestion is largely a result of increased consumer spending behavior, COVID-19 induced labor shortages, and an infrastructure that is unable to handle the heavy volume that has driven up costs and caused companies to re-evaluate the efficacy of their current supply chain solutions.
The beginning of the pandemic initially negatively impacted commerce, but it has since witnessed huge surges. The increased time at home, both for work and leisure, has shifted consumer spending behavior to purchases of goods rather than travel and services. January started strong for companies with $500 billion spent and there is an expectation that overall consumer sales will grow 6.7% YoY in 2021. Increased sales and growth signal a continued, steady increase in volume through the ports.
COVID-19 has created significant labor shortages, both at port and on ships. Inability to take shore leave and see family has created a shortage of workers willing to spend extended periods at sea. Additionally, the current labor allotment in the ports of Los Angeles and Long Beach is 4 work gangs per ship, a sharp decline when container ships normally have up to 7 work gangs assigned. Of the 15,000 members of the International Longshore and Warehouse Union, 800 are out of work due to the pandemic. With only 5% of the workforce vaccinated at the beginning of March, the timeline for a return to normality is uncertain. Officials are pressuring the Biden administration to prioritize maritime workers in the vaccine rollout plan.
Ports only experienced a 2.37% increase in TEU volume YoY in 2020. The remainder of the supply chain was operating smoothly and therefore no issues related to port congestion arose. The increase in consumer demand and resulting volume of goods has created chassis shortages and scarce warehouse and distribution center space.
Given the extended delays and uncertainty, companies are examining alternative solutions to maritime shipping, such as reshoring and air freight. For example, in late 2020, after nearly doubling their subscriber rate YoY, Peloton purchased Precor, a U.S. based gym-manufacturer. The purchase allows them to curb the delayed shipments and limited inventory that otherwise negatively affects both sales and brand image. Air freight was prohibitively expensive pre-pandemic, but as airlines have shifted focus from passenger travel to cargo, it is now a more viable option. A shipper sending a 250 kg shipment from Asia to the U.S. now pays 40% less on average. Furthermore, expansion projects at facilities are expected to provide relief with the Los Angeles and Long Beach port expansion project set to be completed in 2021. The project will increase their capacity by l million TEU, with the total capacity at 3.4 million TEU/year.
The COVID-19 pandemic has unequivocally changed the world and clearly created a crucial pivot in the supply chain. Companies can no longer focus on a single shipping solution, but rather must diversify their operations to better safeguard against future crises that could negatively affect the supply chain. It's vital that the logistics industry recognize this shift and adapt practices accordingly to remain competitive in this ever-changing environment.