By Bob Brewer, Braumiller Law Group
There are reasons to be optimistic about the economies of the world bouncing back from the pandemic in 2021, and at the same time, the major push to restock the world’s supply of goods has been met with a variety of problems at the world’s ports, from Australia to Singapore, but primarily on the west coast from Seattle to Long Beach. Product coming in from Asia has been met with less than a smooth and timely transition to a berth, as the ports are absolutely log jammed.
Reasons for the bottleneck at the west coast ports (like so many others around the globe) are many. A surge in ecommerce during the pandemic, and the rush to restock the world’s supply chains. COVID of course has wreaked havoc with longshoreman, but now that the vaccines are rolling out, they could be, and should be, put on the priority list. Right? Well, not yet, and they are in fact essential workers. What really hurts is that there is currently a major shortage of shipping containers worldwide. Most of which are manufactured in China, of course, but the fact remains, the shortage creates a domino effect with warehousing shortages, trucking snags, and delays for ships at the ports for sometimes up to two weeks to get a berth. Yes….two weeks.
Imagine, approximately 25-30 ships within the Long Beach port limits, waiting a week or more to get a berth to unload at the dock. You could walk 2 miles, ship-to-ship out into the bay, and never touch the water. Ouch. (Note: The Port of Long Beach moved 771,135 containers in February 2021, up 43.9% from 2020, the port’s largest-ever annual increase).
Air freight as a result of the log jam at the ports has seen quadruple growth as a result, and shipping costs overall reflect the same increase. Globally, the average cost to ship a 40-foot container increased from $1,040 last June to $4,570 on March 1, according to S&P Global Platts. The ramifications of the supply chain surge, and lack of movement is something that will probably be with us through the summer of 2021 according to most supply chain experts. Also, there aren’t many options to get product into the U.S. from Asia via the west coast ports. To add to the global mess, the world of trade witnessed the news of Egypt’s Suez Canal being blocked by a 224,000-ton container ship. Hundreds of ships have been waiting on both sides of the canal for passage, and the blockage cost world trade roughly $10 billion a day. In the meantime, as a result of not being able to predict when the ship would be free, some had directed shipping from Europe to Asia around Africa, adding substantial additional costs. The ship was finally dislodged on Monday 3/29. Time now for the blame game on billions lost, and ongoing litigation.
The Suez blockage is a stark reminder that “stuff happens”, so one must think ahead knowing that if you are shipping product for instance from China to Long Beach, your electronic filing in advance and reaching the port limits, but not being able to berth for a week or two, could have monetary ramifications beyond simple product delays to market. What do I mean specifically? For example, I am familiar with a case in the not-so-distant past that involved a vessel showing up at the port of Long Beach, having filed electronically for a 12/28/2020 arrival. The port is of course overcrowded to the point that they were forced to wait, within port limits as defined by CBP, but had to change their arrival filing date to 1/5/2021, per CBP, once they secured a berth at shore to unload. This simple little change in the documented date of arrival cost this particular company approximately $60,000 in Section 301 tariffs that were automatically applied. Why? Because the expiration date on the Section 301 exemptions they were benefiting from was official on 12/31/2020. Ouch! I know what some are thinking, like me, how or why could that happen? The shipper did everything correctly, filing electronically in advance, and arriving at the port in advance of the expiration date on the exemptions. The vessel was within port limits, as defined by CBP, and yet, the port entry date change was mandatory per CBP. I know, it was certainly no fault of theirs, as they were unaware of what the absolute bottleneck at the port would ultimately cost them. Obviously, it’s like checking the traffic on the way to the airport now. Plan ahead, because in this case, a lot worse can happen than simply missing a flight.
This is just one example of many where the domino effect is creating headaches for many. The shipping times per vessel from China were already stretched, and now, one must calculate a possible additional one- or- two- week delay if going into a port such as Los Angeles, Long Beach, San Francisco, or even a smaller port like Oakland. Seasonal sales are also pushing the limits on vessels, and warehouse space is filling up fast. (Long Beach warehousing space is currently at around 85% capacity) As a result, many are simply going straight to the truck for immediate transport and skipping any additional down time to get the product to market.
The bottlenecks have also affected exports, as many shipping company’s vessels are simply not waiting an additional week or two for the loading of U.S. agricultural exports and are sending empty containers back to China for more profitable goods to be returned. Obviously, this decision has also affected the Phase 1 agreement with China the previous USTR had put in place regarding the purchase of agricultural goods, which has only been met to date at around 40% of quota. Katherine Tai (newly appointed and blessed USTR) is going to have her hands full as the prediction for the disruption at the ports will continue through the summer possibly adding to Section 301 tariff timeline frustrations. In the meantime, freight rates from China to the U.S. have surged 300 percent. Some Asian countries are simply forgoing exports to the U.S. based on the impossibility of getting product to market from the port in time (food items especially).
Solutions obviously include staying out of the western U.S. ports, but often, rerouting is simply not an option, as well as defaulting to air freight, which has also gone up in cost exponentially. Suffice it to say, it’s a great time to be in the air freight business, and Amazon is testimony to that. They’ve purchased a minority stake in one of their carriers and have been buying jets recently in their own name. Yep, in about 5 years, Amazon could have as many as 200 of their own cargo jets in the air. Look out FedEx and UPS, here comes the competition, again. Overall, this will be a healthy addition to air freight, and should help drive costs down somewhat.
I digress, now back to the problem in the ports. It begs the question, where the heck is a stockpile of empty containers? Well, it seems that containers that carried millions of PPE to countries in Africa and South America very early on in the pandemic remain there, empty and uncollected, collecting dust, because shipping carriers have concentrated their vessels on their most popular routes, such as those linking North America and Europe to Asia. Empty containers are also piled up at ports in Australia and New Zealand.
It’s time to put our heads together. There has got to be a way logistically to get those empty containers back into the system. Imagine that, the United States, once again finding a shortcoming in an absolutely necessary supply chain item, like a simple shipping container, manufactured in China. The U.S. government needs to be talking with U.S. Steel at this juncture and making a plan to allocate the necessary resources to keep supply chains moving as we rebound economically. Something as basic as a 40 foot metal box is invaluable in the rebuilding of the economy. I say go for it President Biden, any surplus on the containers can be used to house the homeless. There is nothing to lose.