With the pandemic and lockdowns imposed last year, shipping lines curtailed services on specific routes and increased blank sailings. With disturbed container demand and supply balance, there was a sudden surge in demand as lockdowns were eased. This led to increased container volumes to meet higher demands. Furthermore, the holiday season saw the usual spike in demand, and importers tried safeguarding themselves against a second wave and a subsequent supply chain disruption. All of which, combined, have led to congestion at the US Ports of Los Angeles and Long Beach.
All you need to know about Port Congestion 2021
Port Congestion
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The need for visibility during times of capacity shortage and port congestion
Port congestion has been a governing problem today, courtesy the quick economic rebound following the bottoming in March last year due to the pandemic. The Suez Canal blockage exacerbated the crisis, especially across Asia and European ports, with a reasonable impact on US East Coast port traffic.
No relief for Long Beach Port Congestion 2021 after pandemic and Suez Canal incident
The Port of Long Beach is the second-busiest container gateway in the US after the adjacent Port of Los Angeles. The combined complex handled 4.97 million TEUs in the first quarter of 2021, up 34.9% from January-March 2020.
The Felixstowe port in the UK faced a heavy brunt of congestion, and so did Southampton and Rotterdam due to rerouting from an already overwhelmed Felixstowe port. Similarly, in China, multiple ports faced congestion due to the numerous health and safety mandates enforced by the government to check the spread of the pandemic.
As a state of crisis plagues the container logistics market in the US, causing cargo delays, affecting product availability and the expected port congestions, the US government is now vouching for an infrastructure spending bill that includes $17 billion allocated to inland waterways, coastal ports, land ports of entry and ferries.
Port Congestion —
An Industry Threat
Port congestion is causing shipping companies to increase operational costs at a time when freight rates have been soaring, and capacity crunch is a real challenge. Additionally, this issue affects cargo when it’s stuck in jams and misses the connecting vessel or trucks out of the port, in turn, affecting delivery schedules. Increased anchorage time further creates pressure on BCOs, shipping lines, and port authorities. As ships consume additional fuel waiting at anchorage or at the port, many overhead costs start accumulating. These eventually reflect as additional costs—including demurrage, detention, port congestion surcharge, and escalating freight rates. Thus, businesses can lose money at an alarming rate.
How to Maneuver Disruption effectively
While both the pandemic and the Suez Canal incident are black swan events that cause great distress to maritime networks via port congestion, disruption could also mean volatility that stakeholders witness on a daily basis. To improve resilience within operations to disruption, companies must obsessively seek visibility into freight movement.
Supply chain visibility primarily means having visibility into every process across various touchpoints in a supply chain. Having this information helps predict disruptions, mitigate risks and proactively respond to disruptions and future-proof businesses.
Supply chains are increasingly diversified compared to what they were a decade ago. Many companies do not source regionally or locally due to many factors including labor costs, material costs, and supplier infrastructure. Therefore, a product may have a diversified supplier base spread across the globe. Under such circumstances, it is more important to access real-time, accurate, and reliable ocean freight visibility and maritime intelligence.
By having real-time visibility over maritime movements, businesses can access the status of the shipment in transit. And with real-time alerts on any significant incident such as the Suez Canal blockage, corrective action can be taken. A supply chain manager can reassign inventory across the network to combat major cargo delays or, despite delays, mobilize the movement through an alternative route so the customer can still rely on the safety stock to keep operations running. Thus, with data insights and analytics, decision-makers in a business are equipped with the right tools to take corrective actions such as expediting freight, selecting future bookings for the cargo that is still at origin, and avoiding any future tragedy.
Port Congestion surcharge to already high freight rates
Shippers bear the maximum brunt of the cost, delays, uncertainty, and major losses in times of disruption. While container shipping alliances dominate the scene in terms of market share, the container shipping lines pass on the cost of delay to shippers in the form of congestion surcharge to already high freight rates. On the other hand, ports levy high demurrage charges and storage costs to even out such adverse situations. Visibility solutions can enable shippers to reduce freight costs by optimizing freight movement, helping better navigate global trade volatility.
When would the port congestion issues get alleviated?
Global maritime trade is witness to persistent challenges of port congestion and capacity shortage over this year. The unprecedented delays caused by congestion, high roll-over rates, increasing freight rates, blank sailings, and capacity crunch have become atypical for the past year, pushing industry experts to call this the new normal. While the new normal is not a pretty sight for the industry, preparing for unprecedented disruptions such as the Suez Canal blockage with structural adjustments can help shippers and BCOs build better risk mitigation mechanisms.
How did we all land here?
Since the onset of the pandemic in early 2020, the maritime trade is undergoing significant disruptions one after the other. The pandemic significantly altered consumer behavior and consumption patterns. There was a massive shift towards purchasing essentials while curtailing other categories of goods and an evident spike in online shopping numbers. According to the US Census Bureau, consumers spent $211.5 billion on e-commerce during the second quarter of 2020, up by 31.8% quarter-over-quarter.
North America has also played a significant role in severe equipment shortages across the global container shipping industry. Slow handling of the containers and stacking of empty containers in the continent has been a substantial bottleneck in operations for the rest of the world while causing major congestion at its own ports. Asia has faced record empty container shortages currently, which is not likely to normalize very soon.
Strong container demand, equipment shortage, and other bottlenecks have significantly hiked ocean freight rates to record highs. Based on Malaysian National Shippers’ Council (MNSC) survey in February this year, freight rates have risen to US$6000 and US$10,000 per container compared to US$55 to US$300 per container before the pandemic. The following months have seen higher rates than these, if not less.
The recent Suez Canal blockage has been considered no less than a black swan event in itself. Towards the end of March, approximately 369 ships were stuck waiting to pass through the 193km Suez Canal thus impacting the scheduled arrival of vessels at the ports of call. Carriers responded by blank sailings that were scheduled on these latest ships.
400+ vessels stopped by Ever Given from reaching their destination ports
Port congestions continued and further affected container shortages in Asia and is expected to continue until June. The trade lane from China to Northern Europe seemed to have borne the maximum brunt since the Suez Canal mishap. The incident affected numerous ports, especially in the US and Europe, that were already burdened with port congestion.
The Asia-North Europe lane was already struggling with high freight rates when the ripple effects of the Suez Canal incident have now started manifesting as congestion surcharges. On May 5, Maersk announced a ‘Suez incident congestion surcharge’ of $12 to $30 per container applicable until June 30. Hapag-Lloyd announced a $30 per container congestion surcharge for all inland cargo transported to and from the German ports of Hamburg, Bremerhaven, and Wilhelmshaven.
When will this end?
Well, we can’t estimate when exactly port congestion and capacity constraints will no longer be a challenge, but ports and logistics networks are adapting to the current situation and making amends to manage it better. The vicious cycle of port congestion, capacity constraints, and other accompanying effects of the disruption will most likely continue till the end of 2021 or carry over to early 2022.
Towards the end of 2020, global trade depicted signs of recovery, and California’s ports dealt with unprecedented cargo volumes. On the US East Coast, Port Savannah is expected to exceed 5 million TEUs by the fiscal year ending in June. Similarly, the bustling transit hub for containers, Singapore’s estimated throughput, touched record numbers in March 2021.
Meanwhile, ports continue experiencing infrastructural challenges with constrained flexibility, shortage of labor, and pandemic-induced restrictions, thus showing reduced port productivity to handle rising cargo volumes.
In the US, carriers are looking for alternatives on the West or East Coast while unable to offload in Southern California. Also, to alleviate terminal congestion, carriers are shifting services away from San Pedro Bay ports to Pacific Northwest and increasingly using the Panama Canal to reach the East Coast.
On the other hand, to deal with congestion, the Port of Antwerp in Belgium, Europe, is making operational adjustments such as increased utilization of inland storage and not allowing containers for export until a few days before they can be loaded.
Port of Antwerp, Belgium
Other strategies that seem to be working are reduction in free days for containers to facilitate quicker turnaround times, while adhering to detention and demurrage charges are encouraging shippers to return containers sooner. Meanwhile, shippers increasingly rationalize limited container availability, space, and cargo with clients and are rescheduling based on priority.
Logistics service providers equipped with advanced end-to-end visibility solutions are managing the disruption better. With real-time visibility of ocean freight movements, proactive management of any impending disruption can be handled more effectively. Therefore, visibility is primary to establish good risk mitigation systems in a supply chain by effectively managing cycle and safety stock inventories.
Supply chain leaders can thus reassess priorities based on the inventory on-hand across the network to meet any emerging or shifting demand and, when needed, redirect deliveries to different locations based on demand. Josh Brazil, VP, Ocean Markets, at project44 recently mentioned in an interview:
Thus, as the US economy recovers from the setbacks of the pandemic and related disruptions in the coming months, supply chain visibility will guarantee a competitive edge to thrive in the new normal. To learn more about our supply chain visibility solutions, contact us today.
February 23, 2021
Port of Los Angeles diverting shipments to ease congestion
It has been reported that the Port of Los Angeles (L.A.) is diverting all shipments to ease out congestion and keep the supply chain flowing, also stressing, these diversions are temporary.
The Port of L.A. and the Port of Oakland, which is impacted by congestion in L.A., are discussing measures on how to minimise supply chain disruptions. One possible way that is being mulled over is by segregating all inland-bound shipments and move them by road overnight. This amounts to close to one-third of the import traffic. To achieve this, careful segregation of marine & inland shipments will need to be done.
