One lesson that has stuck with ocean containership operators from the pre-COVID years of slack profits is the value of aggressively managing capacity. By one industry estimate, that focus (coupled with two years of COVID– and e-commerce–fueled volumes) helped the world’s major containership lines generate more profits in the past two years than in the previous 20 years combined.
Moving into the second half of 2022, that focus remains as intense as ever, particularly in the face of rising bunker fuel (also known as fuel oil) costs, persistent inflation, and wavering demand, which is beginning to swing pricing power back to the shipper.
“It’s a murky picture,” admits Lars Jensen, principal at consulting firm Vespucci Maritime. “But it does look like the market is softening. The [ship] alliances are very good at managing capacity. I expect they will try and do the same if the market takes a major downturn in demand.”
However, Jensen notes that the makeup of providers working the Pacific trades has changed from what it was a couple of years ago, which likely will influence available capacity—and pricing. In 2017, some of the major shipping container companies formed three separate alliances: 2M, The Shipping Alliance, and the Ocean Alliance. Members of an alliance operate services jointly and pool their resources. For years, the alliances dominated the North America–Asia trade lane.
“What is different [today] is that we have seen the introduction of a large number of nonalliance carriers coming into the market, with mostly smaller vessels,” Jensen observes. “That’s 30% of overall capacity that’s operating outside of the services provided by the alliances themselves.”
That’s an X factor that could affect rates and the alliances’ ability to blunt the impact of weak demand through blank (canceled) sailings, he notes. In a softening market, “the newcomers will keep those ships going; these are smaller vessels taken on at expensive charter rates. If a downturn occurs, we will see those carriers reducing rates to keep their ships full,” he says.
These dynamics add a fresh layer of unpredictability for shippers as they seek to secure reliable capacity at reasonable rates. At the same time, they face lingering congestion concerns at ports, many of which are facing record volume levels.
West Coast: Gearing up for peak
As peak shipping season gets underway, port officials are working hard to avoid a repeat of last year, but issues still remain. Volume is already ramping up at the ports of Long Beach and Los Angeles, which are the gateway for 35% to 40% of the seaborne containerized cargo coming into the United States. At the Port of Long Beach, Mario Cordero, executive director, says June volumes reached 835,412 TEUs (twenty-foot equivalent units), up 15.3% from the same month last year and surpassing the previous record set in June 2018. For the first half of 2022, the port moved 5,007,778 TEUs, up 5.3% from the same period last year. The second quarter also was the port’s best quarter overall, with 2,547,119 TEUs moved from April 1 to June 30, breaking the previous record set during this year’s first quarter.
Meanwhile progress has been made getting ships through the port. The number of vessels waiting in San Pedro Bay, which was as high as 109 in January, had been worked down to 18 in July. The port had also been making progress in getting containers out of terminal yards and onto trucks or trains. Earlier in the year, long-dwelling containers at both the Long Beach and Los Angeles ports had declined by about 25% compared to last October. But the number of excessively delayed containers is on the rise again. As of mid-July, there were nearly 29,000 containers dwelling at Long Beach nine days or more, an increase of 9% from October 2021.
The problem is especially worrisome on the rail side. “Lack of rail capacity is impacting the movement of IPI [inland point intermodal] cargo, those containers earmarked to move by rail,” says Cordero. “That’s a primary concern. The average dwell time is up to about 10 days for a rail container.”
Nevertheless, Cordero is optimistic about the remainder of the year. Southern California’s ports move some 20 million containers annually, “and one thing we know for sure is that number is not going to get any smaller,” he says.
East Coast: A “staggering” increase
Volumes are also increasing at a high rate at East Coast ports. The Port Authority of New York & New Jersey is handling 33% more containers than it was during the same period in 2019, according to Beth Rooney, who was recently named director of the port department. “That staggering increase … is a picture of what it is that the entire supply chain and all of the various nodes and links are trying to handle and absorb,” she noted.
One factor that Rooney says likely contributed to the port’s volume growth in May was shippers rerouting freight from the West Coast out of concern about potential labor disruptions there. The International Longshore & Warehouse Union and the Pacific Maritime Association are currently in the midst of contract negotiations. Rooney notes that by her staff’s calculation, 6.5% of the port’s growth through May represented cargo rerouted from the West Coast. “When you look at the total import volume growth of 11.5%, that’s a good chunk,” she says.
That volume increase is having a significant effect on the port’s operations. In May, some 107 ships had to wait at anchor for a berth. The average wait time was 4.5 days, up from the year-to-date average of 3.8 days. Container dwell time remains an issue, with some import containers sitting in the terminals two and three times the three- to four-day average. “Empties are piling up at the terminals,” Rooney said. “Ocean carriers are working to reduce the number of empties in the facilities, but it’s not enough and it’s not fast enough.” The port’s trucking partners are sitting with empties with no place to return them, “so the chassis is not available to pick up the next import container,” she said.
The port is getting creative in finding off-terminal space for empty containers. One new empty container depot was created by relocating automobiles formerly stored there. Another was developed by consolidating multiple areas where commodities were staged into one, freeing up more space for empties.
Ship lines have added more empty loaders as well, with 13 coming into service through May. Additionally, Rooney and her team have successfully convinced some of the ship lines to do more load balancing. Under this practice, for example, “if a ship line takes off 1,000 [loaded import] containers, it will put on 1,000 [loaded exports and empties],” she explained, thereby lessening the amount of port space those empties take up.
Other ports are also taking steps to improve efficiency and alleviate congestion. For example, the Port of Virginia at Norfolk handled a record-setting 3.7 million TEUs for its 2022 fiscal year, an increase of nearly 15% compared to fiscal 2021. One way the port is responding to this volume increase is by investing in its own chassis pool. The port planned to add 600 new chassis a month from June through September, which will bring the total to 16,000. Additionally, in May, the port commissioned two new ship-to-shore cranes at Norfolk, increasing lift capacity by some 200,000 units annually, and added 15 new shuttle trucks. According to Port Spokesperson Joe Harris, ships typically are turned in 12 to 16 hours (depending on the volume to be handled), and turn times for drayage drivers “are best in class, less than 40 minutes.”
The Port of Oakland meanwhile is hoping to rebound from the congestion issues that it experienced last year by working closely with all stakeholders. “We are working proactively with the ship lines, terminals, and truckers to reduce container dwell [times],” says Maritime Director Bryan Brandes. “We’ve adjusted free time at the terminals and made tariff changes to incent faster movement of containers.”
What can shippers do to survive and compete in these unsettling times? According to Brandes, many BCOs (beneficial cargo owners) are spreading out their volumes over the remainder of the year “so they won’t get caught short in peak.”
Others are adopting a strategy centered around flexibility and increased visibility. Nicholas Najjar, director of transportation and distribution planning for the dairy products cooperative Land O’Lakes, says that his team have rewritten processes, adopted new tactics, taken over some activities once done by their forwarders and customers, and offloaded others to those partners with an eye toward more collaborative, efficient, and timely execution. He advises other shippers to follow suit and “be prepared to change your script.”
“We’ve pulled out all the stops to see where we have success,” he says. “Everything is moving so fluidly, you have to stay on top of it daily.”
Gary Frantz is a contributing editor for CSCMP's Supply Chain Quarterly and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
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