Have you been notified that the delivery of a product you ordered is being delayed? Or have you gone to a store and seen a “temporarily out of stock” sign on a shelf?
These inventory issues are most likely being caused by the delay in cargo arriving from Asia to West Coast ports. On top of the delays, freight costs have skyrocketed. According to the Maritime Executive Magazine, “With global demand remaining high for the container carriers, long-term contracted ocean freight rates stand at a remarkable 85.5% higher than a year ago.”
The two largest ports on the U.S. West Coast, Long Beach and Los Angeles, are severely backed up and the problem only seems to be getting worse. Workers are desperately laboring hard to unload containers off ships, as more and more vessels arrive. Recently, at the two ports, all dock terminals were busy unloading container ships, while more than 70 other ships floated along the coast waiting for their turn to be unloaded. Literally, billions of dollars of product are floating offshore. Frequently, ships are taking more than one week to be docked. This in direct contrast to pre-pandemic times where ships waited very little time to be unloaded.
Three factors seem to be at play in causing the current delays.
The first is the growing consumer demand on behalf of the American public, which has endured 18 months of pandemic strain, and now is in a buying frenzy. The automotive, consumer product, and housing sectors are experiencing high demand. Many of the products and/or components to manufacture items such as automobiles, computers, and cell phones come from Asia via ship to the U.S. Suppliers and manufacturers are struggling to keep up with the demand.
Second is the fact that current port infrastructure is not equipped to handle the spike in demand. We are living in extraordinary times, and infrastructure cannot be improved overnight to expand service at ocean ports of entry. Think of the Arab Oil Crisis of the early 1970s. The Organization of Petroleum Exporting Companies, angered by the U.S. support of Israel during the Arab-Israeli War, enacted an oil embargo on the U.S., which caused shortages of fuel. Consumers were lining up at gas stations, sometimes for miles to purchase fuel. As the demand for fuel went up, gas stations were not able to expand their operations and construct new filling lanes quick enough to provide service. This is the same situation that the major ports of entry find themselves in, as pertains to demand.
The third factor causing backlog is the ships themselves. Today’s container ships are up to triple the size of ships that were being used 10 years ago. The capacity of a cargo ship is measured in 20-foot equivalent units or TEUs – this refers to a measurement of a container that is 20 feet long. The largest ships are now able to carry more than 23,000 TEUs, with ships slated to be delivered capable of carrying more than 24,000 TEUs. Larger ships require longer times to be off-loaded. More workers, equipment and even storage space are needed to accommodate shipments. This causes a logjam of ships waiting in line for their turn to be unloaded, and the situation exacerbates itself.
Delays have become so serious and unpredictable that larger firms are attempting to control their risk. Companies such as Home Depot and Walmart have begun leasing their own ships in an attempt to control the delivery times of their shipments. While these leased ships might also fall into the holding pattern of vessels waiting offshore from ports, it saves them from having to get in line to book their merchandise on major cargo ship lines.
In an effort to alleviate congestion, the Port of Long Beach is implementing a new pilot program to allow trucks to access cargo between 11 p.m. and 1:30 am. This will allow them to move more cargo out of the port and to transport it on highways at times in which there is less traffic. Many clogged ports are now studying the feasibility of moving to 24/7 operations.
In spite of efforts such as these, the backlog of container ships offshore that are waiting days to be unloaded does not appear to be abating in the near future. Current demand remains high, and the holiday season is right around the corner. In spite of the U.S.-China trade war and the tariffs it is imposing on goods imported from China, Americans will continue to buy economical Chinese goods that are shipped to us via sea containers. The largest ships in the world, at more than 24,000 TEUs, will see final construction and delivery in less than two years.
As these factors converge, beachgoers and surfers will continue to see a familiar fixture off of the southern California Coast – cargo-laden ships waiting their turn to dock.
Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit trade counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or at firstname.lastname@example.org.