For what used to be a 30-40 day trip on the water…we’re now seeing 60-75. What’s going on with shipping?
Unfortunately, Covid 19 continues to cause disruptions and they keep coming wave after wave.
- The first disruption occurred back in March. Global demand for PPE skyrocketed, competing for container space worldwide as panic ensued in the early days of the pandemic.
- Disruptions continued well into the summer. In Q1 across many industries, to generate cash during shutdowns, companies burned off inventories to cover payroll and taxes. In Q2 consumer demand returned and with it an urgency to restock shelves, resulting in continued high demand for shipping space.
- Then in late summer, demand kicked in to get inventory before tariffs affected the cost of goods.
- Disruptions are expected to continue beyond Chinese New year (February 2021) due to shortages in labor coupled with skyrocketing demand. Air rates continue to climb, and sea freights have doubled compared to a year ago.
Finding enough workers is causing havoc in every sector of the logistics industry: in warehouses, on boats, in shipping ports, rail, and trucking — causing boats to queue up in harbors around the world.
For example US imports from Asia moving through Los Angeles–Long Beach in September increased 22% from the previous year, according to PIERS.
Overloaded marine terminals
In an interview with JOC, Dan Smith, principal at the Tioga Group said, “Marine terminals in Los Angeles–Long Beach appear to be operating at 80 to 85 percent utilization, which means on peak days they are operating at 105 percent of capacity. It’s killing everybody up and down the supply chain.”
High demand coupled with labor shortages are the chief causes of boats waiting in long lines outside ports. Container dwell times at the terminals increased from an average of 2.8 in July to 3.25 days in August. It’s also the highest dwell time since February, according to the Pacific Merchant Shipping Association, which represents shipping lines and terminal operators.
Increased average truck turn times
According to the truck mobility report published by the Harbor Trucking Association, average turn times have consistently increased each month from a record-low 58 minutes in June to 77 minutes in September.
Additionally, the average number of trucks taking more than two hours to complete a transaction was 21% in September, which is significantly up from 18% in August and 14% in July, and the highest percentage since February 2019.
Shipping options are dwindling
In some cases, demand is getting so high that one “Northern California logistics consultant was unable to book containers on the Burlington Northern Santa Fe (BNSF) or Union Pacific (UP) railroads for the first week of September going to and from the U.S. West Coast ports and Midwest destinations.” according to AJot Insights,
The consultant said, “I have been working in the industry for thirty years and I have never seen anything like this. It’s weird.”
Shipping cost is increasing, despite delayed shipping times
As demand skyrockets and shipping times slow (if you’re lucky enough to secure shipping at all), and prices are going up. In an August 27th analysis, Trains Magazine reporter Bill Stephens said that Union Pacific (UP) “has used increasingly expensive surcharges in California – first $500 per container, then $1,500, and now a record $3,500, the Journal of Commerce reports – that tell potential low volume customers to hit the highway. This hurts UP’s partners, the intermodal marketing companies it relies on to fill its railroad-supplied containers.”
Furthermore, consolidation in the shipping industry itself in the last decade is pushing up prices. According to Ira Albucher of USPTI, “Five years ago, there were 20 freight carriers, and today we are down to 8-9 carriers.” That gives carriers unprecedented power over pricing.
It’s taking longer to pay suppliers
More cash tied up on the water is squeezing suppliers and putting them at increased risk of financial problems. According to the Wall Street Journal, “On average, large nonfinancial U.S. companies took 60 days in the second quarter to pay suppliers, according to Hackett Group, a 10-year record.”
How to hedge your bets for ontime deliveries
So we’re not going to sugarcoat it. This is clearly an issue that’s affecting everyone moving goods around the globe. Experts in logistics believe we won’t see relief well into Q2-3 of 2021. In the new world order, global demand volatility has caused a major shift from Just in Time to Just in Case inventory, in order to keep customer service (and revenues) up.
There are several things you can do keep goods flowing:
- Planning is more critical than ever. Be proactive with freight forwarders, speak to them weekly. Offer them 30 day rolling forecasts.
- Book capacity as far in advance as possible. Predictability yields better rates.
- Consolidate volume with one shipping company for maximum negotiating leverage.
- Perform due diligence. If you haven’t done a cost analysis in awhile, it may be time to put your business up for RFQ, even if you keep your existing freight forwarding company.
Finally, rely on professionals you can trust. Over the past few months, teams at CMD have been performing numerous shipping cost reviews and finding creative ways to improve delivery times. We’re proactively reviewing our Clients’ current logistics strategy, inventory position, and more – to keep goods (and revenues) flowing.
Worried about too much cash tied up on the water? Contact Us to explore options for weathering the capacity storm.