Date: Thursday, February 11, 2021
Source: Sourcing Journal
The backlogs at the West Coast ports, creating bottlenecks for vessels waiting for an open dock, aren’t likely to end anytime soon.
That’s the conclusion of Will Urban, chief revenue officer of freight forwarding company Flexport, who cited several reasons why he anticipates the congestion will continue, and doesn’t expect market conditions to improve until April or May of next year.
Urban said he saw a huge influx of shipping in March of last year as Chinese factories came back online following the initial Covid outbreak there. Shortly after, however, American companies were shut down, creating a sizable lag. When everyone started to come back online, they were left trying to figure out how to both move and source cargo, he said, noting that he saw an “incredible surge.”
“The segments that are really heavy are anyone that is providing goods and services to home goods retail markets [and] electronics because everybody’s at home, instead of using discretionary spending around other things like travel and eating out,” he said. “And so, those type of retailers have just been booming. And quite honestly, now we’re in this area where we can’t get enough capacity from an ocean stamp.”
Remaining Covid issues and the Chinese New Year are also adding to the capacity problem. Typically what happens with Chinese New Year is that factories shut down for two weeks so workers can go home to celebrate and visit with their families. That usually leads to a surge in air freight prior to the start of the Lunar New Year and immediately after it ends.
“But what we’re seeing right now at many factories, because people can’t get together, [is that] we don’t anticipate Chinese New Year [to have] a rush of factories closing because people go home and spend that week with their family, since they can’t move around,” Urban said.
Urban, speaking Wednesday at an S&P Global Market Intelligence event on “Recovery and Resilience: Supply Chain and Logistics Planning in 2021 and Beyond,” also noted that the Port of Long Beach usually has an average of one or two vessels waiting for a dock to become available, but now that the number—as of Wednesday morning—has grown to 32.
Urban said that 20 to 32 has been the range over the past two months. “That’s pretty incredible. The backlog is really crazy. And the problem is that we have an influx of import versus export now. Obviously, there’s always more import cargo coming into the United Sates, but there was a normal cadence,” he said. The backlog has gone on for some time, creating unprecedented levels of congestion in Long Beach, and all along the West Coast from ports in California to Washington, he added.
Urban said another reason the backlog is likely to continue is because there were fewer ocean containers produced last year during the first half due to Covid. “So, we’ve got a lack of equipment in the marketplace. And then the other piece of that is we just don’t see the volume slowing down. And so all this is a perfect storm. And then you also have all kinds of issues at the docks,” he said, noting that Covid is limiting the number of healthy and available dock workers.
“We would love to say that it’s going to clear up, but we think these capacity crunches continue easily into the middle of next year. And as things start to slow down a little bit on the order side, the export or reposition of containers should start to catch up with it at that time. And then we should see a little bit of evening out with the capacity,” he said.
Urban also said the idea of reshaping supply chains due to reshoring to create jobs in the U.S. is a great one, but that’s not easy to do because it’s hard to “unwind” an international supply chain and manufacturing base overnight. Many components in the manufacturing process took years to build up, he added. That said, Urban believes that some industries might be able to shift and move things to North America, particularly if they work with contract manufacturers with a presence in Mexico.
As for what could improve the logistics process, Urban said he’s looking at ideas in digital transformation to help with supply-chain transparency, such as blockchains. That would enhance visibility so companies can see where things are in the network at any given time.