Logistics Mess Must Work Itself Out
The logistics mess has been of concern to farm groups for the past year and longer. As consumer spending rebounded from the COVID-19 lockdown, an existing container imbalance got worse, with containers full of consumer goods coming from Asia earning 10 times more than containers with U.S. ag products going to Asia. The result has been some specialty ag products being stranded or delayed. Pork producers complain that they are forced to send frozen pork to China, instead of the chilled pork Chinese consumers would pay a premium for.
Accusations of unfair practices by shippers and container-handlers resulted in a months-long investigation by the Federal Maritime Commission and a bill in Congress introduced August 10, the Ocean Shipping Reform Act, still pending.
As the holidays approach, the logistics mess has come front and center in public consciousness. Consumers are warned to do their Christmas shopping early this year. The Post Office has reduced its level of service. Manufacturers are finding it hard to get parts. The cost of consumer goods is rising, driven at least as much by increased costs in the supply chain as by inflationary monetary policies.
The difficulty is that there is no one cause to address. In China, continued outbreaks of COVID-19 have restricted activity in ports and factories. A crippling energy shortage has also shut down some factories in China—where many U.S. consumer goods are produced. Container ships are backed up on U.S. West Coast ports. According to FreightWaves, on October 20 a total of $22 billion in cargo was waiting on West Coast ports, with the average wait time to unload in Los Angeles a record 13 days. On one day, the aggregate capacity of the waiting vessels was estimated at 512,843 twenty-foot equivalent units.
There is little President Joe Biden’s administration can do about any of these things. Ocean trade is in the hands of foreign-based companies. Terminal operators must decide how best to operate the ports, and whether they want to pay longshore workers high overtime rates.
In August, it was reported that non-vessel-operating freight forwarders were making record profits. Container carriers may make 10 times the profits they made the year before. Retailers like Walmart are now directly chartering their own container ships rather than deal with third parties. Shipping professionals are reaping windfall profits. That’s the business cycle. Not too long ago, container carriers were losing money and scrapping brand new ships. As with energy, shipping is very much a boom-and-bust business. Profits during times of high demand make up for losses during down times.
Shipping experts are telling trade publications like American Shipper that the logistics chaos will continue well into next year. The problem ultimately calls into question the just-in-time shipping model that reduced the use of inventory and assumed that every part of the world trade and shipping machine would work smoothly at all times.
Barges, too, are enjoying higher rates, but also facing some of the same challenges. One part of the logistics crisis that is shared by trucking and barging operations is the shortage of motivated labor. This crisis has been building for years, since long before COVID-19, which worsened it. Not enough young people are attracted to the trucking or barging life, despite the rewards and possibility for quick advancement. A lot of boomer truck drivers retired, and the industry cannot attract enough new recruits, even with hiring bonuses and policies like recruiting more women drivers or allowing husband-and-wife driving teams.
As always, barges remain the most cost-effective choice for bulk customers.
