Every step of the global supply chain is going wrong — all at once
The twin ports of Los Angeles and Long Beach became the most essential gateways for the American economy over the past century as the country expanded its economic reach beyond Europe and more toward Asia. But recently, you name a supply-chain issue, and the two West Coast hubs that account for almost 40% of the country's imported goods are likely suffering from it.
Ships making the two- to three-week voyage across the Pacific are forced to spend just about that much time waiting in line in southern California before they're allowed to dock and discharge payloads of thousands of containers.
The bottleneck means companies that hire the shipping lines to move their goods have to place orders several months in advance, pay much higher rates and often order in larger quantities than they have in the past to ensure enough inventory is on hand.
The time it takes for goods originating in Shanghai to reach their destinations through the San Pedro Bay ports has more than doubled to 62 days since January 2020, according to freight forwarder Flexport Inc. Meanwhile, it currently costs $10,000 to $15,000 in the spot market to ship each 40-foot container from China to the West Coast, more than five times the pre-pandemic rate.
While turbocharged consumers are among the few engines of growth that are healthy enough to pull the economy out of its pandemic funk, the supply side is straining to keep up.
Increased demand for imports hits a wall when there aren't enough truckers or warehouse workers. At the same time, late-arriving ships, old infrastructure and stretched rail networks, combined with pandemic workplace restrictions, have further complicated matters.
The bottom line: A global transportation system linking factories to consumers wasn't designed to operate for long periods at peak capacity as the transpacific trade lanes have been doing. The system reached its breaking point in November, and though officials are optimistic the worst may be over, it may take months more to untangle.
How Do Ports Work, Anyway?
It's easier to understand the crunch at the Los Angeles and Long Beach ports when you consider its massive scale and the intricate process of moving containers from ship through its gates and back. The ports sit on a combined 7,820 acres of land, have more than 150 cranes for moving containers and almost 50 terminals. Together they welcome 3,600 vessels and handle some 17 million 20-foot equivalent containers a year. A bump in any step in the process can grind everything to a halt. Here's what's happening:
The adjacent ports of Los Angeles and Long Beach are the ninth-biggest container port complex in the world.
Arriving ships join a queue and are organized in two basic groups: those that are occupying a designated anchorage spot and those that will wait in deeper water further offshore until one of those spots opens up.
When a ship arrives at a berth, cranes remove the containers one by one, setting them on yard trucks so they can be carted to a staging area where they'll await pickup by trucks or get loaded onto trains.
The trailers that containers sit on to be moved are called chassis, and they have been in short supply over the past year because the flood of imports overwhelmed the capacity of the chassis pool.
Containers leave the port either on a truck chassis or by rail, and Los Angeles has the advantage of some 116 miles of on-dock rail and six rail yards.
Trucks with trailers line up at this gate to do one of three things: drop off an empty container and pick up an imported one—the efficient so-called dual transaction; drop off an empty or full container for export and leave with an empty trailer; or enter towing a chassis to pick up a full container.
Empty outbound containers have been piling up too, sitting on real estate that could be used for inbound containers.
The logjams don't end at the port. Southern California has some 2 billion square feet of nearly full warehouse space, too. And its railroads and highways serve as arteries for imports reaching as far as the Heartland. So like a traffic accident on a foggy morning, the influx of goods is piling up all along the routes to their final destinations.
The First Pain Point: Ships Must Wait for Berth
Today's delays begin before ships even pull into a berth. What started a year ago with a half-dozen container ships that dropped anchor in the bay nearby has ballooned into a maritime parking lot that currently exceeds 70 vessels waiting an average of more than 18 days.
Ships are unloading much more slowly than usual because the containers that are hoisted onto the docks aren't moving inland fast enough, instead sitting on port property for weeks as warehouses and container yards across the region overflow.
There's Nowhere to Unload Containers
The e-commerce boom fueled by the pandemic has meant more cargo entering the U.S. than ever before. But once dockworkers unload containers full of Asian-made goods, the lack of yard and warehouse space to store them often leave the metal boxes with nowhere to go.
A ship has a limited amount of time at berth, so dockworkers often try to load both empty and full containers onto the ship while the import boxes are coming off. With empties crowding the ports as they await export, there's little room for the arriving freight.
In an effort to incentivize companies to clear cargo fast, the twin ports announced a fee on ocean carriers that fail to clear containers off the docks. Since they unveiled the plan in October, the number of containers sitting on the docks has dropped by almost 30%, the ports said last week.
The San Pedro Bay ports generate more than 170,000 jobs in the cities of Los Angeles and Long Beach alone and almost 3 million positions countrywide. The more than 9,000 longshoremen, clerks and foremen working at the twin ports are on the front-line of the supply chain, having moved almost 17 million twenty-foot equivalent units so far in 2021.
But with International Longshore and Warehouse Union contracts expiring next summer, negotiations could throw a wrench in plans to clear the backlogs. The last time contracts were discussed in 2014, West Coast ports faced months of slowdowns that only got resolved when the White House got involved.
For now, the union says it's "fully focused" on moving cargo quickly and safely, Bloomberg reported earlier this month.
A Shortage of Chassis Means Containers Can't Move
A shortage of truckers and chassis is also making matters worse. The U.S. is currently lacking about 80,000 drivers, according to the American Trucking Associations. At the same time, chassis are also scarce, with many stuck under empty containers, while tariffs have made it more difficult to import new ones from overseas.
The chassis available at L.A.-Long Beach are managed by what's called the "Pool of Pools," an agreement between three major operators with a fleet totaling more than 56,000 of the trailers serving 11 terminals and four local rail facilities. The latest readings on their utilization rates are hovering the highest levels of the year.
Empty Containers Get Loaded Back Onto Ships
Roughly four in five containers leaving the Port of Los Angeles are now empty, up from three in five pre-pandemic. The carriers are expediting them back to Asia so they can charge high rates for the U.S.-bound journey. In October alone, more than 335,000 empties left the nation's largest maritime hub, bringing the number of empty containers exported in 2021 so far to 3.3 million.
Before the pandemic, carriers had more flexibility to wait until they could fill some of the empty containers with American goods before shipping them back to Asia. But with containers piling up fast and officials threatening to impose fines on metal boxes that stay idle for too long, companies have felt the pressure to get rid of empty containers.
Trucks Line Up to Get Goods Out of Port
In a bid to move cargo in and out of the twin ports faster, California officials opened the 20-mile-long Alameda Corridor in the early 2000s to serve as a freight expressway for trains and trucks.
Three decades later, the corridor can't fully accommodate the thousands of trucks that navigate the region every week. As a result, heavy-duty trucks often drive by residences and schools to avoid the congestion. Sometimes, truckers will go as far as abandoning containers and chassis in those same streets. In Wilmington, a blue-collar community located in the ports' backyard, more than 400 illegal parking citations have been issued so far in November, according to the Los Angeles Port Police.
But residents say the citations, which range between $73 and $98, aren't enough. "It's like the Wild West," said Gina Martinez, co-chair of the Wilmington Neighborhood Council. The 54-year-old says the majority-Hispanic community has been grappling with truck traffic since at least the ports began expanding a decade ago, but that the ongoing supply-chain issues have made things worse. Containers "just keep coming in and coming in," Martinez added.
Crowded Warehouses
Another key factor clogging the supply chain outside ports is the warehouse crunch across southern California, where vacancies in the existing 2 billion square feet are near 1% and rents have jumped 30%. In the Inland Empire development, east of Los Angeles, about 20 million square feet of new space is under construction in a market that still needs 50 million to meet demand. Why such a deficit? More supply-chain problems, of course, including delayed shipments of building materials like doors and conveyor belts that are stalling construction.
While smaller businesses get caught-up in the southern California port snarls, larger companies are coming up with alternatives to avoid the twin hubs.
In a race to beat supply-chain bottlenecks, some big-box retailers including Walmart Inc. and Target Corp. began chartering their own vessels, fueling all-time high holiday inventories. At the same time, Amazon.com Inc. has been relying on alternative gateways, from California's neighboring port of Oakland to as far as Houston in the Gulf Coast. But these increased shipping costs will likely translate into fewer discounts for consumers.
As the holidays approach and once-abstract supply-chain issues materialize as lower inventory and higher prices, consumers who barely noticed ports before the pandemic grow wary of the impact disruptions are having on their daily lives. Almost two-thirds of Americans are now saying snarls will impact their Black Friday shopping, according to research firm Toluna.
But the snarls, port directors, officials and specialists alike say, are likely to last way beyond this Friday.
Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement.
