For container lines and ports, what a difference a year makes
A year ago, maritime operators were laying up ships and canceling sailings. By the close of 2020, ship lines were awash with freight, swamping U.S. ports. What’s next?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
A year ago, as ship lines entered 2020, they were laying up vessels and canceling sailings in response to soft volumes, while also facing the looming impact of new emissions standards that mandated use of ultra-low-sulfur fuels or equipping ships with exhaust-cleaning systems.
Then the pandemic arrived. Volumes in an already tepid market fell off the deep end. Ship lines parked more vessels. Ports cut operations, sent employees home to work, and took other measures to adapt.
“When production [from Asia] slowed and ship lines canceled sailings, we saw double-digit drops in cargo” from the spring a year ago, recalls Beth Rooney, deputy port director for the Port Authority of New York & New Jersey.
Then just as quickly as volumes disappeared, they returned—with a vengeance.
“As we ended July in negative numbers, and turned the page to August, we went from a double-digit decline to a double-digit increase,” with strong volumes continuing through November, Rooney noted. That reflected shippers who were responding not only to the pandemic’s initial impact but also to concerns over a second wave. “In anticipation of another shutdown, they are throwing as much cargo into the supply chain as they can, creating a ‘just-in-case’ supply chain,” whereas before, the industry convention was to embrace just-in-time practices, which limited on-hand inventories. “The port as a community has had to adjust very quickly.”
“THE WEIRDEST ECONOMY” IN MEMORY
The initial pandemic-driven surge turned out to be the opening act in a historic uptick in ocean cargoes, catapulting 2020 into, in the words of one port official, “the weirdest economy” in memory. What was normally a spring and summer peak season was supercharged by pandemic-related consumer buying of goods of all types, as well as a crush of orders for personal protective equipment and related health-care supplies. Add to that massive inventory rebuilding by supply chain managers who shifted from just-in-time to just-in-case tactics. And then the traditional holiday shipping surge joined the party.
By November and December, demand, particularly in the all-important Asia-Pacific–to–North America trades, was off the charts. Containership lines pivoted and put every vessel they could muster on the water.
The flood of ocean cargo isn’t expected to ease soon. The consensus among industry executives is that the surge in cargo and the dearth of container capacity will continue well into 2021. And as the U.S. copes with a renewed surge in Covid cases, just-in-case supply chain stocking is expected to keep trucks and warehouses full into the spring.
All this has meant historic records—and unprecedented challenges—for many U.S. ports. In October, the Port of Long Beach handled over 806,000 containers, an all-time monthly record, says Mario Cordero, the port’s executive director. “That’s the first time we reached that milestone in our 100-year history,” he notes. “Add to that what L.A. [the Port of Los Angeles] moved and you’re talking about 1.7 million containers” moving through the Greater San Pedro Basin complex. “That’s more containers than most of our major gateways in the U.S. move in a year,” he says.
And the beat played on. November’s volume of 783,523 TEUs (20-foot equivalent units) at Long Beach was a record for that month. In early December, the San Pedro Bay resembled a giant containership parking lot, with some 20 vessels at anchor waiting for a berth.
While the record volumes certainly presented—and continue to present—challenges, Cordero cites several complete or near-complete infrastructure projects that helped ease the congestion. One was the new $1.5 billion Gerald Desmond Bridge, which opened in the fall of 2020 and has three traffic lanes and an emergency lane in each direction (versus two on the old bridge). Some 65,000 vehicles a day cross the bridge, whose raised height also permits larger ships to enter the port’s back channel.
He also cites Phase 3 of Long Beach’s Middle Harbor redevelopment project. Construction on the port’s new marine terminal is scheduled to finish this March, but two-thirds of the complex is already in operation. When finished, the state-of-the-art terminal will be able to process as many as 3.5 million containers annually. “That terminal alone would be No. 6 in terms of [capacity of] U.S. gateway terminals,” Cordero notes.
GOING OUT OF THE BOX
Ports also are taking an out-of-the-box approach to some of the challenges. At the Port of New York & New Jersey, terminal operators have coordinated to extend hours of operation and add Saturday service, notes deputy port director Rooney. And its Class 1 rail providers, Norfolk Southern and CSX, “have been tremendous partners,” she says, noting that they’ve added more trains to the system.
The port also has reached out across the region to help shippers secure more storage capacity. An initial list published in July identified 65 off-port sites with open areas where containers could be parked. Rooney’s staff updated that list in November. “Of the 65 entities that had space [in July], today, there are only three who have space available. That is remarkable,” Rooney notes. And with airline traffic curtailed by the pandemic, the staff has even considered making unused long-term parking space at the Newark (New Jersey) airport available for container storage.
Given the lack of sufficient off-port storage options and warehouses already stuffed to the gills, shippers have been holding containers longer and using them as temporary storage, Rooney reports. “Shippers are parking containers,” she says. “Containers and chassis that are normally on the street for three or four days now are out twice that long. That impacts capacity.”
She is encouraging shippers to be more mindful of the problem—and to be part of the solution. “We understand there is limited warehouse capacity, but keeping those containers on the wheels prevents other containers from moving out of the terminals,” she explains. “If the terminals get backed up to the point where they can’t take any more, then the ships start to line up outside.
“We are imploring shippers that if you have to store your cargo in containers, at least get them off the wheels,” so the chassis can be returned and redeployed, Rooney adds.
WHAT TRADE WAR?
For ocean carriers and port operators alike, 2020 proved to be a year of reckoning—but not for any of the expected reasons. “No one is talking about fuel or trade wars anymore,” says Jim Newsome, president and CEO of the South Carolina Ports Authority (SCPA), who noted that he was pessimistic going into his fiscal year starting in July. Covid changed all that, he says. “Americans spend a percentage of their income, and when they can’t spend it on movie tickets, ball games, travel, or going out to dinner, they buy other things” like home-improvement items, computers and furniture for home offices, home fitness equipment, and other “around the house” items. “It’s been a defined shift in purchasing of goods related to the home. That has really driven the spike in volumes.”
Bryan Brandes, the Port of Oakland’s maritime director, shares a similar sentiment. “We call it retail therapy,” he says. “With people working from home, there’s been a huge demand for supplies for home-improvement projects.” He notes as well that low interest rates have spurred home buying, adding to the demand for construction materials and manufactured goods for the home, from appliances to furniture to housewares.
The shift in purchasing practices, particularly as more consumers than ever have flocked to e-commerce, has placed a premium on warehouse space, adds Newsome. In response to the rising demand, the SCPA recently broke ground on a new 3 million-square-foot distribution center for Walmart at a port-owned site in Dorchester County.
OCEAN CAPACITY: FROM GLUT TO CRUNCH
For containership lines, the bust then boom of 2020 saw the industry navigate new and unfamiliar market conditions as well. Who would have predicted a year ago, that 2020, despite the pandemic, would turn out to be one of the most profitable years in the industry’s history?
“If you look at January of last year, market conditions were weak,” says Lars Jensen, chief executive of Denmark-based SeaIntelligence Consulting. “Demand growth was at zero percent. Carriers were on their heels,” Jensen says, adding that still today “you have an extremely low order book for new vessels.”
On top of that, a 20-year consolidation push had finally reached its endgame, with carriers embracing capacity discipline and increasingly using canceled sailings to control capacity and maintain rates.
“Then you have the pandemic. That accelerated blank [canceled] sailings. They [containership operators] were extremely good at doing that. They removed capacity within a week of the market collapsing,” Jensen notes.
As the rebound gathered pace, carriers, at first hesitant, began releasing more capacity into the market. With surging demand outstripping supply, “by November everything that could sail was sailing,” and with that, “schedule reliability plummeted to lows we’ve never seen before,” he notes. “All the BCOs [beneficial cargo owners] are screaming bloody murder,” says Jensen. He has spoken to numerous large forwarders and BCOs. Their common take on the market situation: “Now it’s a matter of how much of my contract [capacity commitment] I can move and how much more I’ll have to pay to move the rest.”
“ROLLED” CONTAINERS ROIL SUPPLY CHAINS
One illustration of the service challenges presented by surging ocean cargo volumes has been the increasing number of “rolled” containers, meaning containers that were bumped from the vessel they were originally scheduled to be loaded on. According to an analysis by Ocean Insights, a Germany-based ocean supply chain visibility and market intelligence firm, overall container rollover ratios—which it defines as the percentage of cargo arriving at a port for trans-shipment on a different vessel than planned—rose to 28.5% at leading trans-shipment ports in November, up from 22.2% in October.
“Container lines are trying their best to cope with critical box shortages in Asia, but this is putting more pressure on operations and freight rates,” observes Josh Brazil, Ocean Insights’ chief operating officer. “I think what we are seeing is that the cargo pipeline has maxed out ocean supply chain capacity and this is being reflected in heightened rollover levels, which translates into more disruption for shippers and forwarders.”
Carriers’ efforts to normalize operations have met with mixed success. According to Ocean Insights data, the rollover ratio for Maersk, the world’s largest containership line, increased to 35.1% in October from 32.9% in September. Hapag-Lloyd’s ratio jumped to 37.7% for the same month from 34.2% a month earlier. And shipping line ONE (Ocean Network Express) saw its percentage of rolled containers creep up to 39.3% in October from 38.9% the prior month. Bucking this trend, CMA CGM’s rollover ratio dropped from 40.6% and 45.8%, respectively, in September and August, to 31.4% in October.
LINER PROFITS SURGE
Operating challenges aside, ship owners seem reasonably upbeat about their prospects for the near term. In a November interview with Bloomberg TV, Maersk CEO Søren Skou commented that “global supply chains had quite a lot of bottlenecks and they have driven up prices,” as shippers dealt with a whiplash effect of the steep second-quarter decline in cargo, followed by the sharp rebound. The result, Skou said, has been freight costs remaining unseasonably high, particularly in the trans-Pacific lanes. His comments to Bloomberg came shortly after the Copenhagen, Denmark-based company increased its profit forecast for 2020. “We basically have booked all the orders for the rest of the year [2020], and that’s why we are confident raising our guidance,” he told Bloomberg.
At container line Hapag-Lloyd, volumes at the close of 2020 had mostly recovered from the pandemic-induced slowdowns recorded earlier in the year, noted Uffe Ostergaard, who is the company’s president for the North America region. By the third quarter, “global transport volume was still around 3% below where it had been [in 2019, but] it was still a lot better than we expected it to be earlier [in 2020],” he says.
As cargo volume has accelerated, “we have added all the available capacity, both in terms of ships and containers,” he says. “We are focusing on contractual commitments in addition to optimizing vessel capacity and reducing container turn times wherever possible.” He notes as well that through early December, the company had continued to see “a surge in volume … and we don’t think there will be any significant changes until the Chinese New Year in mid-February.”
Online merchants should consider seven key factors about American consumers in order to optimize their sales and operations this holiday season, according to a report from DHL eCommerce.
First, many of the most powerful sales platforms are marketplaces. With nearly universal appeal, 99% of U.S. shoppers buy from marketplaces, ranked in popularity from Amazon (92%) to Walmart (68%), eBay (47%), Temu (32%), Etsy (28%), and Shein (21%).
Second, they use them often, with 61% of American shoppers buying online at least once a week. Among the most popular items are online clothing and footwear (63%), followed by consumer electronics (33%) and health supplements (30%).
Third, delivery is a crucial aspect of making the sale. Fully 94% of U.S. shoppers say delivery options influence where they shop online, and 45% of consumers abandon their baskets if their preferred delivery option is not offered.
That finding meshes with another report released this week, as a white paper from FedEx Corp. and Morning Consult said that 75% of consumers prioritize free shipping over fast shipping. Over half of those surveyed (57%) prioritize free shipping when making an online purchase, even more than finding the best prices (54%). In fact, 81% of shoppers are willing to increase their spending to meet a retailer’s free shipping threshold, FedEx said.
In additional findings from DHL, the Weston, Florida-based company found:
43% of Americans have an online shopping subscription, with pet food subscriptions being particularly popular (44% compared to 25% globally). Social Media Influence:
61% of shoppers use social media for shopping inspiration, and 26% have made a purchase directly on a social platform.
37% of Americans buy from online retailers in other countries, with 70% doing so at least once a month. Of the 49% of Americans who buy from abroad, most shop from China (64%), followed by the U.K. (29%), France (23%), Canada (15%), and Germany (13%).
While 58% of shoppers say sustainability is important, they are not necessarily willing to pay more for sustainable delivery options.
Schneider says its FreightPower platform now offers owner-operators significantly more access to Schneider’s range of freight options. That can help drivers to generate revenue and strengthen their business through: increased access to freight, high drop and hook rates of over 95% of loads, and a trip planning feature that calculates road miles.
“Collaborating with owner-operators is an important component in the success of our business and the reliable service we can provide customers, which is why the network has grown tremendously in the last 25 years,” Schneider Senior Vice President and General Manager of Truckload and Mexico John Bozec said in a release. "We want to invest in tools that support owner-operators in running and growing their businesses. With Schneider FreightPower, they gain access to better load management, increasing their productivity and revenue potential.”
Economic activity in the logistics industry continued its expansion streak in October, growing for the 11th straight month and reaching its highest level in two years, according to the most recent Logistics Managers’ Index report (LMI), released this week.
The LMI registered 58.9, up from 58.6 in September, and continued a run of moderate growth that began late in 2023. The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.
October’s reading showed the fastest rate of expansion in the overall index since September of 2022, when the index hit 61.4. The results show that the industry is continuing its steady recovery from the volatility and sluggish freight market conditions that plagued the sector just after the Covid-19 pandemic, according to the LMI researchers.
“The big takeaway is that we’re continuing the slow, steady recovery,” said LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University. “I think, ultimately, it’s better to have the slow and steady recovery because it is more sustainable.”
All eight of the LMI’s indices grew during the month, with the Transportation Prices index showing the most growth, at nearly 6 points higher than September, reflecting increased activity across transportation markets. Transportation capacity expanded slightly during the month, remaining just above the 50-point threshold. Rogers said more capacity will enter the market if prices continue to rise, citing idle capacity across the market due to overbuilding during the pandemic years.
“Normally we don’t have this much slack in the market,” he said. “We overbuilt in 2021, so there’s more slack available to soak up this additional demand.”
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
The port worker strike that began yesterday on Canada’s west coast could cost that country $765 million a day in lost trade, according to the ALPS Marine analysis by Russell Group, a British data and analytics company.
Specifically, the labor strike at the ports of Vancouver, Prince Rupert, and Fraser-Surrey will hurt the commodities of furniture, metal products, meat products, aluminum, and clothing. But since the strike action is focused on stopping containers and general cargo, it will not slow operations in grain vessels or cruise ships, the firm said.
“The Canadian port strike is a microcosm of many of the issues that are impacting Western economies today; protection against automation, better work-life balance, and a cost-of-living crisis,” Russell Group Managing Director Suki Basi said in a release. “Taken together, these pressures are creating a cocktail of connected risk for countries, business, individuals and entire sectors such as marine insurance, which help to mitigate cargo exposures.”
The strike is also sending ripples through neighboring U.S. ports, which are hustling to absorb the diverted cargo, according to David Kamran, assistant vice president for Moody’s Ratings.
“The recurrence of strikes at Canadian seaports is positive for U.S. ports that may gain cargo throughput, depending on the strike duration,” Kamran said in a statement. “The current dispute at Vancouver is another example of the resistance of port unions to automation and the social risk involved with implementing these technologies. Persistent disruption in Canadian port access would strengthen the competitive position of US West Coast ports over the medium-term, as shippers seek to diversify cargo away from unreliable gateways.”
The strike is also affected rail movements, according to ocean cargo carrier Maersk. CN has stopped all international intermodal shipments bound for the west coast ports of Prince Rupert, Robbank, Centerm, Vanterm, and Fraser Surrey Docks. And CPKC has stopped acceptance of all export loads and pre-billed empties destined for Vancouver ports.
Connected with the turmoil, Maersk has suspended its import and export carrier demurrage and detention clock for most affected operations. The ultimate duration of the strike is unknown, but the situation is “rapidly evolving” as talks continue between the Longshore Workers Union (ILWU 514) and the British Columbia Maritime Employers Association (BCMEA), Maersk said.
Terms of the acquisition were not disclosed, but Mode Global said it will now assume Jillamy's comprehensive logistics and freight management solutions, while Jillamy's warehousing, packaging and fulfillment services remain unchanged. Under the agreement, Mode Global will gain more than 200 employees and add facilities in Pennsylvania, Arizona, Florida, Texas, Illinois, South Carolina, Maryland, and Ontario to its existing national footprint.
Chalfont, Pennsylvania-based Jillamy calls itself a 3PL provider with expertise in international freight, intermodal, less than truckload (LTL), consolidation, over the road truckload, partials, expedited, and air freight.
"We are excited to welcome the Jillamy freight team into the Mode Global family," Lance Malesh, Mode’s president and CEO, said in a release. "This acquisition represents a significant step forward in our growth strategy and aligns perfectly with Mode's strategic vision to expand our footprint, ensuring we remain at the forefront of the logistics industry. Joining forces with Jillamy enhances our service portfolio and provides our clients with more comprehensive and efficient logistics solutions."