Commentary: Breaking the backbone of trade

Feeder vessel services which travel that trade lane are the backbone of maritime logistics. They expand the flow of trade by collecting containers from the smaller ports and transporting them to central container terminals so they can be loaded onto larger vessels to continue the trade journey.

When the feeder vessel services are halted or thinned out, the consequences for exporters, particularly U.S. ag exporters, can be costly.

“Not only we are having delays getting our product exported out of the United States, these coronavirus-related diversions delay our products from shipping. Fruit exporters have had their product rot in containers in some cases due to lack of hookups at the terminal. That is real money lost that cannot be recouped. This will disrupt 2021’s crop year.”

So how much container capacity is being taken out of the system? A lot. Based on the MarineTraffic’s Port Call Arrival/Departure data, the precipitous drop in vessels out of the ports of Ningbo, Shanghai and Tianjin reflects a distinct trend on a weekly basis.

Adil Ashiq, MarineTraffic’s executive for the North America West Coast, analyzed the data. “It seems to be a nearly weekly trend in all of China. Last week 179 container ships arrived in Ningbo, China. The week before that 207 and the week before that 217. There are 83 expected to arrive in the coming days. Based on this analysis the number of vessels calling into a China port is downward trending.”

“2020 has proven one thing — nothing is too far-fetched to be surprising anymore when it comes to trade,” Ashiq continues. “With 2021 now upon us, any number of factors ranging from COVID, congestion, container shortage or geopolitical reasons can and will impact global trade. We’ve seen a steadily declining number of container vessels calling into major Chinese ports such as Ningbo, Shanghai and Tianjin, which may signal trouble for exporters looking to move cargo volumes.”

The pullback is also being tracked in the Asian ports of Busan, South Korea; Klang, Malaysia; Taiwan; and Yokohama, Japan.

“This could be due to a recent Export Control Law which went into effect on Dec. 1, 2020, in order to squeeze the U.S. in its trade wars,” explained Ashiq. “Other factors may include the oncoming Chinese New Year, rising COVID cases as port congestion takes a toll on major U.S. West Coast ports, or further shortage of available empty containers.”

This squeeze, in the end, will hit sectors beyond agriculture.

Guangzhou, a huge manufacturing province in Southern China, relies on this movement of cargo. With no transshipment being allowed, delays in other sectors like consumer goods and electronics are expected.

Rick Helfenbein, retail and fashion industry consultant and former chairman, president and CEO, American Apparel & Footwear Association, said this will not help with an industry already struggling to play catch-up, given the surge in online buying.

“The industry is getting smacked from both coasts,” said Helfenbein. “Here in the U.S., many shipments are running late, because COVID-19 has reduced the dockside labor force. They can’t be unloaded fast enough, and the line of ships at anchor outside the ports of Long Beach and LA continues to grow. Now you have China reducing the feeder ships. This means you have to move the product by truck. There is no reprieve.”

In addition to the vessel limitation, the mandatory countrywide quarantine will also pose a challenge. If anyone travels within China for the Lunar New Year, they must quarantine for 14 days. Medical and consumer product factories that informed Worldwide Logistics they will not close during the holiday will face a challenge to find workers and truckers. This will impact critical exports of personal protective equipment.

“Normally Lunar New Year is a time where the ports can play catch-up in the movement of containers. There are not enough blank sailings to do this,” explained Jon Monroe of the ocean transportation and intermodal supply chain company Monroe Consulting. “What are the carriers thinking? They want to run everything through Chinese New Year and the bottleneck at the ports will only grow.”

The bottleneck has also impacted U.S. rail service for some.

Silvana Jones, logistics director for SA Recycling, said, “This is the worst slowdown we have seen since the union slowdown in 2014, and 2015. One carrier that we have been using for 15 years has rejected 100% of our exports, another, 50%,” Jones explained. “We are a low-cost commodity and now our freight has been tripled in a matter of three weeks by the carriers — this does not go along with the price of the scrap. We will lose money. On top of that, our containers were put on embargo for two weeks in El Paso. It is very hard to get our exports accepted. Our line of business helps the environment and is still being rejected by many shipping lines! Thankfully, we are able to sell our recycles domestically so we are one of the few lucky ones.”

Tim McMahan, a public affairs director at Union Pacific, explained, “The UP customer had inventory backing up at our ICTF facility in December due to their inability to secure capacity on a vessel sailing West from LA. After proactive efforts to work with the shipper on the issue, UP took a temporary, targeted measure to embargo that customer’s inbound traffic to ICTF. The customer reduced its inventory and UP lifted the embargo Jan. 18. There was no broad lane embargo in place.”

The delays in processing the vessels in the Port of Los Angeles have not only impacted exports, they have added significant travel time to the schedule of the vessels. This is creating arrival postponements at subsequent ports. These interruptions are fueling the urgency for vessels to get back to China. Returning empty containers that are faster to reposition over U.S. ag exports, which are slower to unload, is one of the strategies. The result of this however is a mountain of U.S. exports waiting to be transported.

“You can’t hide from this,” said Leslie Barth of Capay Canyon Ranch, a grower of almonds, grapes and walnuts. “Almonds are the sacred nut for the Chinese during Christmas and Chinese New Year. We are seeing an average delay of two to three weeks. I am desperately looking for other ports. I’m shut out at Oakland. We are now looking at Houston.”

The rollover in bookings and cancellations is also being seen in the Ports of Tacoma and Seattle. Courtright says approximately 75% of their product is not being shipped out on its normal schedule and requires constant adjustment.

“Our product is a necessary animal feed in Asia but the delays stemming from the Port of Los Angeles as well as the Port of Seattle/Tacoma have created a chaotic shipping schedule,” explained Courtright. “We are seeing delays and cancellations to original shipping schedules causing a wide array of problems for us and our customers. With such strong import demand, carriers are taking a higher percentage of empty containers back to Asia than normal in order to take advantage of higher-than-average import rates. I do not blame the carriers for this financial decision, but it is causing significant problems for us as exporters. We are seeing less vessel space available than normal, which is troubling looking forward. In addition, it is costing us more money to complete our normal shipments, from increased freight cost, to fees charged by carriers for having containers out too long.”

The latest carrier to announce “equipment imbalance surcharges” for all cargo originating from the U.S. to various global destinations is ZIM, ranging from $150-$500 per container. 

Based on the flow of trade, don’t expect this disruption or surcharges to stop anytime soon.