Oceanic Challenges Part 2: The Transpacific
Transpacific conditions are worsening for carriers, shippers, and longshoremen.
Last week, we cautioned our customers about the challenges on the transatlantic trade but neglected to include the midweek surprise of a three-day strike in Hamburg by port workers at HHLA terminal. You can read the announcement here, but here are the details: “The strike affected only the HHLA terminals who cover 75%–80% capacity of the port of Hamburg, but all vessels with service to USA sail from CTA. So the US trade lane will be heavy affected.”
With that bit of updating out of the way, we turn our attention to conditions on the transpacific which are worsening by the week. In this update, we look to give you updates on three issues that are of greatest concern to shippers right now: COVID positivity at the ports, increasing involuntarily blanked sailings in advance of Lunar New Year, and the disappearance of premium services and early signs of what the 2021 contracting season will look like.
COVID Impact on Longshore Labor
Speaking to the Propeller Club of Northern California last Tuesday, PMA President Jim McKenna shared that there have been 13 deaths of longshoremen from COVID in the ports of Los Angeles and Long Beach with another 855 cases, half of which have occurred since the beginning of January. Further up the coast in Northern California, there have been 74 cases and 2 deaths. In Seattle and Tacoma, there have been 110 cases with no deaths.
A chorus of voices is growing louder to get longshoremen vaccinated as soon as possible, including from two FMC Commissioners to President Biden.
Longshoremen perform a number of highly skilled functions, including operating the overhead gantry cranes loading and unloading vessels and the straddle and yard cranes responsible for moving containers on and off chassis and railroad flatcars. The steps taken by the ports to minimize exposure have also reduced capacity, throughput and productivity at a time when there are a record number of vessels at anchor offshore awaiting a berth. This parking lot of ships, which can be monitored on Marine Traffic, is now having the cascading effect of blanked sailings in Asia.
Blanked Sailings Mean Backed-Up Factories
From Splash 24/7 on February 3rd: “Alphaliner has identified 41 containerships at or near to the San Pedro anchorage awaiting a berth at the beginning of this week, equivalent to a total capacity of 336,500 teu. Including the 27 ships already at berth on Monday, the total container fleet currently in the Los Angeles/Long Beach area represents a capacity of no less than 579,100 teu.”
Unfortunately, the longer these vessels remain in port delayed, the more likely they will create a hole in the multi-ship rotation that is required by carriers and alliances to maintain fixed-day weekly sailings. Because of this, carriers like Hapag Lloyd are taking the steps of actively blanking sailings and sliding schedules by a week to attempt to get vessels back on time.
Despite Service Failures, Carriers Feel in the Driver’s Seat in 2021
Schedule reliability reached the lowest recorded levels in December, with just 44.6% of vessels arriving on time according to SeaIntelligence Consulting.
Carriers who looked to a buyer’s market to provide guaranteed space and transit times have seen the ability to berth and unload evaporate. CMA-CGM, for instance, has cancelled their Southern California SEA-X premium service from China, seeking instead to launch new routes to Oakland and Seattle.
With the annual TPM Conference coming up in a little over a month, TOC representatives traditionally mingle in Long Beach to hear in person from carriers and major beneficial cargo owners and shippers what to expect and take the temperature of the room for annual contract negotiations.
This year, with rates overheating, contracts are going to be negotiated in the middle of a spot-rate boom that prioritizes space over price.
Yet despite all this, the cargo isn’t abating. The Journal of Commerce (paywall) is reporting that more factories than usual have responded they will remain open during the Lunar New Year holiday, as much because people are being discouraged from traveling home as to catch up with orders.
What Can be Done?
There is no magic bullet, no magic wand, and no short-term solution. Our team is made up of very seasoned, experienced logistics professionals. Comparisons have rightly been made to this being among the worst—if not the worst—congestion faced by the industry. But we’re doing what we can.
We are working to find solutions to minimize delays where we cannot eliminate them. We cannot wish low rates back to the marketplace, but we are leveraging our strong, multi-year partnerships to secure equipment and space to keep supply chains moving.
We are asking our customers to understand that this requires budget flexibility. We have access to multiple carriers—nearly all of whom are at different tiers of pricing. Imposing irrational ceilings or conditions on moving cargo will limit choices and not lead to positive outcomes.
Communication will be key. The word “partnership” gets thrown around casually nowadays, but in these challenging times, it is only by working closely and collaboratively that we’ll be able to help our customers succeed.
WE’RE HERE TO HELP
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