Global Supply Chain Disruption Continues

The global supply chain is in a melt down with no clear end in sight to the disruptions. Some trade lanes are faring better than others. Questions are flowing in on the logistics issues confronting the industry, and we are recapping some of the key problems and trouble spots below.

Background:

The root of the current problem is the massive surge in exports from Asia to the USA and Europe, and the overall speed of the economic recovery and volume of cargo after the first few months of the COVID lockdown. The freight rates from Asia are so high (doubling and tripling in the last months), thus all ocean carriers are pushing empty containers into Asia rather than filling them with export cargo. USA exporters are seeing cancellations of bookings and no ability to move cargo, and USA importers are facing equipment and other surcharges.

Beyond the equipment issues, the vessel schedules continue to be disrupted for a variety of reasons. On the US West Coast, there are over 30 ships waiting outside the port of Los Angeles as terminals are completely congested with cargo, unloading ships is taking many more days than usual, and crews on the piers are often limited due to COVID issues. Thus, the vessels are then behind in their schedule by many days, off schedule for subsequent ports calls in Oakland, Seattle or Vancouver. While the East Coast of the USA is not as bad, both weather and congestion are creating delays. When the ships cannot stay on rotations, the schedules get further behind and some weeks the carrier must cancel a complete string to try to catch up, leaving thousands of containers previously scheduled for the vessel on the docks in Europe or elsewhere, creating further backlogs.

To further exacerbate the problem, if a crew member on a vessel tests positive for COVID, the vessel must be quarantined and cannot enter the port, again stranding containers on board and disrupting schedules.  

Container shortages will continue to be a problem. The majority of the global container supply is manufactured in China. Steamship lines normally order containers in Q1 and early spring. In 2020, the world was going into lockdown and there was a massive slump in the global economy and shipping slowed dramatically. Orders were not placed and many manufacturing sites in China were shut down. The container manufacturing facilities are now back in full swing but production is not yet keeping up with demand. 

The problems outlined above are not confined to the United States as many global ports and regions are affected by the situation.

Europe:

All vessels are sailing fully booked and most are overbooked for departures to the USA and Asia. The Asia situation is partly due to the fact that the carriers are prioritizing the return of empty containers rather than waiting for the units to be filled with goods. Bookings are pushed out for weeks for product shipping to Asia. For the USA and other lanes, the situation is not quite as difficult, but with demand exceeding supply, vessels are overbooked and rolling cargo. Due to the schedule disruption,  vessels may cancel routes or skip ports to try to get back on schedule. If you have cargo rolled from one week, and the vessel skips the port the next week, you may experience significant delays in receiving your cargo. Equipment in inland depots is in short supply, and grade “A” containers that we use for bulk/flexibags are practically non-existent. Carriers have implemented surcharges, and we expect these surcharges to continue, as well as additional rate increases. Bottom line, prepare for delays and higher costs as 2021 progresses.

Oceania:

The biggest issues remain in New Zealand with carriers fully booked and schedules changing on a daily basis.  Issues in NZ originally trickled down from labor issues in Australia, disrupting the port of Sydney and creating massive delays of movement of containers and scheduling. Current statistics from the port of Auckland indicate arrivals are delayed on average of 4-9 days 60% of the time and over 10 days 19% of the time, so there is very little schedule reliability. Turn time at the ports has decreased dramatically, primarily due to COVID issues. The main ports are congested, and there is no room to return empty containers. The wine production areas have very limited equipment availability, and the NZ team is working constantly to obtain and position empty containers. Again, please prepare for delays and plan ahead as much as possible.

South America:

The stress on the system is somewhat less in South America, but vessels are sailing full to all regions of the world and equipment supply is tightening up. Thankfully, space remains available and the market is less volatile than other areas. We will be closely monitoring equipment and vessel space over the next weeks as the export season for agricultural products will be kicking in and the situation may become more difficult.

South Africa:

This region has been working under difficult conditions throughout COVID, with various lockdowns and prohibitions on beverage alcohol, as well as port disruption due to COVID cases and shortages of workers. It is often difficult to get quick answers from the carriers on vessel schedules and stacking, thus we are in constant communication to determine space and timing. The volume of shipments is not as high as some other lanes, thus disruption is not severe, but accurate information on cargo flow is not always available.  

USA & European Exports to Asia:

Shipping out of the USA has become an extremely difficult task with arbitrary cancellations of bookings. The carriers' desire for the financial gains for the Asia to USA and Europe trade push them to ship empty containers rather than fill the boxes with exports. Ships are sailing full, but sometimes with more empty than full units. US Agriculture exporters have been reporting this activity to the Federal Maritime Commission as the carriers are destroying their prospects to get product to markets. Beverage alcohol is in a similar position as it is taking weeks to get confirmed bookings and arbitrary cancellations can happen at any moment.

UK & BREXIT:

Fortunately, the UK avoided a “no-deal” BREXIT, but despite this fact, more than half of UK companies importing or exporting goods through the EU border have suffered delays, largely because of post-Brexit paperwork requirements. These delays have occurred despite a significant drop on volume moving through UK ports on January 2021 driven by a stockpiling of goods prior to year end and the potential of the “no-deal” situation. With stock levels depleting in February, it is expected that trade traffic increases will bring further delays and pressure points on UK/EU borders. For inbound cargo, UK port operations and inland haulage remain under pressure, and, like many other global points, carriers are applying congestion related surcharges. 

WTO Airbus and Boeing Update:

The next round of tariff review on the Airbus case is due in the upcoming weeks. Every 6 months, the USTR is allowed to review the list of items targeted and the tariff amount. WSSA and other industry associations are pushing for a 180 day suspension of the tariffs implemented by the USA and the EU on beverage alcohol, and hoping that this result will be forthcoming. At the very least, we are hopeful that there will be no change in tariffs in the upcoming review. The nominee for the USTR position, Katherine Tai, will be up for confirmation on February 22, and we expect a more stable approach to trade and tariffs with the Biden administration and the leadership of Ms. Tai.

There is a lot going on in global trade, and we are here to keep you as well informed as possible during this chaotic time.