Analysis: Fixing port congestion takes politics and patience
A flurry of government activity to alleviate crippling port congestion and its economic ripple effects is more likely to have long-term value in structurally changing a broken system than quickly reducing the cargo crunch in time for Christmas.
Many supply chain initiatives and rules aimed at the ports are being pushed, or implemented, by the U.S. government despite the global freight transportation system being mostly owned and operated by the private sector.
The gridlock triggered by the pandemic is so bad that business leaders who typically favor a loose regulatory environment welcome targeted government intervention. The involvement of the president and governors has raised the profile of port problems, but some policies are more symbolic than concrete, at least in the short term.
In the process, industry players and government officials are raising expectations for quick fixes when in reality progress should be measured in months and years. Stakeholders are finally coming together in a more serious manner to solve problems with goods movement that have been two decades in the making. Results will take time.
Supply chain politics
President Joe Biden last summer formed a Supply Chains Disruptions Task Force to address port and trucking dislocations stemming from record volumes of imports during the pandemic. John Porcari was named port envoy to manage discussions with ports and industry groups.
Administration officials have repeatedly touted how the White House helped broker an agreement for 24/7 operations at the ports of Los Angeles and Long Beach, the funnel for 40% of ocean imports, and got commitments from several big-box retailers and express carriers to take more containers at warehouses during the night to help spread out traffic.
They pushed the ports to impose a $100 fine for containers that dwell longer than eight days for truck moves and five days for rail moves, with the fee increasing in $100 increments per day until discharge from the terminal.
The proposal is controversial because the fees are to be assessed on ocean carriers, which don’t control most inland deliveries and almost certainly will pass them on to import customers struggling to find trucks or chassis — or get an appointment at crowded marine terminals. Logistics specialists say the immediate problem that needs addressing is how to reduce the piles of empty containers hogging up terminal space and the chassis that support containers for road transport.
On Monday, the Los Angeles and Long Beach port authorities delayed collection of the late-pickup fee for the third consecutive week, citing a 37% reduction in excessive container overstays despite internal data showing the number of containers stored beyond the approved time has ticked up since early November.
That’s not to say there hasn’t been progress. It just depends how it’s measured and messaged.
Since the extra storage fees were proposed Oct. 25, the number of containers lingering for nine or more days is down to a combined 44,919, through last Monday. (The Port of Los Angeles alone says nine-day or longer containers are down 48% through Thursday, to 19,460.) But the improvement has stalled since an initial burst. The improvement from the prior week was a mere 1.2%. Meanwhile, the White House is showing on its website that the backlog declined 7.4%. That’s because it’s counting in twenty-foot equivalent units and the ports are counting in absolute box numbers — regardless of size. The White House figure suggests more 40-footers moved out than 20s.
(Source: White House)
Many suspect the ports will never follow through on the hefty storage fee because of technical complexities with billing and questions about fairness. The fee is more of a scare tactic that jump-started discussions among shipping lines and cargo owners to stop using the docks as storage space. Now companies like Walmart have set up pop-up container yards to receive a free flow of containers straight from the vessel, and shipping lines are sending more sweeper vessels to carry empties back to Asia.
Officials also claim the backlog of ships is down. And as of Wednesday, there were 40 container vessels waiting offshore, although the smaller line to get into the port is due to the peak shipping season naturally tapering off and a new voluntary process designed to keep vessels from bunching near the coast until their berth appointment is ready. American Shipper’s Greg Miller estimates there are an additional 50 container vessels over the horizon waiting for entry.
As for around-the-clock port operations, that is only happening on a trial basis at a single Long Beach terminal, and virtually no truckers are taking advantage of the extended hours because of restrictions on returning empties and unwillingness to upend their regular schedules. And the commitment by importers to stay open for late-night deliveries only involves a few thousand containers, a tiny fraction of the ports’ total volume.
On Wednesday, terminal operating companies eliminated fees for night and weekend pickup of containers after the Federal Maritime Commission (FMC) permitted a temporary revision to the PierPass program to go into effect. Truckers using off-peak gates through Jan. 31 will be exempt from the traffic mitigation fee of $78.23 for moving twenty-foot equivalent units and $156.46 for full-size containers.
The adjustment was requested by port envoy Porcari, as well as the executive directors of the two ports, as part of the effort to incentivize increased use of marine terminal gates during off-peak periods and expand use of warehouses, distribution centers and trucking during the second and third shifts for the final push of holiday goods in December and into January leading to the Lunar New Year.
In an economic pep talk two days before Thanksgiving, Biden sold the idea that his “port action plan to relieve bottlenecks has already helped to alleviate potential shortages at grocery and retail stores.
“In the past three weeks, the number of containers sitting on docks, blocking movement, are down. … Shipping prices are down 25%. More goods are moving more quickly and more cheaply out of our ports, onto your doorsteps, and onto store shelves,” the president said.
He followed that up on Wednesday with an address from the South Lawn in which he took credit for speeding up port operations by forging deals to add more night and weekend shifts.
“We averted a potential crisis by figuring out what needed to get fixed, and then we brought people together to do the hard work of fixing it,” Biden said.
During the summer, he also encouraged the FMC, with support from the Justice Department, to look into whether ocean carriers were overcharging shippers on container rental fees and whether carriers are engaging in anti-competitive behavior.
Biden similarly wants to be seen as responding to high gasoline prices, which have jumped more than 50% in the past year.
Last Tuesday, he ordered the release of 50 million barrels of oil from the Strategic Petroleum Reserve, which was created as a contingency stockpile in case of natural disasters or an embargo by a foreign producer. The release equates to about 2.5 days of consumption in the U.S., and its impact on gasoline prices likely will be modest, at best, energy analysts say. The president also asked the Federal Trade Commission to look into behavior by oil companies that might be keeping gas prices high even though there is no evidence of illegal activity.
The perception of action is just as important as real action. In recent months, Biden’s approval rating for handling the economy has dropped, and now is at about 41% as inflation eats into consumers’ spending power.
The White House is taking credit for the moves because it is worried about the political fallout from supply shortages that are contributing to inflation and the specter of families not getting Christmas gifts for their kids because goods are stuck at sea on ships waiting to enter ports.
Republicans are already blaming rising prices and bottlenecks on Biden policies even though inflation and port gridlock are global trends triggered by the pandemic and mostly the result of market forces meeting up with inadequate infrastructure and overseas factory shutdowns.
“The administration has to show it is pursuing a solution because the media and the American public don’t have a lot of patience for a long explanation about a very complex topic such as infrastructure and supply chain. Everybody is looking for the answer, and if it’s emphatically endorsed, that makes you look strong until it doesn’t change the status quo,” said Peter Friedmann, the head of the Pacific Coast Council of Customs Brokers and Freight Forwarders Associations, in an interview last month at the group’s annual conference in Palm Springs, California.
“They understand you’ve got about three seconds of people’s attention. And the supply chain is so complex, if we come up with some solutions it’s going to be minutiae, minutiae, minutiae until it finally builds to something meaningful,” he explained.
California Gov. Gavin Newsom also has taken actions that do less than they appear.
Two weeks ago, the state Department of Transportation said it will issue temporary permits allowing trucks operating from the Southern California ports to warehouses to exceed the 80,000-pound gross vehicle weight by hauling heavier containers. But officials haven’t indicated how that will be implemented since there is no mechanism for sealed containers to be topped off with more cargo at the overworked ports. And for the rule to have any impact, cities and counties will have to implement their own waivers for local roads.
Nothing tried, nothing gained
Friedmann, who also is executive director of the Agriculture Transportation Coalition, praises anyone trying to resolve the situation no matter if the steps are small or incremental.
“Too many people are spending time bemoaning the detrimental impact of the supply chain collapse, saying the problems are too big, that 24/7 won’t fix it, while failing to initiate any steps on their own to make a dent in the problems,” he said in an email. “If 24/7 is ambitious, with many barriers, then propose something else, and then do it. The fact is there isn’t any ‘silver bullet’ that will fix this. There are many smaller bullets that collectively would contribute to solving it, and getting the cargo, both import and export, moving.”
The reason why systemic manufacturing and freight transportation problems are difficult to resolve, supply chain experts say, is that dozens of parties that have a role in getting a product to market each strive to optimize their own operations without necessarily contributing to the greater good. And the U.S. has no centralized port department prioritizing where to invest public dollars. Each port authority controlled by a city or state works to maximize the economic benefit for its region.
“There’s going to be a role for the government to come in when there’s a market failure,” said Ryan Petersen, founder and CEO of international logistics provider Flexport, on Bloomberg’s “Odd Lots” podcast.
The White House, says Udo Lange, CEO of FedEx Logistics, is playing an important role in bringing all sides together for a common purpose.
The government can get stakeholders to compromise in ways that are helpful to the overall system and get more permanent improvements than previous collaborative efforts.
Lange, who participates in the Supply Chain Disruptions Task Force, acknowledged in an interview with FreightWaves that government and industry are taking “baby steps” that he hopes will build momentum as more pieces fall in place.
Monday’s announcement by ocean carrier CMA CGM that it will temporarily offer a $100 to $200 reward to importers that move containers off terminals within eight days suggests the peer pressure is working. CMA CGM, which is participating in the White House supply chain meetings, also said it will subsidize its own LA terminal to offer Saturday night and Sunday gates for truckers in a nod toward a 24/7 operation.
At the same time, the move could be more gesture than substantive. How many importers facing $10,000 to $20,000 bills to ship an ocean container will be swayed by a $100 discount? Cargo owners would get their cargo if they had room in their warehouse, could find a trucker or chassis, had an empty container to swap for an imported load, or weren’t missing appointments because their drayage driver was stuck at another terminal. A small monetary incentive won’t change those facts on the ground.
The move is politically astute because it gives the appearance that CMA CGM is a team player and taking the situation seriously, while defusing scrutiny and giving politicians the win they need in the public eye.
One area where the federal government does play a critical role in supporting trade and freight transportation is infrastructure, which has a long-term payoff but won’t quickly calm the current supply chain crisis.
Biden recently signed a $1.2 trillion piece of infrastructure legislation that includes $17 billion for ports and related projects. The White House quickly cut red tape to speed up distribution of grant money and conduct environmental reviews. Notably, increased grant flexibility gives port authorities the ability to redirect money from previous federally supported projects that come in under budget toward activities that address current supply chain disruptions.
Under the rule change, the Department of Transportation is issuing $8.4 million to the Georgia Ports Authority this month to help fund pop-up container yards in the state to reduce overcrowding at the Port of Savannah.
FMC studies box returns
Meanwhile, the FMC recently announced it is investigating ways to improve how and when containers are returned to terminals.
Truckers complain that marine terminals are making it difficult to return an empty container in exchange for a loaded container because of overcrowding in their facilities. The inability to make a “double move” means they are stuck with empties and the undercarriage that carries them, which limits chassis use for revenue trips and leaves them susceptible to late-return fees.
The agency also said it wants to bring predictability to the process for how early shippers can return a box to a carrier. Exporters have expressed frustration that they are usually given a two-to-three-day window for the earliest return date they can send a box back to a terminal but are forced to pay demurrage, a storage fee, if they bring it in before the window. If they arrive later, the cargo misses the vessel sailing.
The earliest-return date (ERD) is closely tied to when the vessel arrives, and to the cargo cutoff to get loaded. A shipper with an export load has to hit that window no matter if the container is being transported from a local depot or from a grain transloading terminal 1,500 miles away.
As delays disrupt vessel schedules, carriers are pushing back the ERD further and further. Exporters that have already planned production and the rail or truck move to reach the port inside the window are getting charged demurrage until the ship finally arrives and can load the container.
The ports of Virginia, Savannah and Charleston, South Carolina, say that practice is unfair. Instead, they require carriers to stick to whatever date they announce as the ERD — usually set about 10 or 11 days prior to vessel arrival — even if the ship is delayed.
Their policy “imposes discipline on the carrier to maintain schedule, to communicate all changes with the shipper customer, and prevents the carrier from profiting by failure to do so,” Friedmann said.
The Southeast ports are able to dictate the rules because they operate the terminals, while most ports are landlords and let tenants determine service charges. The FMC said it will focus on improving conditions at the ports of Los Angeles, Long Beach and New York/New Jersey.
The White House is calling for an increase in the FMC’s $30 million annual budget to better oversee the global shipping industry, and for public reporting of detention and demurrage fees, as proposed in an ocean shipping reform bill by U.S. Reps. John Garamendi, D-California, and Dusty Johnson, R-South Dakota.
The strong focus on making ocean shipping more efficient and resilient is welcome news. Just don’t expect the Hot Wheels City Ultimate Garage you want for your kids this Christmas to get delivered much faster.
Click here for more FreightWaves articles by Eric Kulisch.
LA/LB ports delay excess container dwell fees until Nov. 29
California truck weight exemption unlikely to ease port logjam
City of Long Beach allows logistics companies to stack containers higher
Supply chain gridlock dominates Sunday talk shows
LA/LB ports to test expanded night, weekend hours
Biden picks former DOT secretary as port czar