Los Angeles Port Congestion and Effects On Supply Chain
If you live near Los Angeles or Long Beach, you may have observed some strange occurrences over the past few months. The twin seaports are seeing much more traffic, as they try to host a much larger array of vessels than normal. As with most things that have happened over the last year, a major cause behind this is the COVID-19 pandemic.
Over the last few months, the ports have been overloaded with a flood of container imports. Alongside the record-breaking volume, the ports also had to deal with a reduction in staff due to the restrictions caused by the COVID-19 pandemic. As a result, the cargo heading in and out of the port slowed down to a crawl as compared to its previous swiftness.
According to Gene Seroka, executive director of the Port of Los Angeles, the cargo volume was 50% more in the second half of 2020 as compared to the first. Therefore, it has become common for loaded ships to have to wait as they remain anchored at the see until a docks opens up for unloading.
“The port is strained,” Seroka continued. “We’re shipping back two times the amount of empty boxes then we are American exports across our docks.” He added that the cause of the increased volume is “the change in the American consumer,” further explaining that during the pandemic, “we’re not buying services, we’re buying goods.”
The Domino Effects of This Overload
The cargo volume at the Port of Los Angeles has increased even more during the first quarter of 2021. This is a sign that swelling imports have yet to let up. The issue is that there hasn’t been an increase in human resources in order to meet the increase in import volumes. Due to the pandemic, there has been a drastic reduction in the labor force. In addition to that, chassis shortages in Southern California due to the increases in ‘street dwell’ and the delay in the arrival of the vessels further contributes to the ongoing port congestion.
Basically, the increased volumes combined with the decreased workforce creates a bottleneck that can be quite difficult to resolve.
Sara Alkawari, Supply Chain Risk Intelligence Analyst at Ressilience360 sheds light on this issue. “Terminal operators have been forced to stack containers higher and wider in the container yards, which has delayed the release of import containers from the port complex for the final delivery leg to inland destinations,” says Alkawari. “As yard utilization has averaged above 80 per cent, the terminals’ capacity to both store and move containers to distribution centers and rail ramps has been severely disrupted. Furthermore, reduced storage capacity at warehouses is likely to lead to further challenges and extended container and chassis dwell times.”
Complicating the things even more, the trucking operations have also been disrupted by the congestions at the ports as turn times for trucks have increased by 33% between June and September. This refers to the time required to drop off and pick up a container within the premises of the terminal.
Lastly, the shippers are also facing demurrage surcharges by marine terminals and oceans carriers due to the containers remaining in the yards for longer periods than expected. This also causes them to pay higher spot rates and surcharges for intermodal shipments by rail carriers.
In essence, you could say that the twin seaports are becoming the real life version of the classic scene from Lucille Ball while Lucy was working as a line employee. Her job was to package chocolates, but the chocolate maker continued making candy at a speed that was beyond Lucy’s ability to pack them. As a solution, she starts eating them to reduce the excess. However, there isn’t anyone to ‘eat’ the excess ships, so the ships are sitting idly at the offshore anchorages as they wait for their turn to be unloaded.
The Effects on Supply Chain System
Even when the year 2020 began, it would have been hard to predict what the year had in store for every last person on earth. While there was a hint of danger from some kind of new virus that had originated in China, it wasn’t until March that people understood just how grave the situation was. The precautions that were needed to be taken became clear, and people started social distancing, wearing a mask at all times, and avoiding crowds as much as possible.
In fact, almost all countries went into a complete lockdown from March to July or August. While some people like doctors, grocery store workers, and other essential employees were still allowed to continue their duties, most people were asked to remain at home and only leave when it was absolutely necessary.
Working home became the new normal, as most businesses shifted all their work online. However, this wasn’t a possibility with industry workers as most of the work could not possibly be done online in this case.
It is important to keep in mind that supply chain is an entire system. For things to run smoothly, it is important that each aspect of the system works smoothly like a well-oiled machine. If even a minor part of the system suffers a problem, it can affect the ability of the entire system to work efficiently. The issues as that most of the system consists of jobs that cannot be performed virtually.
You need a group of talented people to manufacture and transport the finished products. This includes people who make the goods and package them, people who transport the goods across different parts of the world via ships and other means of transportation, and people who deliver it to the stores or your doorsteps.
In addition to the ship’s crews, dockworkers, and delivery people, this also includes custom agents who clear the cargo, truck drivers who handle the on-road transportation, railroad workers who haul it over long distances, warehouse workers, and sales teams who facilitate the purchase.
Each of these people plays a crucial part in the system of supply chain. Therefore, just like any other chain, a small broken link endangers the integrity of the whole system. This is why the process of moving foods from one place to another has been affected so much by the breakout of the coronavirus. Only the act of social distancing can dramatically slow down the chain.
Another reason that has exacerbated the vessel congestion is the illness absenteeism on the U.S. side of the Pacific. The Public Officials who represent the ports and their home cities have grouped up to speak about the loss of time and lives due to the impact of the pandemic to in front of the members of the International and Warehouse Union (ILWU) who represents dock workers – especially in Southern California.
“As we continue to weather the current COVID-19 surge, especially in Southern California, port workers contracting COVID-19 could have disastrous consequences for the movement of goods, food, and medical supplies that Californians are depending upon in this time of crisis,” said their statement. “This includes especially critical pandemic response goods such as personal protective equipment (PPE), sanitizer, medical equipment, and more. Moreover, emergency regulations recently promulgated by California’s Occupational Safety and Health Standards Board could further exacerbate constraints on critical supply chains if workers fall ill by requiring continuous testing of all employees and taking exposed individuals out of the workforce.”
The trucking and railroad potions of the supply chain have also experienced similar effects. As a consequence of all of this, the delivery of goods has slowed down in the region.
America’s Increased Demand for Goods
Aside from directly affecting the entire process, COVID-19 has also had indirect effects on the supply chain. Since everyone is required to stay home more than ever before, it has given birth to unique needs across the populations. In order to live comfortably at home, everyone needs to ensure they have food items – especially non-perishable ones – and other necessary goods at home at all times so that they don’t have to make any unnecessary trips to the store.
In addition to that, Americans who would have otherwise preferred going to the store for shopping during pre-COVID times, may now prefer to stay home and order potentially everything online. This has further caused the demands of goods, such as office chairs, computers, lighting, file cabinets, partitions, screens, and other things that make the working from home a tad bit easier. Entertainment equipment such as gaming supplies and television sets have also hiked. Almost all of these goods are made in Asia. Therefore, marine supply chain is being taxed to deliver in the U.S. under undesirable circumstances.
Danel Bachman wrote in Delloite Insights that he believes the shock of the pandemic initially caused a reduction in the imports of goods and services in the first half of 2020. However, as people became used to the new normal and learned to adapt with the situation, the economic activity returned and then increased in comparison to before. This caused some significant changes in the goods that were demanded. As the fourth quarter of the years rolled around, it was observed that the predominant categories of cargo shipments from Asia to the U.S. West Coast were electronics, appliances, furniture, and plastic goods.
Additional Demands Due to Increase in Vessel Size
Another factors that needs to be taken into accounts is that the vessels that constitute container ship fleet have become larger in size. Up until ten years ago, the usual size of a container vessel could accommodate between 7-10,000 twenty-foot equivalent units (TEU). Lately, the industry has become more aware of how efficient large containers can be, and now the twin seaports host ships that can carry 14-18,000 TEUs. However, the increased size requires more space, additional crew for loading and unloading, and more time at the berth. It also causes a bigger burden on the road and rail systems upon arrival.
While the ports are more than capable of handling these large ships, it becomes an issue when multiple ships arrive at the same time. They become a burden on the logistics system, since each ship can be equivalent to around two vessels of the previous era. Combine this with the already overloaded logistics chains due to the diminished workforce and the added pressure is apparent.
Steps To Tackle The Issue
As a response to the surging cargo ships on the ports of Los Angeles and Long Beach, Maersk announced the steps they will be taking to address the issue in a press release on December 30th, 2020. Here are some of these steps:
- They are working with stakeholders in order to address U.S. export and the port congestion challenges that are stemming from the ongoing imports at U.S. seaports.
- They have been holding meetings with the Agriculture Transportation Coalition, the Harbor Trucking Association, and the Federal Maritime Commission to determine the best possible ways to deal with the issue.
- They have a created a goal to improve the rate of dual transactions at APM Terminals’ Pier 400 in Los Angeles. However, the specifics of how this goal will be achieved hasn’t been publicly discussed so far.
While the current situation makes it seem like it will take a long time for the twin seaports of Los Angeles and Long beach to go back to their height, it can be assumed that it wouldn’t take as long as expected. People have learnt to adapt to a lifestyle post-COVID and it is likely that the ports will also find a way to adapt to the new normal soon enough.