Critical supply chain congestion requires systemic change

Bottlenecks in key regions such as the Los Angeles port complex and North European ports, exacerbated by the Suez Canal blockage and container shortages have seen growing congestion along supply chains. Project44 VP marketing at project44 Josh Brazil argues the industry must learn lessons from the events of the last year.

Congestion at ports around the globe is nothing new, but the events since the beginning of 2019 have compounded in a perfect storm to hit the US supply chains in particular like a hammer, clogging ports with empty containers, hitting exports, and seeing intermodal transport crippled by the sheer weight of uneven demand preventing the smooth operation of supply chains.

The situation in the US, and mainly on the West Coast did not occur overnight, nor was it caused by the 2020 pandemic alone, but the roots of the supply chain difficulties lie in government policy, and the shifting consumer behavior that was expedited by Covid-19 and has spread to other parts of the world.

Events in Los Angeles have been mirrored in other parts of the US and those events have had effects on other parts of the world as modern, connected globalization means we have benefits in greater trade, but the downside is that when things go wrong the ripples are felt along global supply chains.

As such what has happened in California can be seen in other parts of the world, it is a reference for all trade.

In a recent project44 webinar, Los Angeles Port’s executive director, Gene Seroka, said it took about three years to get to where we are today with global supply chains critically congested and ports worldwide unable to cope with growing demand.

Seroka focused on two main causes that led to today’s situation in the US, the trade tension between the US and China in 2019, followed by last year’s Covid-19 pandemic, with the latter unforeseen and intensifying the former.

Seroka is clear that while some may not remember, we saw the business drop by 19% in LA, and that was caused by the trade tensions and tariffs imposed by the previous US administration, he was clear that cargo was arriving at US ports in a very uneven fashion.

As 2019 faded into 2020 the pandemic started to take shape with the Chinese government effectively shutting down manufacturing and other sectors to try and quash the Coronavirus in those early months.

That situation was followed shortly by an extended Lunar New Year, and within the first eight days of March there were orders from the government to shelter at home, and we were shutting down the whole economy to stem the tide of the Coronavirus.

At that time, some ports were already considering the increase in empty containers and how to shift them back to Asia ready for export cargo back to the US when China’s manufacturing started to open up again.

In LA, the port was already looking at Chinese data such as energy consumption, pollution, and traffic patterns to see what on-the-ground activities looked like in China’s manufacturing sector.

Communication with Chinese partners also took place in an effort to gauge the local sentiments for the reopening of the manufacturing sector.

In the consumer regions such as the US and Europe, everything stayed closed with the exception of home improvement stores. Without the ability to travel and spend on going-out activities, we started to see a surge in consumer goods buying that had never witnessed before. “Internet sales doubled in eleven months on top of a number it took ten years to achieve in the retail sector”, said Seroka.

Unexpectedly, US consumers kept buying as much as they could because their discretionary income was no longer going to the service sector, flying on airplanes going to ball games or to the movies or other areas, but the consumer spending spree was massive and sustained.

As the pandemic evolved, retailers did not want to get caught unprepared as they had been early on in the pandemic when there was a rush on paper goods and cleaning materials, so they continued to order, bringing in more cargo than had ever been witnessed in the western hemisphere ports before.

It was not just Southern California that was experiencing the surge. Most of the east/west trade gateways in Europe have seen the same with surges of cargo coming in.

In the US, however, the export market was drying up. In his analysis Seroka believes, “we have not seen the strength of the US export, mainly on the heels of that trade policy and our fiscal and monetary policies, the strength of the US dollar makes our goods more expensive to buy than competing nations products. And lastly, you’ve seen a real change in the liner shipping community trying to reposition empty containers back to Asia as fast as they can to catch the next round of imports.”

That imbalance and the stretching of those service providers meant that the round-trip economics that was so delicately poised for the asset providers was lost.

Seroka argued that the decline in US exports is down to the basic understanding that imports move to major metropolitan areas where the consumers are concentrated, but exports, including agricultural, manufacturing, or automotive exporters, are typically based in rural regions. Understanding that fundamental aspect is crucial to squaring that circle of imbalance. Technology must play a part in meeting the demands of all those in the supply chain.

That technology includes port community information sharing systems so that cargo owners can find the truck, rail, and ocean freight paths that would make the most sense to them.

The port of LA says it created the first port community system in the US, called The Port Optimiser. Within the last six months, the port has rolled out additional digital add-ons called Signal, Return Signal, and Control Tower as modules of the Port Optimiser. The Port Optimizer allows those in the port to access a focal point for cargo movements, to share information earlier in the supply chain mechanics, allowing companies to prepare for the movement of goods, such as acquiring a container, identifying truck operators, or rail services, chassis or other assets.

However, even as ports moved to quickly meet the challenges of the pandemic with a three-pronged strategy to keep cargo moving, it became clear that the situation was critical.

It became clear coming out of the end-of-year holidays and Thanksgiving that port workers needed to be vaccinated in the first instance. There are more than 100,000 people that work at the LA port complex every day. That vaccination process has worked with the combination of the twin ports in Southern California, having achieved a critical mass of dock workers being vaccinated. Now all the other independent workers must also be brought together for their vaccinations.

Second, there was a need to increase the velocity of cargo. Cargo was simply not being picked up as quickly as in pre-pandemic times. Container dwell times both on the terminal and beyond doubled and, in some cases, tripled. That has changed over the last six weeks as cargo owners pick up their products quicker. They are working with the terminals and now dwell times have decreased by 20%.

In March, a record number of containers moved through LA port with more than 950,000 container units this year, and the port has cut the number of vessels waiting at anchor by half.

That is good news for shippers, but Seroka also warns that there is no time to rest on laurels as the traditional peak season, which usually kicks in during the third quarter, is just around the corner. That period will run into the year-end holidays. That means working on the systemic issues at ports, including a chassis provisioning model that ensures those assets are available for container movement. The truck gate activity must move about 60,000 trucks per day.

Long-term competitiveness is always a consideration and ports must make sure they have a robust process for operations, as well as pricing in relation to government activities. As demand has massively expanded and the port of LA’s fiscal situation has improved, the volumes by the end of the fiscal year on the 30th of June will be more than 10 million TEU- an achievement never before seen in a western hemisphere port according to Seroka.

On top of that, The Port of LA’s productivity has also increased with average container moves of 10,000TEU per vessel call. In addition, cargo handling at berths has increased 50% year-on-year with around 10 vessels arriving per day since the surge began in Q3 2020 and now that average has reached 15 vessels a day.

The lessons of shifting consumer demand should be a clarion call to the supply chain industry. Historically, global supply chains have not adapted well to shocks, and as we move in a post-pandemic direction, we should consider the rebound effects of changing purchasing habits. We must continue to anticipate shocks brought on by sudden shifts in mass global consumer demand and use data and technology to manage risk and make informed decisions – we do not want to have to learn the same lesson twice.

About the author:
Josh Brazil joined Project44 in 2021 following the acquisition of Ocean Insights. Throughout his career in logistical SaaS, he has lead structural and organisational changes, overseeing Ocean Insights operations, procedures, and go-to-market strategy. He was also responsible for driving the company to achieve sales, profitability, cash flow, and business goals and objectives, working closely with the management team to develop the company’s strategy and implement plans for the operational infrastructure of policies, processes, systems, and staff. At p44, he is now directly responsible for Marketing Content Strategy.