ANCHORS AWAIT! Is your stuff on this ship?

IT'S ALL ABOUT THE MONEY: PORT REPORT.

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The causes of the year-long logistical meltdown in the global supply chain are always someone else’s fault. No one’s saying, ”Yeah, sorry, we can do better.”

The choke point is at the Ports of Los Angeles and Long Beach. More than half of the imports we buy (and we buy a lot!) enters through this massive complex.

I went out beyond the breakwater on a boat with port police for a CNBC story, where I saw 65 ships parked at sea, carrying an estimated 300,000 containers. They were having to wait 10 days to get an appointment to be unloaded. At the time I’m publishing this, the Coast Guard is investigating whether a ship’s anchor may have been a factor in tearing an underwater pipeline, causing an oil spill described as “an environmental catastrophe.”

But wait, there’s more!

“There are 16 container ships on their way from Asia over the next three days,” Gene Seroka told me last week. Seroka runs the Port of Los Angeles. He says, “This is the busiest it’s been at the nation’s largest port in our 114-year history.”

He’s not the only one who’s astounded.

“In my 41 years on the waterfront, there’s been nothing like it, nothing,” says Mike Podue, head of ILWU Local 63, a key player in the longshoremen’s union.

“What we’re seeing now is really unprecedented,” says consultant Jon Monroe. Monroe has been in the shipping business for decades. He currently represents a Chinese logistics company and also a container shipping line with seven ships on the water right now.

HOW DID THIS HAPPEN?

Monroe believes supply chain problems started in July 2020, when shipping carriers canceled trips across the Pacific because Covid forced the shutdown of factories in China. He says that even in normal circumstances, it’s not unusual for trips to be canceled. Carriers do this to create an imbalance (or rebalance?) in supply and demand to push up shipping rates. However, Monroe says in the summer of 2020, “They probably did it for about five weeks too long.”

By the time shippers ramped back up, Chinese manufacturing was in overdrive to meet the ravenous appetites of American consumers forced to work from home. The need to spruce up our home offices, to buy sweatpants for Zoom calls, to plant gardens and grow our own food, to purchase computers for kids forced out of classrooms, and our collective freaking out about toilet paper, all created a situation where America was buying everything the world was making.

“All of a sudden, you had about 180,000 TEUs of extra containers coming in all at one time,” Monroe says. TEU stands for the equivalent of a 20-foot container (a 40-foot container would be two TEUs). When those extra containers arrived, he says, “The truckers were all grabbing chassis, sucking up all the chassis, and that created an imbalance in the L.A.–Long Beach harbor.” Chassis are the wheeled trailers that attach to trucks and carry the containers.

The system never caught up. There weren’t enough truckers, chassis, or warehouse space.

Monroe says that by the fourth quarter of 2020, “Every CEO and CFO in America was waking up to the fact that their products were six weeks late and costing them six to eight times as much for their products to ship.”

UH-OH…

He says it’s only going to get worse. “Many of the carriers are adding vessels now.” Old ships are being kept in service and new ships will come online by the end of next year.

Companies like Walmart, Home Depot and Costco are chartering their own ships to have more control over delivery. Monroe wonders if that trend will continue. (Seriously, when does Amazon start building its own ships?)

A ship with only Walmart products sits outside the Port of Los Angeles.

Yet the port isn’t working 24/7. The ILWU’s Mike Podue says don’t blame the longshoremen. “Our men and women are willing to work.” There’s just no place to put anything, he says. Dockworkers can’t offload containers until truckers clear out what’s already there. “Where do those truckers — and it’s not their fault — where do they take their cargo?” he asks. “All warehouses are full.”

The system is so overwhelmed that places in the middle of the country like Chicago have slowed or stopped accepting containers coming in by rail.

“Chicago became congested just like L.A. did,” says Jon Monroe. “The infrastructure we’ve got is old and antiquated.”

Meantime, port managers say they’ve increased capacity and production, but with a lack of capacity inland, Gene Seroka says it’s like “bringing 10 lanes of freeway traffic into five.”

Seroka says many retailers saw this coming (because they went through it last year during Covid Round 1!), and they began ordering early for Christmas. “This Christmas will happen as planned,” he says with confidence. “Our import community has advanced their inventories back to June.”

WHEN WILL IT END?

Seroka says it’s going to take a while for everything to get back to normal, whatever “normal” is post-pandemic. Retailers are low on inventory and will start to replenish after the Lunar New Year in February. That could take months.

Jon Monroe says at least one client is looking for warehouse space in China to park some stuff over there until space opens up on this side of the Pacific.

He also says the current energy crunch in China may force some factories to reduce hours or shut down, putting the brakes on manufacturing. “I’m hoping that will help the situation,” he tells me.

Some companies are switching to more American manufacturing, depending on the products and materials, but that doesn’t happen quickly.

Of course, Americans could take a break from our Covid buying binge, but who am I kidding?

Perhaps inflation will help bring balance back to the supply chain. By the time all those new ships hit the water in a year or two, American consumers may take a breather, and importers won’t have to wait so long or pay so much.

That won’t be so great for shippers, which may be one reason they’re making bank while they can.