In March 2021, a 20,000 TEU container ship, Ever Given, was stranded on Egypt’s Suez Canal. As a result, the Canal was shut down. An estimated $9.6 billion in trade was lost. In the 6 days that the Canal was blocked, 450 vessels were stranded. 2 months after this event, the third-largest port in the world, China’s Yantian (Shenzhen) port, closed its doors amidst COVID-19 fears. This led to dozens of container ships dropping anchor and waiting. The result was higher freight prices and stores lacking inventory.
Indeed, the pandemic has caused observed disruptions in the accessibility and cost of freight containers, the astronomical increase in fares, container jams in port yards, shortage of truck chassis and drivers and warehousing limitations. These were symptoms of global supply chains struggling to come to terms with the dichotomy of rising demand and COVID-19 restrictions.
Like any black swan event, the COVID-19 pandemic got the global supply chain and logistics industry to a screeching halt. The pandemic exacerbated major problems the industry faces today.
Major roadblocks faced by global supply chains in 2021
Port congestion in major locations
As ports are a primary international supply chain node, port congestion affects the entire value chain. For example, consumers face shipping delays for weeks, which affects their business, while shipping companies pay demurrage, freight rates, and extra operational costs for the long delays.
Global shipping congestion in 2021 has hit the industry profoundly — from pandemic-related port disruptions, the continuation of the China/Australia Trade war causing long-term delays off Chinese ports, to the ramifications of the Suez Canal blockage in March and Yantian (China) port closure in September.
The major ports in the US in Southern California — the Ports of Los Angeles and Long Beach — are examples of the problems caused by port congestion. These two ports are the chokehold for the dominant Asian-U.S. trade route. By the start of December, a logjam of just under 94 container ships sat offshore, an all-time high.
Shortage of dockworkers and personnel
Ports face two major challenges globally:
- Problems with providing berths for ships (scheduling when they will dock)
- and planning on working hours for dock workers, truck drivers, and other personnel
In the US especially, the second issue is an effect of the pandemic. Dock workers come across unforeseen delays in loading and unloading cargo. Dock working personnel with children and other family responsibilities had to prioritize staying at home.
For the Port of Los Angeles, on average, 30% of the daily trucking appointment slots for transferring cargo remain vacant. Thus, they cannot ship containers from port to destination on time. Ships, meanwhile, awaiting berths, lay anchored at sea even as terminals overflow with unloaded containers — and of late, empty containers. These issues directly result from a shortage of labor, all the way from warehouses and intermodal yards to trucking operations.
Rising costs of containers
Shipping containers are the key ingredients for global trade. The average price for a Chinese-made standard 40’ container is nearly $6,000, over double its price in 2016. This is mainly because of the lack of containers in the industry today. This lack was augmented due to various reasons.
For example, containers that carried masks and essentials to countries like Africa and Latin America early in 2020 remain uncollected as carriers have focused on the lucrative Asia – North America/ Europe routes. Thus, with fewer containers in circulation, there’s an enormous demand but lack of supply.
This lack of containers has affected the US supply chain as well. Shippers have refused to send boxes inland for freight transportation, instead choosing to send them back to factories in Asia quicker.
The busiest port in the USA, the port of LA (los Angeles), that receives 17% of all national cargo, import volumes increased by 27% in June 2021 vs. June 2020. Meanwhile, loaded exports from the same port decreased 12% over the same period according to a WTO report. It was the lowest amount of exports at the Port of Los Angeles since 2005. Meanwhile, the number of empty containers jumped 47% compared to last year because of the heavy demand in Asia.
The blockage of the Suez Canal and the shutdown of the Shenzhen port in China further compounded this container deficit, leaving roughly 350,000 containers idle. Container prices will continue to rise until this deficit is solved.
Rising cost of shipping
With port congestion and container deficit becoming a big problem, shipping costs are also impacted directly. Shipping lines and logistics companies ferry 90% of the world’s trade. The Suez Canal blockage caused many ships to wait, causing delays and backlogs in supply chains.
We need more ships, but new vessels might not come to us before 2023. Another challenge the industry faces is to create a capacity for the enormous size of newer ships. The newest models of freight ships can hold up to 20,000 containers. Ports too, need to get ready to house these ships. There has to be increased capacity in terms of workers, warehousing, trucking, and more.
Shipping from China to the USA is considered lucrative due to the high cost, but the opposite is not applicable. Most carriers prefer to take empty containers back to China instead of waiting for export products from the USA. This creates a discrepancy in prices, where certain busy trade routes cost much more compared to other less busy ones.
Truck driver shortage heightened in 2021
Once unloaded at the port, cargo is majorly shipped inland via trucking. But with driver shortage only growing in 2021, containers sit idle for longer periods at ports, waiting to be ferried. Meanwhile, ports and warehouses face capacity constraints. This Is because goods are not sent to their destinations on time. Ergo, delays and the overall rise in cost for the entire supply chain.
Various reasons cause low attrition rates among truck drivers. Whether it is safety concerns or expanded unemployment benefits, frustration with their employers or even salary lost because of waiting on cargo or at layovers, truck drivers are choosing to leave the industry in droves. COVID has also ensured that drivers with families stay at home, as children cannot go to school and may require care and attention.
Wages are slowly rising in the industry, especially within private fleets. Companies like Walmart have offered an $8,000 signing bonus and a salary of $87,500 (double the median salary for the industry) to drivers.
Drivers require a more professional working environment. There is a need for time management and ensuring that big or small players value drivers’ time. Drivers compensation should factor in not just for hours on the road, but also wait time beyond the loading/ unloading. Safety, security, and personal time related concerns need to be looked at. In a hyper fragmented trucking industry, the bulk of drivers work with small firms mainly for this reason.
If dependent, responsible trucking is a concern for you, you need to look at Gillson Trucking and prioritize their driver and other partners’ needs as required.
What will be the way forward for the logistics industry?
It seems we have entered 2022 with these issues still a large part of the logistics industry. As a ripple effect of these major issues, the global supply chain and logistics network has been modernizing and strengthening too. Big data, IoT, AI, and digitalization are the key terms in the evolution. The end-to-end automation and digitalization of the logistics sector will be a crucial component for customers of logistics firms. Not only will this be a huge value-add, but it will also mitigate various bottlenecks faced by the industry today.
For the logistics sector, a major enabler of rapid digitalization is the deployment of the internet of things (IoT), where otherwise traditional devices are becoming connected to the internet and can send and receive information. Logistics firms who cannot automate and digitalize system-wide or do so only partially, rather than throughout their entire network, will quickly become relics.
Meanwhile, one of Inc 5000’s list of fastest-growing companies in North America, TeamGillson, provides various trucking options. Using the latest technology allows Gillson Trucking to provide customers with fast, safe, and eco-friendly freight shipping options. Contact Gillson now to know more or get a quote.
