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  • Writer's pictureStephen Fodor

Shipping gridlock, port volumes jump, Bidens talks transport, Covid releif, Iceland Air lifeline

Monday Morning Wake Up Call

March 15, 2021

America’s container-shipping gridlock: California vs. Georgia

(American Shipper) The spotlight has focused on the armada of container ships stuck in California’s San Pedro Bay, awaiting berths in Los Angeles and Long Beach. But that’s not the whole story: Anchorages are bloated with box ships elsewhere along the West Coast, in Oakland and British Columbia, and on the East Coast off Savannah, Georgia.

The common denominator is a massive surge in U.S. consumer demand for Chinese-made goods. But there are also key differences.

In an interview with American Shipper on Wednesday, Georgia Ports Authority (GPA) Executive Director Griff Lynch explained why the situation off Savannah is not the same as the one off the West Coast — and why his traffic jam is already easing.

Ships at anchor off multiple ports

The number of container ships in San Pedro Bay has averaged around 30 since the start of the year and level remains stubbornly high. As of Wednesday, there were 31 at anchor. The CMA Marco Polo — with a capacity of 16,022 twenty-foot equivalent units (TEUs) — has been stuck at anchor the longest, since Feb. 27.

Even further to the north, MarineTraffic data showed 11 ships at anchor off Vancouver in British Columbia. Asian exports to the U.S. are flowing heavily through Canada as well. Ocean carrier Hapag-Lloyd said in a market update last week that there was “ongoing heavy congestion at all terminals in Vancouver and Prince Rupert [Canada] … with vessels being held off berth for days.”

Over on the East Coast, Savannah had 14 container ships at its anchorages as of Wednesday. The difference here is that the number is down from a high of 22 last week, when Savannah looked like it was headed towards California-style congestion.

Both natural and man-made causes

“Everybody’s getting slammed and overwhelmed with cargo. It’s incredible and something we didn’t see coming,” Lynch told American Shipper. “But for us I think it’s a simpler story than it might be on the West Coast.”

The Savannah River is closed by fog from time to time each year between December and February. “We had a very challenging fog season this year,” reported Lynch. In February, fog shut the river for 109 hours or 16.2% of total hours in the month. That’s up 45% from fog closures in February 2020.

On top of that, winter storms caused delays for ships coming through the Port of New York/New Jersey, which caused subsequent arrivals in Savannah to bunch up.

“We had vessel bunching compounded by fog,” he said. All of which coincided with the same surge in import volume being seen at all American ports. Lynch said that there were six or seven extra-loader arrivals last month. (Extra loaders are ships not in a regular service added to carry incremental volume.)

At one point in February, there were 83,000 containers on the terminal grounds. “That is unheard of,” he said, noting that the usual level was 50,000-60,000 containers. “While our business was up 20%, our inventory was up 50-60%.”

Rapid reduction of the queue

Because weather played such a big role in Savannah’s congestion, it has been able to bounce back quickly.

Lynch pointed out that the number of ships at anchor has been reduced by 36% in the past six days. “Essentially what we’ve done is reduce the queue by more than one vessel per day,” he said.

The number of containers in the facility is already back down to 64,000. “We’ve made a tremendous amount of progress, which has opened things up and allowed us to work vessels and turn them around more quickly.”

Meanwhile, the import boom continues apace. “Our March to date is up 32.5% year-over-year. We’ve been up double digits for months now,” he said.

“If you look at our volume last week, it was yet another throughput record for us. If we annualized that, we’d be running at a pace of over 6 million TEUs. We’re probably going to add 600,000-700,000 TEUs in one year, which is incredible.

“We’re seeing volume this year we didn’t expect to see until 2025. So, what we’re doing now is advancing expansion plans we had targeted to happen over the next five years. We’re going to get them done sooner — add more ship-to-shore cranes and more berths so we can better handle this type of volume in the future.”

Port of Long Beach volume jumps 43.3% year-over-year

(American Shipper) The Port of Long Beach announced Wednesday “an unseasonable surge in cargo” had led to its busiest February on record.

That surge has put the entire container shipping world’s focus on California’s San Pedro Bay, where historic congestion has resulted in an unprecedented backlog of vessels laden with cargo waiting for berth space.

“We understand that shippers are awaiting their cargo and we are collaborating with our industry partners to deliver shipments as quickly as possible,” Port of Long Beach Executive Director Mario Cordero said in a press release.

“The supply chain workforce is giving its all to keep the cargo moving, even as their ranks are hit by the pandemic. New records are being set, demonstrating how busy they have been,” Cordero said.

Both the ports of Long Beach and Los Angeles have been hit with major outbreaks of COVID-19 among longshore workers since the pandemic spread to American shores late last winter. In his State of the Port address last month, Cordero called for the vaccination of dockworkers to ensure proper staffing to work through the mounds of cargo.

“I’ve called on my fellow port directors in the American Association of Port Authorities to advocate that waterfront workers receive the COVID-19 vaccine immediately. The workforce is essential to keeping our economy moving — and they have put their health on the line,” Cordero said in his early-February speech.

No slowdown in cargo

The dockworkers haven’t had time to catch a breath even as the number of reported COVID-19 cases nationwide eases. February typically is slow at the world’s ports as Asian factories close for two weeks to celebrate the Lunar New Year. But world events have been anything but typical over the past 12 months and most Chinese factories worked through the holiday this year in an attempt to fill back orders and meet e-commerce demands, which have not waned as pandemic-caused restrictions have been lifted.

The goods churned out by the Chinese factories flowed across the Pacific and thus added to the cargo heap in Southern California. The Port of Long Beach reported Wednesday it moved 771,735 twenty-foot equivalent units in February, a 43.3% jump from the 538,428 TEUs handled the same month last year and “the largest year-over-year increase for a single month in the port’s 110-year history.”

“It was also the first time the Port of Long Beach handled more than 700,000 TEUs in the month of February, exceeding the previous record set in February 2018 by 109,945 TEUs,” it said.

Imports were up 50.3% year-over-year to 373,756 TEUs, from 248,592 in February 2020. Exports declined 4.9% from 125,559 TEUs to 119,416.

But it is the number of empty containers that has been sticking out on U.S. port reports, and Long Beach’s was jarring. The number of empty containers moved through the port in February shot up 69.6%, to 278,563 TEUs. The vast majority, 265,431 TEUs, were empties moved outbound — back to Asia.

The Port of Long Beach did not respond by publication time to American Shipper’s question regarding the number of empty containers, but Northwest Seaport Alliance CEO John Wolfe said last week that the container lines just want to get the boxes back to Asia to be refilled.

“Because of the significant demand in imports into the country from Asia, the vessel operators are increasing the eastbound rates that they charge to the cargo owners for the movement of goods from Asia into the U.S., and that is creating greater profitability for the carriers,” Wolfe said. “And as a result of that, they are anxious to get those vessels with the equipment, whether it’s a load or an empty, back to Asia so they can take advantage of the higher rates that they’re enjoying today in the marketplace.”

The Port of Long Beach said in Wednesday’s press release that it “continues to collaborate with stakeholders to facilitate the efficient movement of cargo.”

‘Considerable systemic pressure’

MSC Mediterranean Shipping Company announced Wednesday that it is taking action to meet customer demand and improve reliability on the trans-Pacific trade “at a time when the entire market remains under considerable systemic pressure.”

MSC expects to commence the Sentosa service in early April. The MSC Ornella will have a rotation of Singapore; Tanjung Pelepas, Malaysia; Laem Chabang, Thailand; Vung Tau, Vietnam; Long Beach; Shanghai, Ningbo and Xiamen, China; and back to Singapore.

The Sentosa service “should enable a significantly improved transit time for MSC customers shipping goods between Southeast Asia and California, ensuring that MSC retains a direct Laem Chabang-Long Beach call in both directions within its trans-Pacific network. This compensates for the removal of a Laem Chabang-U.S. call on the Jaguar service,” Wednesday’s announcement said.

The vessel in the new Jaguar rotation will sail from Nansha to Yantian, China, across the Pacific to Long Beach and Oakland, California, and then to back to Asia, calling Busan, South Korea, before returning to China.

MSC said it was making the changes to its east-west network “to better manage the current industrywide challenging market situation, which is impacting port activities and generating congestion across the supply chain.”

What freight carriers should know about Biden’s transportation review

(Freightwaves) An executive order issued by President Joe Biden has the potential to become one of the most important government documents in years directed at carriers and their customers working within the country’s transportation sector.

Key among the provisions of the “Executive Order on America’s Supply Chains,” issued Feb. 24 is a “sectoral supply chain assessment” of six industrial sectors, including transportation. It requires the secretary of transportation, consulting with the heads of the department’s modal agencies, to submit a report to the president within one year of the executive order that assesses “the role of transportation systems in supporting existing supply chains and risks associated with those transportation systems.”

The president’s advisers will have the authority to recommend adjustments to each industrial sector’s base assessment, including adding “digital networks, services, assets, data (‘digital product’), goods, services, and materials” to the scope, and add new assessments as appropriate. “We’re not going to wait for a review to be completed before we start closing the existing gaps,” Biden said before signing the order.

How important is this executive order for freight carriers and their customers? “I think this is going to be a wake-up call and will have a ripple effect across the entire logistics chain,” Jennifer Bisceglie, CEO of Interos, a supply chain monitoring and modeling company, told FreightWaves. “If I’m anywhere in the supply chain I’m taking a look at where I’m connected to this executive order, because it’s ultimately going to affect my business.”

Short-term uncertainty

As important as such a review is following the supply chain disruptions in the wake of the COVID-19 pandemic, the executive order is also vague enough to cause confusion. For example, what exactly is meant by “transportation industrial base?”

“It’s a bit unsettled, because that’s not a defined term,” Elizabeth Lowe, a lawyer with the firm Venable, told FreightWaves. “The expectation is that the Department of Transportation will provide more clarity as part of the review. But I would read it to mean affecting all modes — trucking, rail, air and ocean. Transportation overall is integral to supply chains, which is why the executive order is directed for six sectors, not just transportation.”

Bisceglie agrees that the order is vague, which will have an effect on how the industry tries to figure out how to initially respond to it.

“What normally happens in these cases is a slowdown in terms of executing a business strategy, because companies don’t know if that strategy will shift or change depending on the impact” of such a review, she said.

If you are a truckload carrier, for example, Bisceglie said those investment decisions can range from fleet assets to cybersecurity of technology systems that are shared with customers. “Knowing that cyber is a big piece of this, there may be regulatory concerns that [a carrier] may need to be aligned with after the review for which they don’t want to make a big investment in today.”

Long-term strategizing

Anna Nagurney, a supply chain and logistics expert at the University of Massachusetts at Amherst, said including all the transportation modes in the review is pivotal.

“The administration realizes that transportation is essential, because the results of the supply chain analyses of the 100-day product review could lead to onshoring and more domestic manufacturing, as well as more domestic exploration of raw materials that go into vaccines and other products,” Nagurney told FreightWaves. “That’s going to impact the transportation networks, where you could see changes in freight flows.”

Nagurney noted that paralleling the review are discussions within the Biden administration and on Capitol Hill about infrastructure investment — and its recent mediocre (C-minus) grade from the American Society of Civil Engineers.

“I was hoping to see the review of transportation services tied into an emphasis in investing in the infrastructure, because not doing so undercuts the investments in transportation assets.” But she also said it was encouraging to see in the order a requirement to identify investment in education and training of workforce skills needed for the transportation sector. “We have a truck driver shortage that needs to be addressed.”

A “just-in-time” directive

The executive order could also prove pertinent as supply chains face more stress in the year ahead. In its latest report released on Monday, the National Retail Federation (NRF), which tracks volume through the nation’s largest container ports, forecast “what could turn out to be record retail sales growth in 2021, and retailers are importing huge amounts of merchandise to meet the demand,” NRF stated.

“Imports at the nation’s largest retail container ports are expected to grow dramatically during the first half of 2021 as increased vaccination and continued in-store safety measures enable additional shopping options,” according to NRF, which sees container volume growing 23.3% during that time compared with the same period in 2020.

“One of the issues not highlighted within the executive order are the current massive backups and delays we’re seeing in U.S. supply chains,” Lowe said. “You have dozens of vessels waiting outside Los Angeles and Long Beach that could be filled with retail goods, [personal protective equipment], pharmaceutical supplies and other critical supplies. If these record imports continue at a time when we already have a backlog, it further underscores the need to address these issues.”

Regulatory changes ahead?

Biden’s directive is still in the early stages, but if you’re a carrier or shipper it’s not too early to start engaging to get ahead of potential policy and regulatory changes, Lowe said.

“While it’s hard to say what transportation companies should do specifically to prepare for this review, they should be proactive in participating so that they have some say in shaping policy. Transportation companies are aware of the risks to supply chains more than anyone so they’re in a good position to help reach the goals of the executive order.”

Lowe recommended reaching out to DOT and its modal agencies — the Federal Motor Carrier Safety Administration or the Maritime Administration, for example — to express interest in participating and providing insight in connection with the review.

“Agencies will likely be reaching out to the industry as this progresses, so if they already have a list of companies and associations saying, ‘I’m here and would like to participate,’ those would likely be some of the first they would reach out to.”

$1,400 COVID relief checks to trigger surge in e-commerce shipments

(American shipper) Federal stimulus checks of $1,400 could be landing in Americans’ bank accounts by next week. It won’t be long before some of those dollars are recycled into online orders and e-commerce fulfillment companies see a spurt in volume, logistics experts say.

The U.S. House of Representatives on Wednesday passed the $1.9 trillion COVID-19 relief package and President Joe Biden says he will quickly sign it into law.

Individuals earning up to $75,000 and couples earning up to $150,000 are eligible for full direct payments. Individuals get an additional $1,400 check for each dependent claimed on their tax returns.

If history is any indicator, many people are likely to start spending some of those one-time cash payments at online retailers.

The CARES Act was enacted on March 27, 2020, and $1,200 direct deposits for eligible persons started to arrive on April 13.

In the final week of March 2020, parcel volumes increased about 10% from the same period in 2019, coinciding with increased lockdowns in the U.S. The pace picked up to 16% during the week of April 5, increasing to 30% during the week of April 12 and spiking 55% during the week of April 19, according to data compiled for FreightWaves by Pittsburgh-based ShipMatrix Inc., which helps companies manage their parcel transport spending.

Parcel volumes, which are closely tied to e-commerce sales, stayed at 40% during the weeks of April 26 and May 3 before tailing off to 20% by the end of the month, the research showed.

“The huge spike was a combination of stay-at-home orders and stimulus payments,” ShipMatrix President Satish Jindel said.

E-commerce sales also increased shortly after the Treasury Department began issuing payments of up to $600 for qualified individuals on Dec. 29 as part of the second COVID aid package.

SEKO Logistics, Itasca, Illinois, has been developing a plan to deal with the expected flood of new packages from the latest round of stimulus checks.

“The last time stimulus came out, the e-commerce orders doubled in days. People may use this money to buy something for themselves,” Rick Lee, SEKO’s chief operating officer for North America, said during a briefing with reporters last month about ongoing supply chain challenges. “And then it was a smaller stimulus. Now, with a large potential stimulus coming, our orders will surge within days.”

Jindel said parcel and less-than-truckload carriers should also experience a bounce in shipments. FreightWaves’ SONAR data also shows jumps in truckload volume soon after the government disbursed two previous stimulus payments. And many products ordered online are made overseas in China and other countries, so logistics service providers can expect another wave of cross-border shipments entering a transportation system that is already straining with long ocean and air backlogs.

COVID has added many workplace challenges for e-commerce warehouse operators like SEKO. An extremely high number of orders is matched by the need to limit the number of people in the building picking orders to keep everyone safe from infection. And parcel carriers are making less frequent pickups at distribution centers.

Lee said warehouse space is extremely difficult to secure in markets such as Southern California. SEKO has significantly increased its facility footprint in the past year and is closing on leases in weeks rather than months to keep up with retail demand.

Logistics real estate developers report tight warehouse capacity and rising inventory levels. The vacancy rate in the U.S. is extremely low, at 4.8%, putting upward pressure on rents. There is competition for limited space and a rise in build-to-suit projects for specific customers.

Atlas Air’s leasing unit to help Icelandair convert 767s to freighters

(American Shipper) Icelandair has agreed to a sale-leaseback deal with a subsidiary of Atlas Air Worldwide Holdings (NASDAQ: AAWW) that recycles two Boeing 767-300 passenger planes into freighters for the cargo division and provides financial help to the company. The aircraft will replace two Boeing 757-200 all-cargo planes that the airline plans to take out of operation in 2023 and 2024, it said in a statement Wednesday.

Titan Aircraft Investments, the joint venture between Atlas’ leasing subsidiary Titan Aviation Holdings Inc. and Bain Capital Credit, said it purchased the 767s from Icelandair and will lease them back once they are retrofitted for hauling freight on the main deck.

A sale-leaseback allows a company to raise capital by selling an asset and then rent it back from the purchaser to get the benefit of using it.

Airlines are accelerating retirement of older passenger aircraft, focusing on more efficient models, as they restructure into smaller businesses in line with market conditions. Terms of the Titan deal were not disclosed, but Icelandair said the sale helps its liquidity.

Icelandair said the lease period for each aircraft is 10 years. Conversion work will begin next spring and the cargo jets are scheduled to enter service in September 2022. Until then, they will operate in Icelandair’s passenger network and as charters.

“We are very pleased to partner with Titan Aircraft Investments and Atlas Air to further strengthen our cargo business. With continued positive outlook for cargo operations post COVID, I am confident that the 767-300ER freighters will allow us to maximize new opportunities in our markets,” said Bogi Nils Bogason, president and CEO of Icelandair Group, in a statement. “These aircraft carry around 50% more freight than our current two B757-200 freighters and fit very well into our current fleet and network. Our aim is to increase the capacity in our markets, as well as strengthen Iceland as a hub for cargo, in a similar way as our passenger hub that provides attractive connections between continents.”

Fresh fish is one of the key markets supported by Icelandair Cargo. Last April, the airline stripped the seats from three 767s to help DB Schenker and other customers move larger quantities of urgently needed medical supplies around the world.

Icelandair is the latest passenger airline to put more permanent emphasis on cargo business. Many airlines have temporarily deployed passenger aircraft on cargo-only routes to take advantage of strong demand and yields while passenger business is depressed because of COVID travel restrictions. But the planes can quickly revert to regular duty as the travel market improves.

Some airlines, however, are making more permanent commitments to cargo. Air Canada recently launched an initiative to transition a few 767s into freighters for its own use, rather than simply sell them into the used aircraft market. Other carriers, such as Air Belgium, SmartLynx, Sun Country and Mesa Airlines, have added freighters to their operations for the first time. German leisure carrier Condor recently put some of its passenger planes to work on regularly scheduled routes for DHL Express under a short-term contract.

Titan Aircraft Investments now has three aircraft in its portfolio, including a Boeing 777-200 freighter. The joint venture was formed in late 2019, with Bain Capital putting up the lion’s share of the $400 million initial investment.

Titan Aviation, the Atlas freighter lessor, owns 21 767-300 Extended Range aircraft.

Dry leasing aircraft represents less than 15% of the parent company’s revenues. It also owns Atlas Air and Southern Air, and is a majority owner in Polar Air Cargo, all of which operate aircraft on behalf of other airlines, or charters for logistics companies, charter brokers and governments.

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