Stephen Fodor

Apr 5, 20218 min read

Supply-chain crisis anchored off the coast of LA, demand may out paces supply, Maersk adds services

Updated: Apr 6, 2021

Monday Morning Wake Up Call

April 5, 2021

The US has its own supply-chain crisis brewing as dozens of cargo ships remain stuck off the coast of LA as they wait to dock

(Yahoo News) While the Suez Canal jam may have captured public attention before the cargo ship Ever Given was freed, the US is quietly facing its own supply-chain crisis as dozens of freighters float off the coast of Los Angeles, waiting for dock space to open up.

California ports in Los Angeles and Long Beach account for about one third of US imports. These ports operate as a primary source of imports from China and have been heavily congested for months.

On Thursday, 28 ships were anchored off the coast waiting for a spot to open up to unload at Los Angeles and Long Beach ports, according to data from the Marine Exchange of Southern California.

The Southern California ports are facing more congestion than ever before, Kip Louttit, executive director of the Marine Exchange of Southern California, told The Wall Street Journal.

"Under normal conditions, container ships rarely anchor," Louttit said.

The ships carry millions of dollars worth of popular imports, including furniture, auto parts, clothes, electronics, and plastics, according to data from the Port of Los Angeles. Supplies of these materials could be heavily depleted in the US due to the backlog of ships.

Louttit said increases in consumer spending and, as a result, a spike in imports have overwhelmed the ports.

"The ports are setting records moving cargo," Louttit told The Journal.

California port delays are already helping drive shortages and delivery delays in the US

California port delays seemed to have peaked in early February, but have persisted in recent months.

On January 30, Southern California port congestion hit a record high when 38 container ships were waiting along the coast for room to open up to dock and unload.

Gene Seroka, a Port of Los Angeles Executive, warned the Los Angeles Board of Harbor Commissioners in February that high import levels caused by increased spending during the pandemic were driving port congestion.

A video from the US Coast Guard shows dozens of ships anchored off the coast: https://youtu.be/GnXAtM-7uv0

California port delays are just one of many factors piling onto a global supply-chain crisis

The boats waiting outside of the port, which can carry tens of thousands of shipping containers, are adding to the global container shortage, and, as a result, shipping delays.

Customers are already seeing the impact of shipping delays. During a third-quarter earnings call in February, La-Z-Boy executives said customers should expect delivery dates that are five to nine months out from the purchase date.

The Texas freeze, as well as a shortage of computer chips, have already pushed companies to increase prices and delay production. Several companies including Nike, Honda, and Samsung have already said they have been hampered by supply-chain issues.

As a result of California port delays and the global container shortage, customers will likely face rising prices and limited options as commodities become increasingly difficult to obtain and produce, and companies are forced to compete for containers and delivery dates.

Demand boom on collision course with ocean transport ceiling

(American Shipper) U.S. containerized imports show no sign of letting up as the second quarter begins. On the contrary: Consumer demand is strengthening in the wake of fiscal stimulus and falling inventories that necessitate even more restocking.

The biggest risk to Q2 container-shipping volume is not demand for goods, it’s transport supply.

Fallout from the Suez Canal accident will constrain vessel and container-equipment availability, leading to longer delays. By the end of this quarter, shoppers in America’s stores could find more bare shelves. Online shoppers could increasingly see the words “out of stock.”

Inventory restocking tailwinds

The positive data on demand keeps piling up. On Thursday, the Institute for Supply Management (ISM) Customers’ Inventories Index (SONAR: ISM.MCIN) sank to 29.9 points.

“This reading is the lowest ever reported since the subindex was established in January 1997,” said Timothy Fiore, chairman of the ISM survey committee. “For eight months in a row, [the index] has been at historically low levels.”

According to Amit Mehrotra, transportation analyst at Deutsche Bank, this falling index number “tells us there is additional runway for restocking demand as retailers shift away from just-in-time inventory.”

Mehrotra expects cargo volumes to be “stronger for longer” as a result of both inventory restocking and increased consumer confidence driven by vaccines and stimulus.

New retailer surveys at investment bank Evercore ISI paint a similarly bullish picture. As of Thursday, the Evercore retail sales survey index was at 67.5, up from an average of 47.1 in February.

Evercore ISI’s retailers pricing power survey index rose to 33.4, its highest level since December 2019. “Improving demand with lean inventory” drove the rise, said the bank.

In general, if demand outpaces inventory replenishment, import demand grows.

Bookings are still rising

FrieghtWaves’ SONAR platform features a proprietary index of shippers’ ocean bookings. Bookings are measured on a 10-day-moving-average basis in terms of twenty-foot equivalent units (TEUs) as of the scheduled date of departure. On Friday, the index for China-U.S. bookings (SONAR: IOTI.CHNUSA) hit a record high.

The nationwide index for inbound cargoes from all countries (SONAR: IOTI.USA) reached its highest-ever level on Wednesday.

The index also tracks bookings seven days into the future. This forward view shows that a fresh all-time high is coming next week.

The cargoes tracked by this data will not arrive at U.S. ports until late April or early May. In other words, as strained as ports are now, they face even greater pressure in the near future.

In California’s San Pedro Bay, off the ports of Los Angeles and Long Beach, there were 32 container ships at anchor on Thursday. That’s back up above the average of 30.5 container ships per day that have been at anchor since the beginning of the year.

Meanwhile, up in Northern California, ship-position data showed 14 ships at anchor off Oakland on Friday. Anchorage levels there have been in double digits since February.

Suez Canal fallout is coming

The Suez Canal accident is putting more pressure on an already strained global system. The number of ships waiting to transit the canal peaked last Monday, at 367.

About 80-90 ships have transited per day since the Ever Given was refloated, according to Leth Agencies. Prior to the accident, there were 52.7 per day (year to date).

But even as transits surge, more ships keep arriving. As of Saturday, there were still 156 ships at anchor awaiting passage through the Suez Canal. That’s about three times as many as normal.

After container ships transit the canal northbound, they head to Europe or the East Coast. “What’s going to happen is we’re definitely going to see bunching at European ports,” said Nathan Strang, global head of ocean freight at freight forwarder Flexport, during a webinar presented by Flexport on Wednesday. “Bunching” refers to too many ships arriving at once, creating congestion.

“There may be reduced time in port to try to recover those schedules. That’s going to lead to export cargo and equipment being left behind,” said Strang. He added that “there’s going to be delays for Europe and East Coast services.”

‘Curveball’ to prolong situation

Strang also speculated that carriers could “blank” (cancel) sailings on other routes so they could switch more ships to Asia-Europe services to counteract the accident fallout. “Carriers may start blanking trans-Pacific and trans-Atlantic routes to recover on the more lucrative Far East [to Europe] route,” he said.

Anders Schulze, Flexport’s global head of ocean freight, predicted that the Suez Canal accident would lead to “a capacity reduction across the board, both in terms of vessel capacity and [container] equipment. There will be a domino effect in terms of vessels and equipment getting back to Asia.”

The disruption at the Suez Canal and congestion at European ports will limit the number of empty containers transported back to Asia. This, in turn, will reduce the number of empty containers available to stuff with Chinese exports bound for the U.S. on trans-Pacific routes.

“The equipment situation was already somewhat critical,” said Schulze. “We were just seeing a light at the end of the tunnel with equipment availability and now this curveball will prolong the situation.”

Further compounding challenges for shippers, at least one carrier — Maersk — has temporarily halted short-term bookings in the wake of the Suez Canal accident. As of Friday, Maersk’s short-term bookings from Asia to both North Europe and North America remained suspended until further notice.

Add it all up — rising consumer demand, very low inventories, a halt to some bookings, voyage delays, vessel and container capacity curbed by Suez Canal fallout — and it’s a recipe for more bare shelves at American stores.

Maersk adding weekly service to US East Coast

(American Shipper) Maersk North America this week announced the launch of a service linking ports in Vietnam and China with the U.S. East Coast via the Panama Canal beginning in May.

“Importers are looking for more U.S. East Coast gateways in their Asia/North America supply chains, while exporters are looking for more equipment — especially in the Southeast U.S. region. The TP23 service will enable us to address these needs while integrating our warehousing and distribution network,” Narin Phol, managing director of Maersk North America, said in a statement.

A Maersk spokesman told American Shipper, “West Coast congestion was not the direct reason for the launch of TP23. That said, we do believe that the infrastructure bottlenecks on the West Coast are contributing to the continued stronger market demand for Asia-U.S. East Coast services, which has outpaced U.S. West Coast growth for the past many years.”

Eight Maersk vessels and two ZIM ships will be used for the TP23 string, with a rotation of Vung Tau, Vietnam; to Yantian, China; Panama Canal; Savannah, Georgia; Charleston, South Carolina; Newark, New Jersey; and back to Asia.

Maersk noted that “due to congestion in Savannah, the rotation will initially and until further notice swap the U.S. calls to go Charleston, Savannah [and then] Newark.”

The vessels to be deployed include Maersk’s E.R. Berlin, Zante, E.R. Kobe, Agios Minas, Tamina, E.R. France and E.R. Felixstowe.

“Some of the TP23 vessels are new charters and some have been used in the Maersk network before but have now become available,” the spokesman said, noting that the vessel deployment on each service does change because of such factors as dry dockings, charter expirations and market fluctuations requiring upsizing or downsizing.

Maersk said the TP23 service is just the latest shift it has made over the last year “to stay agile for customers.”

That included deploying 48% more capacity in the trans-Pacific trade from July to November 2020 compared to the same period the year prior, it said.

“The evolution of the TP23 service reflects Maersk’s 2020 approach to serve the trans-Pacific to U.S. East Coast cargo surges via additional capacity from service upgrades, extra loaders and loadings on the Asia-Europe network for transshipment onto extra loader shuttles across the trans-Atlantic. The TP23 will now become a structured, stable, weekly service in 2021 with greater reliability,” Maersk said.

Georgia Ports Authority Executive Director Griff Lynch also used the word “reliability” when asked to comment on the new Maersk service.

According to the GPA, container exchanges at the Port of Savannah are expected to average 2,000 moves per vessel with the TP23 service.

“This new offering from Maersk replaces the extra loader vessels we have been handling with a regular service,” Lynch said. “This will provide greater reliability over the ad hoc sailings previously employed to accommodate record container volumes.”

Maersk said it is not ending any service as a consequence of launching the TP23. “The TP23 is a net capacity addition,” the spokesman said. “The launch of TP23 results in one additional call in Newark, one additional call in Savannah and one less call in Charleston” as it will be removed from the TP17 and TP16 services.

South Carolina Ports Authority CEO Jim Newsome pointed out to American Shipper that the transit time from Yantian to Charleston on the TP23 service will be 28 to 29 days. That’s seven to eight days faster than existing services.

“This new service provides more capacity, reliability and coverage for importers needing a link between the Southeast U.S. and Vietnam and China,” Newsome said. “Importers of furniture, home goods and retail goods will benefit from the fast transit time and first-in call service to Charleston.”

Newsome said South Carolina’s ports have the capacity to handle more imports.

“Our deep harbor and available berths mean ships do not wait to access our terminals,” he said. “Our efficient operations allow for quick truck turn times. And our rail connectivity allows for goods to quickly move from the coast to the hinterland. Our two rail-served inland ports offer importers additional free time, increased trucking capacity and truck turn times less than 15 minutes.”

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