Ocean rates, port congestion rise amid tight capacity, hurricane

Ocean container shipping rates have risen to almost 10 times what they were before the onset of the COVID-19 pandemic, but a logistics executive expects the prices to moderate after the Chinese New Year. Meanwhile, ports and overland carriers are struggling with capacity issues and storms.

Shabsie Levy, founder and CEO of digital freight forwarder Shifl, recently discussed the rise in the rates and when he believes they will start to fall.

According to Shifl data, the rates for a 40-foot-long high cube container, the most commonly shipped containers, have risen from $1,350 in March 2020 to $17,500 in September. This rate is for shipping the container from China to Los Angeles, which is where the busiest U.S. port is located. Expect to pay nearly $20,000 to ship the container from China to New York. In March 2020, the rate was $2,850.

“If people are going to pay and there’s a demand, pricing is going to go as high as what people are going to pay,” said Levy, adding that container rates of $5,000 were a lot and $10,000 was unheard of before rising to $20,000. “I’m hoping this is the ceiling, and we’re getting a lot of feedback from customers that they’re not able to push it through anymore. People are holding back already certain items that are low margin because it’s insanely expensive.”

Levy explained the increased shipping expense especially affects businesses with contracts, such as a building developer with agreed-upon pricing for shipping.

“All of a sudden they get hit with this amount of increase,” he said. “This can put companies out of business.”

Levy pointed to the onset of the pandemic as to what led the rates to rise when factories shut down and demand rose for personal protective equipment and cleaning products. Also, people stopped traveling and eating at restaurants and redirected spending on goods, such as furniture. The stimulus money added to this spending.

“It’s a ripple effect,” he said. “What ends up happening is now the ports can’t handle vessels. [They’re] sitting in L.A. sometimes for weeks waiting to be unloaded. Now, the vessel is not going to make it back in time. That means it’s going to be empty sailing. Or, containers now sitting out for weeks at the warehouse facilities, which are all full. So that container is not going back to the routine. That means there’s a shortage of containers. This is the situation that we’re in what is the worst-case scenario right now.”

Airfreight rates are even more expensive. The rate to ship a 40-foot-long high cube container has risen from about $40,000 before COVID to between $100,000 and $130,000. As a result, most products continue to be shipped via ocean carriers. Expensive products, such as smartphones, are an exception and are shipped via airfreight, he noted.

Levy doesn’t expect the ocean container rates to remain as high as they are now and pointed to carriers adding new vessels and containers. Also, he said U.S. sales numbers are moderating and expects container prices to start doing the same after the Chinese New Year. If demand continues to fall, the rates could decline sooner.

Even so, Levy said ports in Los Angeles and New York are handling record freight import values. According to data from visibility platform provider project44, the Port of Los Angeles is handling up to 11,000 container units per vessel. In June, the port became the first in the Western Hemisphere to process 10 million containers in 12 months. In May, it processed more than 1 million containers.

Levy said when ports are busy, the drayage truck drivers that haul the containers might have to wait six to seven hours or longer to transport a container from a port.

Project44 data shows congestion has increased at the four major ports in Southern California. As of Aug. 26, there were 41 vessels anchored outside of Los Angeles and Long Beach awaiting berth space, while 33 were moored at both ports. The previous peak in congestion was in February when 40 vessels were waiting at anchor.

Meanwhile, regional ports are handling record volumes as shippers rush to get products to warehouses and stores before the holidays, according to the project44 data.

The congestion is not only at ports but also inland. The antiquated rail and road infrastructure on the West Coast is preventing the efficient transportation of containers, the data shows. The Port of Los Angeles has faced a daily 30% no-show rate for truck appointments, according to executive director Gene Seroka.

Compared to ports on the East and Gulf coasts, the Port of Los Angeles has been “out invested at a rate of over 11 to 1 over the past decade by the federal government and Congress,” Seroka said to CNBC recently. “We’ve got to correct this quickly.”

Dwell times at Los Angeles and Long Beach ports declined by nearly three days last week, according to project44 data. Blank sailings to Long Beach have been flat, and this shows that carriers either are confident in the port’s ability to process containers or that there are no alternatives.

The capacity/volume mismatch between maritime ports and overland transport could become worse in the coming weeks and months, according to project44. Meanwhile, port issues in China coupled with the tight inland capacity and infrastructure issues might prevent inventory from reaching retailers in time for peak holiday season sales this year.

In August, U.S. railroads originated 1.08 million containers and trailers, down 3.3% from the same month in 2020, according to the Association of American Railroads.

“Rail traffic is navigating many of the same challenges plaguing other supply chain participants, including chassis and container shortages at ports; shortages of drayage truck drivers; port congestion; insufficient warehouse capacity at many locations; and now, weather problems in the Gulf,” said John Gray, senior vice president of the Association of American Railroads. “Faced with this, railroads are working hard, in cooperation with other stakeholders, to keep the national rail network fluid.”

On Aug. 29, Hurricane Ida made landfall as a Category 4 storm near the Fourchon Port in Louisiana. According to a project44 report, container operations closed at the New Orleans Terminal and Ports America until further notice. Also, the Gulf container port of Mobile closed, while the Port of Houston remained open. The lower Mississippi River closed to all vessel traffic, and the Inner Harbor Navigational Canal was closed until further notice, the report shows. The New Orleans Rail Gateway operations also closed until further notice. The Louisiana Offshore Oil Port, the largest private crude oil terminal in the United States, paused deliveries because of the storm.

According to Reuters, nearly 95% of the U.S. Gulf of Mexico’s oil production was suspended, accounting for about 1.74 million barrels per day. The Gulf supplies 17% of oil nationwide.

Project44 data shows the Port of New Orleans handles an average of eight container vessels weekly and is ranked the 15^th largest port in the United States. The port is located on the Mississippi River near the Gulf of Mexico with access to more than 30 inland hubs such as Memphis, Chicago and Canada via 14,500 miles of waterways, six Class I railroads and interstates. It’s the only international port in Louisiana and generates $100 million in revenue annually.