Port congestion ‘elevated,’ retailer hiring to improve supply chain ‘fluidity,’ analyst says

U.S. ports remain congested, with the number of ships at anchor at near-record levels, but ports have started to make progress moving out containers, analysts said. Meanwhile, retailers are making improvements in hiring staff, which is expected to improve fluidity across the supply chain.

In a recent industry note, analyst Jack Atkins and associate Cameron Hoglund, both of Little Rock-based Stephens Inc., said if retailers continue to see progress on hiring staff through the first half of 2022, “this should help begin to improve fluidity across the supply chain. With the number of long-haul truck drivers still (about) 3% below 2019 levels, improved fluidity is critically needed with inventory to sales ratios at or near decade lows and industrial activity, infrastructure spending and automotive output all poised to accelerate in 2022.”

The analysts highlighted recent retailer comments from quarterly earnings calls, showing that labor and staffing issues are starting to ease after the enhanced unemployment benefits expired in early September.

In the Bentonville-based retailer’s third-quarter call, Walmart CEO Doug McMillon said, “it seems like the most pronounced thing we saw would be in hiring. Back when the stimulus dollars started to go away, the hiring situation changed faster. We saw people come back. In a matter of weeks, we were back to being staffed.”

In Target’s recent earnings call, John Mulligan, executive vice president and chief operating officer, said the retailer “is focused on being fully staffed across the store and supply chain throughout the holiday season. Our stores have been hitting their seasonal hiring milestones.”

Mulligan also noted that the company has been investing in staff for its distribution centers and supply chain: “We feel great about applicant flow. We feel great about the turnover of our team. It’s below 2019 right now. So overall, we feel we’re really well-positioned for the fourth quarter.”

Meanwhile, at the ports, “congestion remains elevated with 83 ships at anchor as of (Nov. 15),” compared to 86 the previous week and 72 the week before, the analysts said. Over the same period, the average time for ships awaiting a berth has risen to 17.9 days, from 13.6 days. Five ships have been waiting more than 30 days, and two smaller vessels have been waiting more than 50 days.

“Despite this, we would note that both the ports of L.A. and Long Beach have decided to delay the planned $100/day fee for long-term dwelling containers due to a 26% reduction in these boxes since the program was announced,” the analysts added. “Both ports said that the fee would be reconsidered next week (Nov. 22).”

However, the ports plan to double daytime drayage fees between Dec. 1 and Jan. 31 to encourage the use of their extended hours. But the analysts noted that the port bottleneck is in labor, not hours. They said the issue could be worse at night, with fewer available workers, including crane operators, longshoremen and warehouse labor, leading to slower turn times.

Matt Schrap, Harbor Trucking Association CEO, said, “drivers are not seeing better turn times at night. It’s the same problems, but it’s just dark outside now.”

Regarding ocean container spot rates, they have moderated recently. Since Nov. 9, the Freightos Baltic Daily Index has been an average of about $14,000 for a 40-foot long container, down from as much as $19,500 in the previous week. The analysts noted that about 2.5% of global container shipping capacity is currently offline compared to nearly 11% at the same time last year. Globally, port congestion is absorbing almost 25% of additional container ship capacity.

The analysts expect inventory restocking to contribute to increased freight demand and activity over the next six months. They cited that the ratio of inventory to sales remains near a 10-year low and that sales continue to rise faster than inventory levels.

“We remain surprised by the resilience, and continued acceleration, in the level of sales even though we are increasingly further removed from the elevated levels of stimulus injected into the economy earlier this year,” the analysts said.

According to the Cass Freight Index, shipments rose by 0.8% in October from the same month in 2020.

“Freight volumes remain capacity-constrained, as shown by declining rail volumes and the ongoing backlog of containerships at anchor waiting to unload, but the 2.9% (month-over-month) improvement shows a modest rebound as restocking demand remained elevated,” according to analyst Tim Denoyer, author of the Cass Freight Index. “A pickup in automotive volumes likely also helped, as October rail car loadings in the motor vehicle category rose about 15% (month-over-month).”

Chassis production improved in October but remains below levels needed to address rail congestion, according to Denoyer. As a result, West Coast imports continue to be transported via truckload, contributing to a rise in the length of haul. And a surge in excess miles contributes to the 36% year-over-year increase in freight rates, according to Denoyer, noting the increase is based on per shipment, not per mile.

According to North American Freight Market Insights by C.H. Robinson, the load to truck ratio remains at a record high, consistently at 5:1 for dry van. A 3:1 ratio is considered balanced.

Through the end of the year, dry van spot rates are expected to rise about 4% amid supply constraints and freight volumes, according to C.H. Robinson. In 2022, the rates are expected to increase by 3% from 2021. As of the end of 2022, the rates are projected to be at about the same level they’re expected to be at the end of this year.

According to the Bureau of Transportation Statistics and the Federal Highway Administration, trucks are projected to continue to transport the majority of U.S. freight through 2050. Currently, trucks haul 65% of U.S. freight tonnage. New long-term projections from the two agencies of the U.S. Department of Transportation show that from 2020 to 2050, freight activity is expected to rise by 50% in tonnage to 28.7 billion tons and double in value to $36.2 trillion.