The Loadstar reports on an unforeseen side effect of the current supply chain crunch.
The combination of congestion at US west coast ports and low interest rates is allowing US importers to use containerships as ‘offshore warehouses’, mitigating logistics costs.
According to freight visibility company project44, transit times from China to Los Angeles have nearly tripled, with freight taking up to 60 days to be cleared through LA and Long Beach ports – its data suggests an average of 540,255 teu per month was waiting to berth at LA.
Figures from p44 and HSBC estimate the average value of a container load at $40,000, with an average cost of financing of 3.2%, generating an extra $321m in interest between January and November 2021, says p44, adding this is “a small fraction of the total cost of goods”.
It said: “With interest rates at historic lows, companies could finance a surplus amount of inventory and essentially store it at sea for two months. While this might not be entirely deliberate, the congestion helped companies circumvent storage costs on the excess inventories.
“Though shippers paid interest-related penalties on freight stranded at sea, the costs were diminutive compared with storing that inventory on land (warehousing prices are high, while availability is scarce).”
There's more at the link.
That's a side effect I hadn't considered, but it makes sense. The purchasing company saves money, because it doesn't have to pay high charges for medium- to long-term warehouse storage of its goods. The shipping company doesn't care - it's charging record rates anyway, so it's raking in the cash for its vessels every single day (including port delay surcharges), making huge profits at essentially minimal additional expense. The only people who suffer are the retailers waiting for their goods, and the consumers - you and I - waiting to buy them. We're all sitting with the same empty shelves, in stores and in pantries. (Other importers and exporters are also hit in the longer term, as the ships they need to transport goods from factories to consumers sit with their full loads, waiting to discharge them before they can go back for another cargo; but again, that cost is charged to the account of buyers, both corporate and private, so we end up paying for it one way or another.)
The challenge of shipping goods across oceans will continue for years to come as markets continue to be disrupted by the effects of the supply chain crunch. One expert sees no relief during the next decade.
We’re in the midst of the perfect storm, created by a combination of a worldwide driver shortage, equipment shortage, pandemic-related port congestion issues, container carriers’ disregard for signed contracts and an influx of exports from Asia into the US. And another storm cloud is that big carriers are buying up port facilities and freight forwarders, enabling them to have a firmer grip on rates and services.
. . .
Massive new build programs might launch in time, but the supply chain problems will remain. If anything, additional cargo sitting outside the US, Northern European, or main Chinese ports will only add to the paralysis, as budget and approval for port expansions get backlogged in government red tape. Driver and port worker shortages will only worsen as the populations in North America, the UK, and the EU continues to age out.
Again, more at the link.
Electing a new government in 2022, and/or a new President in 2024, won't solve those problems (although a more competent Administration will undoubtedly do more to remedy their effects). We're in this for the long haul, whether we like it or not.
Peter
7 comments:
At between $50-85,000/day, plus bunkerage, it 'could' be cheaper to store the goods on ship, but the ship owners would be unhappy with this, since that would cut into their 'slim' profit margins.
I thought that the Maritime Logistics article cited was well done, but events in the past few weeks show that there is some rerouting going on. South FL's container terminals in Port Everglades (Fort Lauderdale) and Miami are experiencing month-over-month records in TEU's handled. Carriers have rerouted panamax and Neopanamax ships to FL to circumvent the lay time in West Coast anchorages, and since so many shipowners now own intermodal logistics companies as well, they can turn a profit by cutting out the cross-country rail trip that many containers have to take to get to the US East Coast and putting them on rail cars there. FL has expanded their rail service in the past few years for passenger carriage on the 95 corridor anyhow. There is room for growth in rail service on existing lines, which is something that NY/NJ can't boast.
It's an interesting thing, seeing underutilized port facilities get new business. I'm still watching NY's small container terminals in Howland Hook and Red Hook, which can't take big ships, and how they still are not operating close to capacity. There is a growing number of smaller ships on Far East service calling on US Ports, but coming at a cost of reduced service to the Caribbean and Central/S. America.
Oil and bulk trade has long played games with 'Contango' to rig the market. Containerized trade doesn't seem as easy to do so because of the diversity of cargo on each vessel.
Don't forget, this also reduces inventory taxes since goods on a ship are "in transit" and not "in inventory".
There are a couple of waterfront companies on the Great Lakes that use old ships as warehouses for this reason; I assume it is also done elsewhere.
Paul, I reckon the costs associated with Panama Canal transit plus extension of days at sea (labor + operations + insurance) would more than eat the costs of cross country rail travel.
Ship's crew are on short term contracts. It really is nothing to extend or renew labor contracts but many of the crew may decide to not extend. This leaves the ship in need for replacement crew. Whatwith COVID related travel restrictions, procuring a full compliment of crew becomes a logistical tangle.
However, with ships at eastern U.S. terminals, the costs of return of empty containers may be reduced.
Obviously I'm not in the business. I am spitballing here.
I mean I'm quite sure this will all be Trump's fault in a few short weeks and senile Biden is doing just the best job he can!
As far as additional costs of transit to the East Coast, they are more than offset by lower port fees and lower truck/ train costs.
Several years ago, the cost to unload 1 40 ft container in Long Beach was $2200 and unloading the same container in Savannah was $600. The truck trip went from 4 days to the east Coast to less than one.
I don't think the East Coast delivery will cost much more, if any. I suspect that the delays alone on West Coast ports will cost more than the extra costs of getting to the East Coast.
Oh, and don't forget that ships usually pay the port to anchor off it, so it's another way that fees increase.
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