Port congestions and rail freight bottlenecks keep the pressure on North American supply chains as inflation rises

Global supply chains remain under pressure as port congestion spreads. Uncertainty grows as labour negotiations continue in both ocean and rail sectors. Meanwhile, supply chains remain deeply tied to inflationary pressures. Read on to get the latest insights and updates.

Saranya Senguttuvan, Kevin Doell, 27 Juli 2022

Here at Twill, we want to give you the latest and valuable information on the global supply chain to help your day-to-day business. So, let’s dive into the latest news and trends in the North American market.

What's impacting North American supply chains in July?

  • Mass Covid-19 testing in China continues: New Covid-19 cases have triggered additional mass testing events in China this month. China’s zero-Covid-19 policy is focused on epidemic prevention and control and has resulted in some areas of Shanghai being locked down, among others. Reporting indicates that the highly infectious BA.5 subvariant is present in the greater China area, including Hong Kong, which is facing a Covid-19 resurgence straining public hospitals. Port operations continue as normal, but the risk persists that a fresh outbreak could lead to new lockdowns.

  • President Biden averts potential rail freight strike for 60 days: On July 15th, President Biden appointed a Presidential Emergency Board (PEB) to intervene and support negotiations between unions and freight railroads unable to settle on a new contract since negotiations began in late 2019. The PEB will issue non-binding recommendations after a 30-day period, after which the sides will have until September 18th to reach a voluntary settlement. A strike would disrupt deliveries of countless goods, everything from cars to crops to containers and everything they carry. However, if the PEB’s efforts fail, Congress would likely intervene to prevent a strike. Lawmakers could impose terms on the railroads and their unions at that point or take other action to keep the trains moving. Twill and Maersk continue to monitor the negotiations and do not anticipate rail service disruptions.

  • California’s “AB5” law moves forward: The U.S. Supreme Court decided on June 28th to not hear the California Trucking Association’s appeal of the legality of the California law referred to as “AB5,” which means that AB5 has come into effect. AB5 changes the legal standard used to determine whether independent contractors in California should be classified as employees instead. It is not yet known to what extent AB5 will impact current supply chains because a large portion of the trucking community in Southern California has historically preferred and fought for the right to operate as independent contractors. Maersk has been actively working over the past several years to ensure its operations are compliant and does not anticipate that AB5 will negatively impact its ability to service customers in California.

  • ILWU members continue to work beyond the contract's expiration: The coastwide contract between the International Longshoreman and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) expired on July 1st. The PMA and ILWU issued a press release on July 1st advising that while there was no extension to the contract, the cargo would continue to move through the ports as negotiations continue.

What are the ocean freight updates in North America?

Over the past month, shipped volumes have been steady compared to the previous month, with imports into the East Coast continuing to remain stronger than on the West Coast. This East Coast preference could continue well into the third quarter of the year as shippers look to reduce their exposure to the potential risk of West Coast congestion and labour uncertainty, given the ongoing ILWU/PMA negotiations.

West Coast Highlights:

In the Pacific Southwest, 68 ships are heading to San Pedro Bay, with 37 slated for the Port of Los Angeles and 31 slated for Long Beach. Overall vessel wait times for LA now sit between 5-24 days, with wait times of 9-12 days for Long Beach. Transit times to LA have improved for some routes. We have improved TPX service transit times from Yantian to Ningbo to Los Angeles Pier 400 to 16-19 days.

TPX is the name of a service trade route going Eastbound and Westbound between the ports of Yantian, Ningo, and LA.

Pacific Northwest:

We continue to face operational challenges in the Pacific Northwest regarding schedule reliability and transit times, particularly at Centerm, a container terminal in Vancouver, where yard utilization is at 100%. Centerm is facing congestion. It is expected to re-open its second berth no earlier than Labor Day in September. The average rail dwell for containers currently is 14 days.

Additionally, labour shortages may be on the horizon given that cruise ship season is again at hand, which could intensify the overall situation. Together with Maersk, we are looking into further solutions for the affected trade routes to reduce your business impact.

East Coast Highlights:

Growing East Coast congestion has been driven by strong Transatlantic trade and activity across the Transpacific market. Port congestion persists with operational delays in some ports, disrupting schedule reliability and increasing transit times. In particular, vessel wait times in Houston range from 2-14 days, whereas there are around 43 container ships at anchorage outside of Savannah (three of which are Maersk vessels) with wait times ranging from 10-17 days. At Newark PNCT, wait times range from one to three weeks. As always, we are working with the terminals to review any upcoming changes and understand how to minimize delays and waiting times.

Global supply chains remain under pressure as congestion spreads from West Coast ports to East Coast ports.

Inland Transportation News: Railway congestion a major source of supply chain disruption

We continue to experience significant congestion within our inland and ocean freight services, impacting overall supply chain fluidity. We are here to support you, our customers, to help with imports, specifically from inland rail locations such as Chicago, Memphis, Fort Worth, and Toronto. For rail cargo in LA, high yard utilization continues to be a major concern. Yard density currently sits at 116%, with Maersk rail container dwell time at 9.5 days. The terminal has been forced to convert yard space to tackle the high rail volume. The availability of trained rail labour to manage the current demand continues to be a challenge for rail companies though some improvement is anticipated by the end of July.

According to the Pacific Merchant Shipping Association, the average number of days inbound ocean containers waited at LA, and Long Beach ports for rail transport in June was 13.3, a record high. Given that import rail cargo to Chicago via Pacific Southwest ports continue to face rail delays, we recommend re-routing your goods to U.S. East Coast & Gulf ports if possible.

Despite the ongoing challenges, we are working daily to ensure we can provide you with containers and alternatives to return empty containers. Empty container volumes remain steady and healthy throughout North America, and no issues are expected to cover export demand.

Supply chains are one key to the inflation rise fight

Government leaders worldwide must be careful about preventing inflation from becoming a permanent problem in their economies. While the causes of inflation are often complex, policymakers have a simple tool at their disposal to help fight it — raising interest rates. The idea is that consumers will spend less money if borrowing is more expensive. When spending drops, so will demand. Eventually, the prices of everyday items will drop as well. However, if you hit the economic brakes too hard, everything might end badly.

Sometimes raising interest rates doesn’t work quite as intended or fast enough. For example, despite rising interest rates in the U.S, the latest Consumer Price Index (CPI) reading had increased by 9.1% over the last 12 months. This shows the highest price increase in 40 years, with much of the increases related to energy costs.

How can you fight inflation in your supply chain?

Can a shipper help fight inflation? Actually, yes. Supply chains are considered a major contributor to inflationary pressures. Prices surge when there are shortages of goods and labour in supply chains, high consumer demand and persistent supply chain bottlenecks.

Maintaining the ebb and flow of supply chains is a shared responsibility between business shippers and ocean carriers. As we head into the traditional peak season for import freight, it is important that supply chains remain fluid and congestion levels are kept to a minimum. When your goods have arrived, please arrange to pick them up as soon as possible to make room for other cargo coming in behind it. If everybody does their share, we can keep supply chains moving and lower inflationary pressures, which may reduce the need for more aggressive policy actions.

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