The supply side of the global transportation system rarely makes the headlines in the mainstream media. The supply side is normally assumed to be a \u201cgiven\u201d and demand issues are more newsworthy. Now, however, global supply chains are in the spotlight: freight rates have been elevated for a couple of months now and supply chains struggle.<\/p>\n
With an average value of goods in a container ranging between US$30,000-100,000, a couple of thousands dollars extra on shipping costs per container will approximate a couple of per cent to retail and component prices.<\/p>\n
This, together with concerns over delivery reliability, has placed pressure on businesses. Essentially, the jury is out as to whether it is a problem on the demand side or on the supply side and hence how quickly things will return to \u2018normal\u2019.<\/p>\n
DEMAND VERSUS PORT CAPACITY<\/strong><\/p>\n Let\u2019s start with demand then. The ports of Los Angeles\/Long Beach have been the focus of the current supply chain problems. Delays have seen over 35 container vessels waiting at anchorages and other US ports also facing similar problems.<\/p>\n Demand recorded a very healthy bounce back in the second half of 2020, making up for shortfalls in the first half of the year. Although demand is indeed elevated, this cannot be the full story. Demand has grown by around 20 per cent at LA\/ LB, but this was on the back of a slow second half of 2019. Comparing 2020 volumes to the average of the last three years, the increase in the second half of 2020 was between 10-15 per cent in most months.<\/p>\n Looking only at full containers, the growth versus the last few years was around 10 per cent. This suggests that the extra volumes in the port were driven by repositioning of empties to Asia. Although this is still a healthy increase in full containers being transported (especially considering a shrinking economy) it\u2019s somewhat less extreme than commentary would suggest.<\/p>\n The focus is on full imports, as full exports were down compared to 2019 in each month since the pandemic started \u2013 a slightly less convincing sign of a return to normal economic activity as the growth of full imports only would suggest. Figures 1 and 2 provide further demand insight.<\/p>\n Though volatility and peak loads are always complex for container terminals, utilisation rates in the ports do not seem to be in problem territory. With an overall monthly handling capacity of almost 2.3m TEU (27.23m TEU annual capacity) in San Pedro Bay under normal circumstances, utilisation levels are normally around the 60-70 per cent range.<\/p>\n At individual terminals the problems may be larger, but overall an increase of 10-15 per cent in demand would push the port just into very busy territory, but should not lead to a rapid-build up of vessels waiting at the anchorages.<\/p>\n Reports focus on port productivity being affected by port workers and truck drivers being ill. Vaccination programmes in the ports of LA\/LB have been announced following the example of Singapore and some other ports. LA\/LB have also been receiving larger vessels with significantly higher consignment sizes. This would present difficulties in a \u2018normal\u2019 market as the terminals adjust working patters.<\/p>\n In the current climate this has further exacerbated prevailing difficulties. Finding additional capacity at terminals may, as a result, be harder in the short term. Simulation may offer some support to investigate optimal ways of dealing with a new mix of traffic. In any case, this situation is a clear reminder the container terminals must be laid out to allow flexible operations.<\/p>\n BRAKES ON BOX SUPPLY<\/strong><\/p>\n Long inland container journey times are the other key factor. Delays due to full warehouses, waiting at anchorages and containers used as storage space are numerous. Currently delays on both the water and landside are adding several days to a round trip. An average container is being used for a trip roughly every two months, which means an increase in transit times of over 10 per cent.<\/p>\n With the number of containers and global supply chains traditionally carefully balanced, this extra transit time is reducing the effective capacity A week\u2019s delay for each container trip causes 10- 20 per cent more containers to be needed. With the current box fleet of around 17m boxes, this means a lot of extra containers and, in turn, an estimated requirement for the doubling of normal global box production capacity. It will take some time before a significant number of boxes can be added to the system.<\/p>\n Also as a consequence, an excess number of boxes will be in use when journey times reduce again when the problems are solved. This will lower the return for the box owner. It also reduces the incentive to aggressively add boxes to the system in the short term.<\/p>\n The \u2018return to normal\u2019 will take some time, with vaccinations focused on the elderly not key transport workers, and the pace of these roll-outs generally slow in the majority of countries. Some estimates suggest that the global vaccination programme will likely take until 2023.<\/p>\n As long as lockdowns and disruptions occur in an unsynchronised way around the world, problems in the supply chains can be expected. The magnitude may slowly reduce, but normality is not likely to return in the next few months.<\/p>\n FLEXIBILITY REQUIRED AND COMPENSATION?<\/strong><\/p>\n Shipping lines are compensated for the volatility by high freight rates. Ports should also be compensated for being flexible and the extra efforts needed. If not already in place, the next round of TSA should allow container terminals to mitigate the higher costs of coming up with solutions to deal with changing trade patterns and high utilisation rates.<\/p>\n In addition, ports should focus even more on reducing the journey times of containers by means of incentivisation. Faster empty repositioning, progressive storage tariffs and other measures to reduce the time in transit should give a stimulus to alleviate some of the container shortage problems.<\/p>\n Some multipurpose vessels have been chartered for transporting containers. With lower port productivity and lower service reliability, vessel journey times will increase further. In some cases, large cargo owners have decided to charter their own vessels in order not to be reliant on the major shipping lines.<\/p>\n DHL is reported to have chartered vessels to start calling at a short-sea terminal in the Netherlands, with the hope of being less reliant on the large shipping operators who may favour deepsea trades over the short-sea sector. The hope is this will secure sufficient shipping capacity and reduce disruptions for DHL. In any case, an increasing number of multipurpose vessels will call at container terminals for a while.<\/p>\n The current situation may also provide a great opportunity for digital solutions to be implemented. Tracing empty containers, finding alternative routing options and spare capacity onboard will be accomplished much more efficiently using digital solutions. The pandemic gives just the right pressure to make the global supply chains a bit more efficient via rethinking and flexible operations, finding creative capacity solutions, and coming up with smarter digital solutions.<\/p>\n","protected":false},"excerpt":{"rendered":" The supply side of supply chains is under pressure. But according to analyst Johan-Paul Verschuure of consultancy firm the Rebel Group, it may eventually prompt more flexible and innovative solutions.<\/p>\n","protected":false},"author":8,"featured_media":607,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[26],"tags":[],"sponsor":[],"class_list":["post-606","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-container-cargo-handling"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/posts\/606","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/comments?post=606"}],"version-history":[{"count":0,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/posts\/606\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/media\/607"}],"wp:attachment":[{"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/media?parent=606"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/categories?post=606"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/tags?post=606"},{"taxonomy":"sponsor","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport-congress\/wp-json\/wp\/v2\/sponsor?post=606"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}