At the end of September 2021 we were counting 54 vessels waiting outside Los Angeles/Long Beach – clearly the congestion problems continue to worsen and not improve (Source: vesselfinder.com).
In such a situation it is easy to draw the conclusion that the problem can solely be attributed to the port and the nominated port operator. Whilst port automation can facilitate the speed of discharging containers, the problem is a bit more challenging.
Some believe the problem is that we do not have enough containers. The number of containers in circulation is however projected at approx. 6,000,000 units - the problem is that they are not moving at the velocity needed to ensure that all markets have ready availability.
Consumers do not live near large ports, nor are warehouses and distribution hubs located inside the port areas. We typically find these locations far away from the port. Markets also differ in how containers are moved out from the ports. In some markets, the container trucks will have their own chassis and in other markets, the chassis is owned by other entities.
Warehouses typically have been structured for brick-and-mortar sales channels. When the lock-down happened in 2020, traditional stores shut down operations and hindered the outbound flow of goods. When the lockdown crossed the traditional quarterly product launch, warehouses quickly reached their storage capacity.
Imagine the luggage belt at an airport. If passengers do not collect their luggage within a certain time, luggage starts piling up and it is just a matter of time before the whole system collapses and aircrafts cannot be unloaded.
The same applies to the movement of containers. With warehouses and distribution hubs reaching capacity, ports are getting congested resulting in vessels waiting to be unloaded around the world.
One of the benefits airlines have is that each piece of luggage is labelled with a unique barcode. The label data is accessible in an open system, providing instructions of where to send the luggage and allowing for traceability.
In a typical ocean container, such carton labeling is not used. This results in a warehouse/hub needing 7 days on average to unload each container. Beneficial Cargo Owners struggle to tally what is on order vs what is available to promise, further delaying the flow of goods.
One might question why this situation still has not been resolved. There are many reasons for this but we will focus on two of them.
The first factor
The record low shipping rates in the time of 2008-2019. The yield a vessel operator made investing in capacity.
The second factor
As the shipping community recovered after the financial crisis, they converted to mega vessels with 20,000+ TEU capacity. These vessels were designed for slow steaming. The initial knock-on effect was that the need for containers increased with 30%. The market container rate during this time saw a jump, but once the new containers were built , it closed this gap and the rates returned to “normal”.
The problem caused over the last 12 months with the various lock down measures, port closures due to COVID outbreaks, industrial action and a transition to a predominantly online sales channel, have added strain on a supply chain not yet ready for the new operating model. The unwillingness to adopt carton level tracking, silo mentality and linear flow models have further elaborated this problem.
The fact that Ocean rates have increased between 10x-30x on the main leg, have prompted many shipping lines to solely operate with spot rates and favour returning containers empty. But this needs to be thought through in terms of the its ripple effects. This congestion issues slows down the pace with which empty containers can be moved back to Asia. The interest of spending between 5 to 10 days for a laden return container yielding USD 300 - 500 makes little sense for most carriers.
If the usual seasonal market slump after the Chinese Golden Week holidays takes place like usual, the problem is not very big. If, however, demand does not slow down as usual, there will be a further capacity crunch coming in October.
Cargo consolidation may be an answer to the problem
It is estimated that the fill rate of a loaded container on average sits between 65-75% (40% considering the round trip). If shippers and logistics service providers were able to collaborate and cargo could be combined (also by combining light and heavy cargo), load factors could be increased. This alone may be reducing the need for containers by 30% or more.
One way of achieving such collaboration is to use MIXMOVE logistics solutions in terminals. This has been proven to significantly improve load factors and as such reducing the need for containers. Cargo from multiple shippers can be consolidated or reconstructed to ensure that all vehicles leaving a terminal are fully utilised - with weight AND volume. With the MIXMOVE cloud solution, we have helped our customers with the following:
- Reduce transport costs up to - 35% by increasing transport fill rates up to + 90%.
- Move from order view to product view and reach the new e-commerce standard of shipping.
- Emit significantly less CO2 by choosing high level delivery efficiency.