Signs Point To Improvements In Supply Chain Challenges
The U.S. supply chain crisis may have reached its peak, data suggests, although it will still be a while before production and shipping begin to return to normal. A variety of indicators, including the decreasing number of ships waiting offshore to unload at the Southern California ports, retailers’ inventory levels ahead of the holiday season, fewer COVID-related factory closures and port restrictions in Asia, and ocean freight rates show that while the situation may not yet be improving, at least for now it’s not getting worse.
The Marine Exchange of Southern California reports that on November 19, 71 ships were waiting to offload cargo at the ports of Los Angeles and Long Beach, down from a high of 86 three days earlier. Typically, no ships wait on anchor to deliver their cargo, and the Wall Street Journal cites shipping and retail executives who say they predict the situation at the ports to fully return to normal in early 2022. Recovery is expected to begin after the holiday season passes and the Lunar New Year shuts factories in Asia for a week, allowing the system to catch up.
Shipping rates remain well above pre-pandemic levels but are, at least, trending in the right direction. Maritime research and consulting services provider Drewry, in its November 18 World Container Index, reported that the average ocean freight rate for a 40-foot container was $9,146.41. While 238-percent higher than it was a year ago—prior to the pandemic when 40-foot container rates were below $2,000—it does represent a 0.5-percent decrease from the prior week, the eighth week of falling rates.
The decline in shipping rates comes, in part, because many large U.S. retailers have imported what they need for the holidays. Walmart, Target, Home Depot and others report their inventories are ready for year-end shoppers and they’ve done so by ordering goods early and, in some cases, chartering their own cargo ships to bring products into less busy ports like Oakland, California; Portland, Oregon, and the East Coast.
The situation is also improving at the Port of Los Angeles and the Port of Long Beach. On Monday, the ports announced they had pushed the start of their proposed container dwell fee back yet again, to November 29. The temporary policy, announced on October 25, would charge ocean carriers $100 per day for each import container that dwelled past a set period of time on the ports’ docks. Since the announcement of the fee, the twin ports have seen a decline of 33 percent combined in aging cargo on the docks.
COVID-19 cases in Vietnam, Malaysia and elsewhere have eased in recent weeks and related factory closures are being lifted, and while not every factory is back at 100 percent, the flow of goods is starting to improve. Power supply issues in China also appear largely resolved, allowing manufacturing to begin to return to normal.
Sources warn that some supply chain challenges remain unresolved, and another COVID outbreak could derail one or more aspects of recovery. And looking ahead, efforts to alleviate longstanding challenges in the global shipping industry remain ongoing in Washington, D.C. The bipartisan Ocean Shipping Reform Act of 2021 continues to move through Congress, although a recent report on the situation at the ports noted the White House lent its support to the legislation, adding that the proposed legislation includes “good first steps towards the type of longer-term reform to shipping laws that would strengthen America’s global competitiveness.”