Here is the latest report from Everstream Analytics, who monitors and produces a weekly summary of supply chain impacts due to the ongoing COVID-19 pandemic. We are not out of the woods by any stretch of the imagination!
Global Supply Chain Disruptions continue due to the effects of Covid-19 around the world. Here are the latest updates provided by Everstream Analytics.
The Government of the Netherlands announced a three-week lockdown from November 13 that will limit opening hours of stores and encourage residents to limit personal contacts to curb a recent spike in COVID-19 infections.
In Morocco, authorities have lifted a nightly curfew on November 10, but will keep the nationwide health state of emergency in place until November 30.
Austrian authorities will enforce a ten-day lockdown for the unvaccinated from November 15 that will only allow them to leave their homes for essential reasons such as work.
Hundreds of Toll warehouse workers launched an indefinite strike action from November 15 to demand higher pay for employees who worked throughout the COVID-19 pandemic across seven warehouses in New South Wales, Victoria and South Australia. The strike is expected to affect companies such as Kmart, Nike, and Optus.
Toyota’s production lines in Japan will resume normal operations in December, following intermittent production halts experienced in recent months amid component shortages attributed to inadequate component supplies from Southeast Asia, where COVID-19 cases surged.
In China, local authorities imposed partial lockdowns on Dalian, Liaoning Province from November 11 and on Shangrao City, Jiangxi Province from November 16 that will enforce limits on the movement of people and social gatherings. Authorities in Beijing also sealed off a mall and locked down several residential compounds after infections were discovered in the central district of Dongcheng.
Chinese authorities also ordered all frozen food businesses in Dalian to halt operations beginning November 8 after a spike of COVID-19 cases, including third-party cold storage facilities, bonded warehouses, and food production companies, which is likely to cause delays in the export of frozen food products from the Port of Dalian.
As reported by American Shipper previously, the West Coast Ports of Los Angeles and Long Beach ports were scheduled to begin charging ocean carriers a fee of $100 per import container starting this past Monday for all containers moving by truck that dwelled for nine or more days, and for boxes dwelling for six or more days that move by rail. The charge was scheduled to escalate by $100 a day until the container left the property.
The ports however announced Monday that they will “delay consideration” of the fee until Nov. 22, citing a 26% reduction in long-dwelling containers since the plan was announced on Oct. 25th.
“There’s been significant improvement in clearing import containers from our docks in recent weeks,” said Port of Los Angeles Executive Director Gene Seroka. According to Port of Long Beach Executive Director Mario Cordero, “Clearly, everyone is working together to speed the movement of the cargo and reduce the backlog of ships off the coast as quickly as possible.”
Another reason the ports may not have pulled the trigger: the political peril of doing so. Carriers explicitly stated that they would pass the entire cost along to their importer customers. As of Monday, Long Beach had 19,656 containers on its terminals that would have been charged the late fee. There were at least 29,249 containers that would have incurred fees at the Port of Los Angeles (not including containers moving by rail that were between six and nine days late, which are not included in the data).
That means the aggregate fees to all carriers on Monday alone would have exceeded $4.8 million. And, because the proposed fee would increase daily, the aggregate cost would have quickly risen into the tens of millions per day, and would have likely topped $100 million per day by the end of the first week.
During a conference call on Friday, Hapag-Lloyd CEO Rolf Habben Jansen warned, “If there’s cargo in those boxes that is not very valuable, you may end up with a lot of abandoned cargo that is going to stay at the terminal for much, much longer.” Consultant Jon Monroe wrote in his weekly newsletter, “While I understand the intention, this is really a dumb idea for one good reason: The ports cannot measure the days that the container has been available to deliver.
“Under the current conditions, when a terminal discharges a container, it puts a percentage of the containers into closed lanes,” Monroe explained. “Whenever a container is in a closed lane, it is unavailable for pickup by the trucker. No appointment can be made. Depending upon the terminal, anywhere from 20% to 80% of the containers will be put into a closed lane for an amount of time that varies. It is not unheard of for containers to sit in a closed lane for weeks. How will the ports account for containers that are in closed lanes?”
In a letter to the Federal Maritime Commission sent Monday, 85 business associations including the National Retail Federation wrote, “We are especially concerned about the announcements by the carriers that they intend to pass the charges through to the cargo owners.”
The groups warned that the new fee, if implemented, would “add substantial costs to the supply chain” due to “ongoing challenges that many cargo owners and drayage trucking companies are experiencing with the ability to retrieve cargo because of port congestion, restrictive empty return policies, and subsequent chassis shortages that result.”
During the inaugural meeting of the National Shippers Advisory Council on Oct. 27, various members called the Los Angeles/Long Beach congestion fee plan “catastrophic,” “crazy” and “out of left field.”
The two port bosses cited significant progress with clearing the terminals, yet the numbers show that most of the gains occurred in late October and early November. In recent days, the numbers have actually gotten worse.
In the port of Los Angeles, the number of containers dwelling nine day or more on Monday was up 18% from where it stood on Saturday and was the highest since last Wednesday. The total number of containers on the port — 76,613 — is higher than the number on Nov. 4.
Obviously, the Ports of Los Angeles and Long Beach have determined that “biting the hand that feeds you” is not a really good idea! And, it also points out that fixing this problem is not as simple as some government officials would have you believe.
Need help navigating this latest supply chain crisis? Reach out to us today to learn more.
As a follow up to our post yesterday, an article in American Shipper today points out the absurdity of the Port of LA and Long Beach’s attempt to penalize shippers for not retrieving their containers in a timely basis. The National Shippers Advisory Council convened a meeting to bash the LA/Long Beach plan.
According to the American Shipper article, the cure is worse than the disease, say critics of the emergency plan of the ports of Los Angeles and Long Beach backed by the Biden administration. If you think port congestion is bad now, just wait for what comes next.
On Wednesday, two days after the ports of Los Angeles and Long Beach announced a surprise emergency fee for containers lingering too long at terminals, the National Shippers Advisory Council (NSAC) held its inaugural meeting. The NSAC, created to advise the Federal Maritime Commission, is composed of 12 U.S. importers and 12 exporters. Members include heavy hitters like Amazon, Walmart, Target, Office Depot, and Ikea. Council members had a lot to say about the California port fees — none of it good.
Starting Nov. 1, the ports of Los Angeles and Long Beach will charge $100 per container for boxes dwelling nine or more days that move by truck and those dwelling six days or more that move by rail. The fee will increase $100 every day. It will be charged to carriers, which will then almost certainly pass the fee along to shippers, meaning it will be the equivalent of an escalating demurrage charge.
“As far as the ‘hyper-demurrage’ announced in Los Angeles/Long Beach, I think it will be catastrophic,” said Rich Roche, vice president of international transportation at Mohawk Global Logistics, during the NSAC meeting. “Chassis are already in short supply and this will artificially suck out the rest of the containers that may be sitting in there [at terminals] that didn’t need to be on a chassis and now they’re going to be parked somewhere. It’s probably going to wipe out whatever’s left in terms of chassis,” predicted Roche.
According to Steve Hughes, representing the Motor Equipment & Manufacturing Association, “I’m concerned that this new fee is going to cause even more problems than it’s going to solve. I understand the logic behind it and it makes some sense, but unfortunately, because we don’t have the throughput at the front gate, I think this can cause us more problems than we have already.”
Bob Connor, executive vice president of global transportation at Mallory Alexander International Logistics, said, “This absolutely came out of left field. I don’t see this charge doing anything but adding more cost, and freight rates being what they are, this is the last thing we need.” Both Connor and Roche urged that someone in government “step in and put the brakes on this.”
NSAC members speaking during Wednesday’s meeting emphasized that the Los Angeles/Long Beach charges will ultimately be paid by shippers. Daniel Miller, global container lead at Cargill, dubbed California’s emergency charges “crazy fees” and said, “We know this is all going to come back to us. I had a couple of calls with carriers yesterday and they’ve already admitted that yes, they are going to come back to us.”
Rick DiMaio, senior vice president of supply chain operations for Office Depot, said, “All fines and fees flow to us, to the beneficial cargo owner.” According to Ken O’Brien, president of Gemini Shippers Group, “What was done this week at the ports of Los Angeles and Long Beach is effectively an indirect tax on the American consumer.”
Connor reported, “When we heard about the new charge, we immediately reached out to some of our contacts at the FMC. From the conversation we had, it was pretty obvious that the FMC was not forewarned that this thing was coming.”
Connor said that his company asked its FMC contacts whether the ports had to give 30-day notice to carriers before implementing the charge, and whether carriers had to give 30-day notice to pass the charge along to shippers. Connor said that it was his understanding that the ports could implement the charge without that notice, but carriers would have to give 30-day notice to shippers.
However, that’s not the case if carriers already have language in tariffs allowing them to pass along port charges immediately. Ocean carrier HMM’s current tariff includes a clause that states, “The shipper shall be liable for payment of any charges or surcharges imposed on the carrier by any marine terminal, port authority, government authorities or other third party.”
In an online post explaining the clause, Stephen Nothdurft, vice president of the Midwest region at HMM, said, “This new charge [by Los Angeles/Long Beach] is going to be a pass-through for all of the ocean carriers. The carriers will hit the mark with the invoices. As it relates to HMM specifically, this was created based on the strong chance of such surcharges. Such fees have been blowing in the wind for quite some time, so any carrier would be astute to protect their interests.”
The point of the “Hail Mary” Los Angeles/Long Beach fee plan is to forcibly unclog the terminals and get containers moving faster. The members of NSAC argued that these emergency port fees — as with traditional demurrage and detention fees — are not increasing container velocity given the current supply chain situation. According to Miller, “I don’t think anybody on this committee would admit to using the port to let containers sit there because they want to. Everybody has the full intention to get these containers out, but they physically can’t.”
Adnan Qadri, director of global imports at Amazon, said, “In the past, the whole idea of detention and demurrage was incentivizing faster turns, returning of equipment and bringing fluidity into the network and the supply chain. But in its current state, the way supply chains are moving right now, I don’t think detention and demurrage are incentivizing anything. “Folks are not sitting on returns because they want to. They’re sitting on them because they can’t get those containers returned. It is very difficult for us [Amazon] to wrap our heads around the idea of these detention and demurrage charges, which don’t drive any kind of positive behavior [given] the way the supply chain is currently set up. What concerns me is that these charges aren’t driving any benefit to the current state we’re in,” said the Amazon executive.
Carriers’ demurrage and detention fees have faced heavy criticism over the past year. They are a focus of FMC regulators as well as proposed legislation to reform the Ocean Shipping Act. And yet, the Los Angeles/Long Beach plan, with the explicit blessing of the Biden administration, will have the same effect as demurrage. Nothdurft said in his online post, “It’s ironic that the international community has been pleading to the government about the absurdity of demurrage/detention charges only to have said government administer more of the same.”
In an effort to entice the ocean carriers and ultimately the owners of import ocean cargo to move their containers off the dock, the Ports of LA and Long Beach will be implementing a $100.00 per container surcharge for each day a container remains at the dock beyond that sit for more than nine days.
The fees are actually penalties initially imposed upon the ocean carriers for not quickly clearing out imported containers piling up in their terminals, but a lack of details in the press release left freight industry stakeholders confused about how the rules will be applied.
The two Southern California ports said they will begin charging ocean carriers $100 per container, compounding in $100 increments each day, for containers scheduled to move by truck that sit for nine days or more, beginning next Monday, November 1st. For containers moving by rail, shipping lines will be charged if the container has dwelled for three days or more. For example, a box that sits longer than the allotted time would cost a carrier $100 on the first day after storage time for truck moves expired, $200 on the second day, $300 on the third day, $400 on day four and $500 on the fifth day for a grand total of $1,500.
According to American Shipper, within minutes of the announcement by the twin ports, container lines began sending letters to importers alerting them to be prepared for the new surcharges, Matt Schrap, CEO of the Harbor Trucking Association stated. “So clearly, they are not just absorbing these costs as a part of doing business to get this cargo out. They are passing these costs on to the beneficial cargo owner, which as we all know goes right into the American consumer’s bottom line,” he said.
According to American Shipper, there are more questions than answers, at least at this point.
Initial indications were that the fines apply to cargo for which the carriers arrange all inland transportation beyond the port, known as a door-to-door move. But Schrap said he’s now hearing that all haulage — including container movements directed by the merchant through its own transport provider — are covered. And the surcharges apply only to loaded containers, not empties. “I can’t seem to get a straight answer. Until we see it in black and white, the message to the ocean carriers is, move the stuff or you’re going to start getting fined,” he said.
The fines are the latest attempt to expedite the clearance of shipping containers off the docks amid a supply chain crisis that has gained national attention on newscasts and at the White House, as retailers prepare for lost holiday sales with goods stuck at ports and on vessels at sea.
“We must expedite the movement of cargo through the ports to work down the number of ships at anchor,” Port of Los Angeles Executive Director Gene Seroka said in a statement. “Approximately 40% of the containers on our terminals today fall into the two categories. If we can clear this idling cargo, we’ll have much more space on our terminals to accept empties, handle exports, and improve fluidity for the wide range of cargo owners who utilize our ports.”
It is estimated that there are over 107 container ships currently waiting offshore for a parking spot at the port complexes.
Ocean carriers and their representatives in Washington said they are still trying to get more details and better understand the new fees, which the port authorities said were determined in consultation with White House, U.S. Department of Transportation and multiple industry participants.
Schrap said new measures should target empty containers that can’t easily be returned to full terminals because it “would motivate the carriers to send a sweeper ship in to get them out of here” and clear room for loaded imports. Several freight experts expressed skepticism about whom the fees will actually impact, why carriers are being singled out and whether the ports have the legal authority to impose late fees.
“I don’t know how they can pick out one part of the supply chain and charge them when in fact the issue is caused by many parts of the chain, not just carriers, but the terminals, truckers, chassis providers, railroads, warehouses and shippers,” said an executive for a large freight management company who spoke on condition of anonymity because he is not authorized to speak publicly.
A maritime industry consultant who asked not to be named so as not to upset clients said the Shipping Act gives port authorities the power to set fees. A key procedural question, however, is whether they set up the joint surcharges under Federal Maritime Commission auspices. Any policy made between competing ports outside of an FMC agreement raises competition concerns.
The daily fees for containers that linger at terminals appear designed to pressure shippers to collect containers faster. The port authorities had to direct the surcharges against carriers with terminal leases because they don’t have jurisdiction over importers, though officials realize the customer is likely to ultimately pay….What else is new?!
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According to a report in Transport Topics, UPS with a combination of higher prices to shippers and very strong delivery demand driven by e-commerce orders, topped financial analyst’s predictions to post much higher profits and also raised its operating margin outlook to 13% for 2021 from an earlier target of 12.7%. and as some experts predict, these trends are expected to continue throughout 2022 as well.
According to Transport Topics, UPS and their chief rival, FedEx have been grappling with hefty volumes since the pandemic hit last year. Both have raised prices to offset the expense of handling more residential deliveries, which have grown faster than more-profitable commercial packages. The price increases and shift to higher-profit deliveries drove a 13% gain for UPS’ overall revenue per package, offsetting a 2% drop in average volume. The drop in delivery volume was led lower by a 2.7% decline for U.S. domestic, the company’s largest unit, and follows a surge in demand a year earlier.
Commercial packages are making a comeback as the economy recovers from COVID-19 lockdowns and as UPS shies away from the least profitable of those residential deliveries, also known as B2C, or business-to-consumer.
“UPS has been growing its high-margin businesses like health care, pharmaceutical and medical devices while lessening its dependence on the lower-margin B2C business,” said Helane Becker, an analyst with Cowen Inc., in a note to clients. Adjusted earnings hit $2.71 a share in the third quarter, up from $2.28 a year earlier, the Atlanta-based courier said Oct. 26 in a statement. Analysts had predicted $2.54. Revenue rose 9.2% to $23.2 billion in the third quarter, while analysts had expected $22.6 billion.
The company has weathered a labor shortage better than its key competitor because, unlike FedEx, it has a union workforce and pays the highest wages in the industry. Compensation and benefits rose only 0.6% in the quarter from a year ago. Still, UPS’ costs for purchased transportation climbed 18% as the courier turned more to outside companies to move packages. Fuel costs jumped 54% on rising gasoline prices.
UPS shares rose 5.7% in early trading in New York. The shares have gained 21% this year through Oct. 25, just shy of a 22% increase for the Standard & Poor’s 500 index.
The courier has focused on raising profit margins under Carol Tomé, who took over as chief executive officer last year. Tomé laid out a strategy of “better, not bigger” to rein in UPS’ past tendency to gobble up all the volume it could no matter how well it paid. She also sold the lower-margin freight business in April for $800 million and announced in September an agreement to purchase Roadie, a same-day delivery startup.
The company on Oct. 26 also increased capital spending plans for the year to $4.2 billion from $4 billion. UPS’ adjusted operating margins rose to about 12.8% from 11.3% a year earlier as price hikes and its focus on higher-value packages made up for rising costs to hire workers and protect them from COVID-19. Analysts had estimated margins of 12.2%
UPS ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
FedEx Suspends Money-Back Guarantee on US-Based Air Services for The Peak Holiday Shipping Season
As reported by FreightWaves, FedEx announced on their website that they will suspend the guarantee on nine separate air services beginning November 1, 2021, just seven months after restoring them. The guarantees will then be restored on Jan. 16, 2022 according to FedEx. This date coincides with the expected “end of the holiday returns cycle”, which in years past brought the peak season to a close. However, the ongoing surge in delivery demand in the wake of the COVID-19 pandemic has upended traditional parcel-shipping cycles, forcing carriers to operate in what has become known as a “perpetual peak.”
FedEx Ground, the company’s ground delivery unit that will handle much of the domestic peak-season traffic, has struggled with service reliability for some time now due to the persistently increased demand and a severe labor shortage. However, there has been little discussion about the impact of increased traffic and labor shortages on the company’s air services.
FedEx reinstated the money-back guarantees on April 6, one day after rival UPS restored its guarantees on domestic next-day air services and a slew of international air offerings. UPS at that time also gave itself more latitude in its “next-afternoon” delivery schedule by extending the delivery deadline to 11:59 PM for making those deliveries and still keeping its guarantee. In the Pre-pandemic era, those deliveries were typically made around 3 p.m.
It is possible that FedEx and UPS are hedging as much as possible against demand spikes that could disrupt holiday delivery schedules. FedEx has set Dec. 15 as the cutoff date for shippers to tender parcels to its ground delivery network, which will process the lion’s share of holiday deliveries, and expect them to reach residences by Christmas Eve. For the second consecutive year, UPS will not publish a universal cutoff date for accepting ground-parcel shipments. Instead, UPS users will enter specific shipment information into a website calculator that will determine the specific cutoff date for that shipment.
Both carriers provided specific cutoff times for their expedited and air express products. The times vary depending on the service product selected. For example, parcels to be delivered by UPS in one day must be tendered no later than Dec. 23. For two-day deliveries, the deadline is Dec. 22. For three-day deliveries, the deadline is Dec. 21. Those have been UPS’ traditional cutoffs for those products, according to a company spokesman.
Unlike its time-definite products, UPS’ U.S. ground parcel service has no fixed delivery dates, though the company generally gives a range of one to five days for delivery depending on the origin and destination points. This geographic variability may make it hard for UPS to publish universal cutoff dates for peak-season ground traffic.
For those shippers expecting FedEx and UPS to reinstate their service guarantees for Ground shipments, don’t hold your breath!
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