When COVID-19 hit, it generated a tsunami of aftereffects on the supply chain — most of it encapsulated in the humble steel box we know as the shipping container. Twenty to 20 40 feet long and eight feet wide, these containers stack on top of each other like building blocks on ocean vessels, and are then transferred one-by-one to rail cars or semi-trucks to their final destinations.
But by the end of 2020, 60% of containers going to North America had reportedly accumulated at their destination, stuck at ports without returning with goods. With ocean carriers making more money by bringing goods to the U.S. and less to move exports out, shipping containers have piled up on U.S. shores. These costs are felt by importers and exporters alike, with rates for annual shipping contracts increasing 122% compared to pre-COVID-19 numbers in 2020. For importers able to secure a container back to the U.S., price hikes show no sign of abatement, up 205% from 2021.
The containers continue to stack up — like a giant Tetris game — with those that need unpacking and others empty waiting to be filled and sent back to high-volume countries like China. The pain is felt by both small and large shippers.
“There are multiple issues, and no one solution can solve all the problems, but it can be much better than it is now,” says Elliot Ballen, operations manager of L&A Transport in New Jersey. “They have nowhere to put these containers.”
Problem: A case of the empties
Steamship companies are not complaining. Higher fees have led to a record-breaking income, with the five largest collectively making $64 billion in profits in 2021, up from $23 billion in 2020. These companies also don’t face penalties when empties stack up, says Ballen, putting the onus on the ports and truckers. Thirty percent of his capacity currently sit as empties, which he can’t return right now either.
When the cargo ships are ready to receive the empties, they may open for a limited number of hours, resulting in long lines. But trucks want to swap their empties for full containers, not do a single move. That means Ballen’s drivers sometimes pull a full container before the customer is ready for it, to return an empty one. That full container then sits on the chassis at the customer’s location until it too can be unloaded.
Steamship lines do occasionally send empty containers back to China, but that creates different problems, leaving exporters without a way to ship goods. The carriers can charge more to ship to the United States than the reverse, like 66 cents per container per nautical mile from Shanghai to Los Angeles, versus less than 10 cents for the return trip. This price difference incentivizes carriers to immediately return to China to reload with more expensive goods bound for the U.S. after unloading at the U.S. ports, rather than delaying that return trip to fill the boat up with goods from exporters. The ocean carriers have determined they will make more money by hastening the trip back to China for the higher-priced loads, even if it means leaving with empties.
Problem: Contracts are unenforceable
Those containers that do leave aren’t reducing the glut of empties that remain in ports, with notable delays in New York, Houston and Savannah, Ga., as container ship sit offshore waiting for room to unload.
Those delays are passed along to importers, adding more pain to their supply network woes unable to get goods to them and their clients. Customers are already feeling pinched from rising costs passed along to them, which stem in part from the increased prices shippers are paying for containers, even if contracted rates had been pre-approved. These contracts, though, are not being honored “because they’re not enforceable,” says Lynch.
One Chicago-based company, MSRF, that imported goods from China to the U.S., for gift baskets, had contracts with multiple carriers for prices between $4,000 to $5,000 for each container. But one carrier moved just nine of 25 containers for the company, and another only moved four of 100, according to The New York Times. MSRF ended up paying an average of $15,000 per container to get its goods. “There’s very little recourse for a shipper when a provider says ‘I don’t have capacity for your product,’” says Andrew Lynch, president of Zipline Logistics, a transportation and delivery services company.
While larger shippers have more clout and bargaining power than smaller players and are more likely to get goods moved, and at better terms, the cost trickles down to customers, already sensitive to recession and inflation worries.
Solution: Can government help?
The U.S. House of Representatives is trying to gain some control over the shipping companies by passing the Ocean Shipping Reform Act of 2021 to address the crisis in December. The bill, however, has been sitting in a Senate committee since then. If enacted, it might improve U.S. export efforts to fill domestic containers shipped abroad rather than returning them empty, reducing the trade imbalance. The Act seeks to stop international carriers from unreasonably turning away U.S. cargo. But Lynch questions how much weight the bill will carry with the ten companies outside the U.S. that dominate international ocean shipping, a virtual monopoly grouped into three alliances set to earn an estimated $300 billion in profits in 2022 before taxes and interest.
“I don’t know how much power any administration has to remove these roadblocks and create a smoother supply chain,” says Lynch.
Solution: Greater visibility into the supply network
Instead, Lynch believes companies hold some power in combating the container problem. For one, he encourages shippers to work with suppliers, order quantities that guarantee products are on the shelf when needed, and add more lead time cushions. More data visibility from the supply network can help companies eye these and other opportunities.
Another option is bypassing the major ocean lines altogether by leasing smaller ships for their goods. Ballen anticipates that Amazon and other large companies will eventually own their own containers and vessels to avoid the bigger steamship lines.
Finally, physically shrinking the supply chain may help as well. Walmart, for example, is “trying to buy as close to our customer as possible,” said its CEO Doug McMillon during Signal 2022 in July. That would allow the retailer to ship over shorter distances, not bigger
These solutions take time, from building more transparency into the supply chain, to developing a network where shippers gain additional control over the transportation of their goods. Ballen believes that change is on its way — and companies just need the fortitude until it happens.
“The world, including supply chain professionals, expected the supply chain to flip back on (after the COVID-19 shutdown),” he says. “It’s hard advice to follow, but I think patience is the answer.”