AGTC Hears U.S. Import Surge Could Last Through 2021

Paul Bingham, an economist for IHS Markit, told the Agriculture Transportation Coalition ( AgTC) members that the surge of imports into the United States from Asia in the second half of 2020 is likely to continue through 2021. The import surge has caused congestion at the Ports of Los Angeles and Long Beach and is complicating the efforts of agricultural exports to obtain equipment and vessel bookings for sails to Asia.

Bingham, who addressed AgTC’s midyear virtual conference on December 8th, said that IHS’s projections are that there will be an annualized increase of 12% in imports into the United States during 2021. U.S. exports will also see an annualized increase in “double digits”, suggesting robust opportunities for U.S. agricultural exporters.

Peter Friedmann, executive director AgTC, expressed surprise about the IHS forecast and urged exporters to begin planning accordingly for 2021, including finding new port partners.

U.S. agricultural exporters are facing severe equipment shortages as well as a shortage of space on vessels headed towards Asia. Ocean carriers have reduced capacity, including cancelled sailings, that have kept capacity tight and increased freight rates. The carriers have also focused their sailings on utilizing the Ports of Long Beach and Los Angeles for maximizing import distribution to California, Southwestern states and via rail to U.S. Midwest destinations. This has allowed carriers to shorten sailing times back to Asia as opposed to U.S. Gulf and Atlantic coast ports so as to pick up more high-priced import containers to deliver back to the United States through the two Southern California ports.

The problem is that agricultural export containers are priced at a far lower rate than imports because, for the ocean carriers, they have functioned as a means of lowering the costs of returning mostly empty containers from the United States back to Asia.

The success of the current strategy for the ocean carriers has placed unanticipated stresses on cargo-handling at the two Southern California ports including ships waiting at anchor, delays in unloading at the docks, a lack of containers and chassis available for exporters and demurrage costs to shippers who cannot move their containers out of terminals because of the current gridlock on the docks.

Demurrage fees are charged when a container is still full and under the ocean carrier’s control and has not been cleared through customs or picked up by the consignee. Detention costs incur for using equipment, such as a chassis, beyond the given free time and typically outside of the terminal

In his opening remarks, Friedmann told AgTC participants: “Life is difficult for ag exporters in 2020 … Some have seen rail ramps embargoing shipments to the West Coast … Some have seen ocean carriers reduce their container allocation from 300 containers to 4 … This is why the FMC (Federal Maritime Commission) is investigating ocean carrier practices.”

Friedmann categorized the decision of the Federal Maritime Commission on November 18th as follows: “Terrific news for AgTC members and all US exporters, importers, forwarders, truckers: yesterday the Federal Maritime Commission decided to open a formal investigation on our long-sought objective: meaningful enforcement of fair and reasonable ocean carrier and marine terminal practices.”

Two agricultural exporters echoed Friedmann’s analysis:

Beverly Altimore, representing the U.S. Shippers Association, is an exporter of chemicals and resins. She told participants that her company exports chemicals used for agriculture, including fertilizers, pesticides and food additives. Altimore complained about “outrageous detention and demurrage practices” and the “refusal of ocean carriers to book export business for months, spanning October, November, December …This is caused by foreign overseas companies, who don’t care about the impact on U.S. exporters.”

Maria Zermeno, representing Hughson Nut, is an almond exporter. She related problems booking space for almond exports to Asia on a Taiwanese container carrier. The problems became so severe that Hughson shifted its export booking onto Hyundai, the South Korean carrier only to discover that the booking was then cancelled. Zermeno said the carriers: “are not interested in exports and are only interested in imports.” The problems Hughson experienced could result in U.S. almond exporters losing markets to competitors in Australia and Chile, she said. Zermeno estimated the value of a single container of almonds to be around $80,000 per container with a higher end of $150,000.

Franck DeDenis, senior vice president, Maersk, North America, told participants that dislocations in international trade caused by the COVID pandemic caused Maersk and other carriers’ major losses in the earlier part of 2020. These losses have been offset by improvements in global demand including from the United States in the latter part of 2020. The increased import volumes from Asia to the United States placed stresses on the U.S. supply chain, resulting in labor shortages and a lack of chassis and containers. DeDenis urged greater cooperation between the shippers and Maersk to resolve problems. However, he also pointed out that U.S. exporters might consider rerouting their containers to the Canadian Pacific Coast ports of Prince Rupert and Vancouver, utilizing the services of the Canadian railroads.

Impact of congestion on San Pedro terminals

Ed DeNike, president, Stevedoring Services of America Containers, told participants that SSA shared the frustrations of exporters experiencing congestion at the Ports of Los Angeles and Long Beach. He noted one instance in which only one gang of longshoremen were working a 13,000 TEU container ship, when six longshore gangs would be the normal practice. The reason for the lack of gangs on the ship, he explained, was that the congestion at the terminal was so intense that the pace of unloading vessels had to be slowed down until sufficient containers could be moved off the dock.

This congestion also complicated the pace at which harbor truckers could pick up and deliver containers to the terminal.

DeNike explained that there has been a chain reaction of dislocations that has partly been driven by Beneficial Cargo Owners (BCO) “not being able to pick up their boxes at the terminal and deliver them to the warehouses because of problems receiving the boxes at the warehouse.”

Throughout 2021, the effects of social distancing and workers becoming ill from the COVID virus have caused slowdowns at warehouses all over the United States resulting in decreased productivity and delays. The virus has also led to sicknesses among truck drivers and railroad workers that have further complicated transportation of containers and resulted in backups for pick ups and deliveries.

DeNike’s comments placed the national impact of the pandemic into the context of a challenged supply change. Added to this is the pressure of increased ocean carrier sailings to Los Angeles and Long Beach placing unplanned pressures on terminals, truck drivers, shippers and warehouses, longshore workers, containers and chassis that have yet to be resolved.

DeNike noted that SSA was not going to charge demurrage penalties on shippers’ containers that had been exceeded their allotted times on the terminals “when it was not their fault.”

Friedmann applauded DeNike’s announcement.

Federal Maritime Commissioner Rebecca Dye was lauded by Friedmann for her “untiring commitment to improving the supply chain” and her efforts to address unfair demurrage and detention fees assessed on shippers as well as finding ways to increase the supply of containers and chassis.

In her comments, Dye said that she would renew her efforts on behalf of agricultural exporters by meeting with carrier representatives so as to address and resolve the concerns of U.S. exporters.

Weston LaBar, president of the Harbor Trucking Association told AgTC participants the increased import business in 2020 could be an advantage that helps California ports regain market share that they have been losing for over a decade.

To succeed, ocean carriers must work more closely with terminals, shippers and truckers to plan pick- ups and deliveries and assure the reliability of making appointments. The effort should also Increase so-called dual-transactions, “which help truckers (and shippers) keep transportation costs down and increases the efficient flow of truck traffic in and out of marine terminals and ports.”

LaBar said increased planning and cooperation by ocean carriers with others maritime stakeholders will reduce many problems and allow for more hiring of longshore labor and more investment in containers and chassis. This will, in turn, reduce delays discharging ships at Los Angeles and Long Beach and improve turn-around times for ocean carriers sailing between Asia and California.