The current status of readily available U.S. produced goods continues to fluctuate on a seemingly daily basis. With “stay at home” orders in place for a majority of Americans, the manufacture of goods ready to be moved off the production lines and onto trucks to be consumed domestically or exported to foreign buyers has fallen off dramatically. And for those manufacturers still churning out product, the next hurdle in the supply chain is getting products into the hands of would be overseas consumers. Equally affected import activity has also experienced a decline as COVID-19 is beginning to choke the global supply chain at ports and airports around the world. As the next several weeks unfold, there are several factors that will determine the viability of domestic cargo operations.
International Container Traffic. As the world’s largest exporter and second largest importer, trade precautions taken by China have had cascading effects across the whole of international trade. This has resulted in equipment shortages for exporters, thereby impacting the ability of manufacturers to get their goods to market. With China moving around 50% of the normal container volume to the U.S. West Coast this severe reduction not only impacts the amount of goods being imported for U.S. consumers, but also the number of available containers to be filled for return voyages to China and other destinations.
Increased Blank Sailings. Blank or cancelled sailings further muddy the supply chain waters. It is expected that Q1 2020 will reveal around 100 blank sailings and that number is expected to significantly rise in Q2 2020. Globally, the sailings were about 20% less in Q1 2020 than we experienced in Q1 2019. This will place an even greater strain on the container availability for exporting goods in Q2 2020.
Terminal Congestion. Many terminals are at, or nearing, storage capacity. Medical supplies, food and consumer packed goods get top priority for domestic delivery and export bookings as they qualify as “essential commodities”. These products account for approximately 40% of the container volume, which means that 60% of the containers on hand at terminals remain idle. With fewer and fewer vessels arriving from overseas to pick up and replace containers, the number of inactive containers of non-essential commodities continue to mount restricting the functionality of the terminal.
Domestic Trucking. As factories, retail, restaurants, and manufacturing deteriorates, the need for raw materials to be delivered declines. Thus, fewer and fewer loads are available to be transported thereby reducing the number of truckers needed to meet the demand. This has decimated the fleet of truckers the U.S. relies on and businesses are finding it harder and harder to survive at normal levels. On top of that, the cost of inland transportation has skyrocketed due to basic economics.
Terminal Force Majeure. With rumors circulating that some terminals may soon be forced to declare force majeure, the reality of goods being discharged somewhere other than their intended destination is a real possibility that importers should plan for. Terminals are filling up and once they are full, they will not be able to receive additional cargo until some of the containers in their saturated yards are cleared to allow for sustainable service. This means cargo will have to be transferred or discharged at other ports, placing an additional burden on other already overly taxed terminals.
COVID-19. Like most organizations, terminals are taking measures to ensure the safety of their employees. One of these actions is reserving a portion of their day to thoroughly clean and disinfect equipment and work areas. As you can imagine, this takes time that could otherwise be used for moving cargo. In the event an employee contracts the Coronavirus, the entire terminal could be closed for several days to allow for an exhaustive disinfecting. Once reopened, other employees may be forced into quarantine for a couple of weeks to prevent further spread of the virus. Naturally, these efforts would result in the slow down or closure of terminal operations.
The big question that is being bantered about is, “How long is this going to last?” While it is difficult to project the long-term effects, there are factors that provide an educated prognosis. The first and most obvious being how soon COVID-19 is contained on a global scale. Once this occurs, people will return to work which will push businesses to resume normal operations. Estimates are as far reaching as Q2 2021 before the shipping industry is operating at predictable service levels.
As earlier stated, the status of U.S. domestic cargo activity changes on an almost daily basis. The global supply chain and logistics experts at TLR are monitoring the turbulent cargo environment and maintaining regular contact with our worldwide partners and carriers to bring you up to the moment information. Please feel free to reach out to us at BD@shiptlr.com with any questions you may have regarding domestic supply chain and terminal fluidity.