Port Issues Causing Logistical 'Disaster' for Exporters, Importers

For weeks, dozens of container ships have dotted the waters of California's San Pedro Bay, waiting to unload at a port experiencing its highest level of congestion in years. With no space to drop their cargo, the ships sit in limbo, further slowing imports and exports and clogging a global trading system that some shippers view as broken.

“We're working 12, 14 hours a day trying to figure out all of this logistics,” said Richard Benavides, vice president-operations for Coast Beacon, a California-based seafood distributor. “It's an absolute disaster.”

Ports nationally and globally are struggling to handle the complex logistics of supply chains affected by a public health pandemic that has stretched about a year, with the Los Angeles and Long Beach ports in California especially hard hit. A number of troubling issues that have persisted for months are slowing exports and imports, industry experts said: a shortage in skilled labor due to COVID-19 outbreaks; a severe lack of empty containers, equipment and storage space; steep increases in container fees; and a steady accrual in detention and demurrage fees.

While backups at the California ports are slowing imports to unprecedented levels, the delays are also having trickle-down effects on exports. Ocean carriers are increasingly running out of capacity and containers to carry shipments for U.S. exporters, leading to declined bookings and millions of dollars in stranded exports, industry representatives said. “The system just does not work in the way it's supposed to work anymore. It's not just the increased costs -- it’s delays, it’s uncertainty,” said David Monroe, a transportation lawyer who represents the National Customs Brokers & Forwarders Association of America. “You can't count on anything.”

No government body had been able to provide relief. Industry has pleaded with the Federal Maritime Commission to “explore all available powers” to suspend what trade groups say are unfair detention and demurrage fees (see 2011170041), but experts said it’s unclear what authority the commission has to address the fees, many of which are negotiated in contracts. “The FMC probably believes there's a real question about whether they have the authority to first suspend demurrage and detention, and they probably also have a question about whether that’s a good idea,” Monroe said. Although shippers can ask the FMC to meditate certain fee disputes, Monroe said he has “not seen any of those things resolved in any way.” The FMC didn’t comment.

The commission in November began investigating whether ocean carriers are violating regulations on detention and demurrage fees, container returns and container availability for U.S. exports (see 2011200024), and has been reviewing broader supply chain issues caused by the COVID-19 pandemic since at least April 2020 (see 2004070036).

FMC commissioners have asked the Biden administration to prioritize COVID-19 vaccinations for transport and maritime workers. Port and warehousing unions have reported more than a thousand coronavirus cases since March, the commissioners said in a Jan. 28 letter to President Joe Biden, hampering ports' ability to move cargo. “A large-scale workforce disruption from COVID-19 would be disastrous,” the letter said.

As more maritime workers become sick and as more U.S. exports become stranded, shippers are increasingly turning to air freight, Peter Friedmann, executive director of the Agriculture Transportation Coalition, told the Massachusetts Export Center during a virtual conference in January. Friedmann said that has led to more competition for air freight space. “There are millions of dollars and tens of thousands of containers of exports that could be leaving the United States that are not leaving, certainly not on schedule, some delayed as much as a month,” he said. “People are desperately trying to ship things overseas.”

Certain container rates have gone “sky-high,” Monroe said. He said he has heard of some rates nearly doubling, from $5,000 a container to as high as $9,000. “That impacts not just shippers, but intermediaries as well,” he said. “Suddenly your costs go up 50%, and the prices you quoted to your customer were based upon an expectation that the rates would be a lot lower, and now you're in a world of trouble.”

Monroe also said detention and demurrage fees are “going through the roof” as shippers cannot pick up their containers from terminals, sometimes because of a truck backup at the port. “If you’re talking about one container, we're talking about hundreds of dollars. If you're talking about a large number of containers, you're talking thousands,” he said. “We’re seeing demurrage issues in the hundreds of thousands.”

Coast Beacon's Benavides said the fees are a problem for companies that didn’t negotiate extended container days into their contacts. He said his company has favorably negotiated contacts and has built in contingency plans for its supply chain, but others struggle. “Some people went from paying $4,000 a container to $13,000 a container,” he said. “It's not like those people can go back and ask their customers for increases of that astronomical amount.”

With much of the economy hampered due to the pandemic, Benavides expects the rates and port congestion to worsen. Until enough of the country is vaccinated, he expects the supply chain logjam to continue and container ships to remain stalled outside ports, waiting to unload. “I don't remember a time we had this many ships out there,” he said. “It’s unprecedented. I’ve never seen it this bad. Ever.”