Expert Speak

07 July 2022 • 16 min read

Global Port Congestions and the Shipping Crisis

Editorial Team

Over the past two and a half Covid-stricken pandemic years, the world has been disrupted by port congestions and the shipping crisis. This has crippled numerous industries and company operations. Read on to know more about how this crisis shifted trade flows from the US west coast and east coast, where American ports require up to $168 billion of investment and are facing Chinese logistics woes.

An idle vessel does not make money. A resting container exposes inventory inefficiency. Over the past two and a half Covid-stricken pandemic years, the world has been disrupted by port congestions and the shipping crisis. This has crippled numerous industries and company operations. The unprecedented combination of this crisis has made the world more distant, including negating the tariff reductions managed by the shipping industry in the past two pre-pandemic decades. Read on to know more about how this crisis shifted trade flows from the US west coast and east coast, where American ports require up to $168 billion of investment and are facing Chinese logistics woes.

Coronavirus, an unprecedented global health crisis which stuck the world in December 2019, impacted human life. The contagion shut schools, shops, offices, businesses, and transport. It claimed millions of lives, and the entire global economy came to a grinding halt.

To put the Covid damage into context and comprehend the true scale of its impact, let’s look at a World Bank note that deciphers the learning poverty inflicted on school children worldwide.

According to the Bretton Woods Institution, multiple Covid lockdowns and school closures worldwide will cause a generation of students to suffer lifelong earnings losses. There are parallels between Covid learning and earning losses to a similar fate suffered by Kuwaiti students during the 1991 Gulf War or Operation Desert Storm, as termed by the US.

The World Bank estimated that the pandemic-affected students with disrupted classes would stand to lose future earnings ranging between 3.4 per cent and 6 per cent. During Covid, Kuwait saw one of the most extended school closures, from February 2020 to October 2021.

The pandemic that remade the world has pushed millions more into poverty accelerated an economic downturn, shrunk global remittance flows, and paralyzed the worldwide logistics industry by congesting ports.

Ports contributed to trade frictions

According to an International Monetary Fund (IMF) report, which tapped into data generated by Cerdeiro, Komaromi, Liu and Saeed (CKLS), ports have contributed to elevated trade frictions in the global transport system.

CKLS develops algorithms that process and translate radio messages emitted by a ship’s Automatic Identification System (AIS), which offers insights into port-to-port voyages and can also generate estimates of trade volumes. CKLS has demonstrated how machine learning techniques can be deployed to plot port-to-port voyages and create forecasts of trade volumes.

The IMF used CKLS estimates inferred from an overwhelming two billion AIS messages gathered between January 2015 and December 2021; it excluded data from vessels linked to commodity trade and leisure, such as bulk carriers, tankers, yachts, and cruise liners.

AIS radio messages can be deciphered to know the type of ship, its position, speed, draught, and other data points. This will also be visible to adjacent vessels to avoid collisions. The data points are gathered by terrestrial receivers when the vessel is near the shore, and by commercial satellites when sailing deep on the high seas.

Compared to the pre-pandemic benchmark, the entire distribution of international travel times has been observed to have shifted to the right, resulting in longer trips for cargo ships. As soon as the pandemic hit the world, shipping times increased, leading to delays exceeding 1.5 days on average by the end of 2021.

Due to these delays, the global average travel times ranging from six days to 6.5 days between 2016 and 2019 rose by about 25 per cent by the end of 2021.

The IMF explains the slowdowns around ports as two components. Two-thirds is attributed to ships waiting for a longer duration to the anchor before entering the port and one-third due to sluggish cargo processing at the berths.

The world has become a more distant place

After considering these data points, the IMF concludes that the world had become a more distant place, including the delays at the seaports generating welfare losses. It observed that more time spent in transit led to trade impeding costs.

Pandemic eats into tariff reductions managed by the shipping industry

As per the estimates and calculations cited by the IMF report, ‘additional time in transit for the average shipment in December 2021 is comparable to a global ad-valorem tariff of 0.9 to 3.1 per cent.’ Incidentally, the midpoint in this range has been observed to be approximately equal in absolute value to the globally applied tariff reductions managed during the 14 years starting from 2003 to 2017.

China and the US suffered the worst port congestion

Though port congestion during Covid was prevalent globally, the world’s top two economies, the US and China, suffered the worst. Port-level cargo throughput and turnaround times analysis revealed that a complex combination of demand pressures and supply factors contributed to port congestions.

Even now, ports in the US continue to be chockablock. The Port of Los Angeles, North America’s busiest port, has witnessed record volumes in 2021, logging as many as 10.6 million twenty-foot equivalent units (TEU), 16 per cent greater than 2020 on surging furniture and apparel imports.

According to CNBC, more than 70 container ships were idling, slowly approaching or waiting outside the Port of Los Angeles on February 16, including nearly 62,000 empty containers at the port’s terminal and off-dock depots.

Teaming up with 10 top global maritime logistics data providers, CNBC has created a Supply Chain Heat Map. This data tool shows the challenges facing the global supply chain industry in real-time for investors to understand issues that impact company inventories. CNBC's heat map tracked the critical aspects of factory capacity, vessel availability, container availability, trucking capacity, port productivity, vessel transit time and rail capacity.

As economies opened and shut in the preceding two years, so did the ports, factories, and others, generating acute mismatches that threw supply chains into disarray.  As per Copenhagen-based maritime data firm Sea-Intelligence, 11.5 per cent of global vessel capacity was offline as ships had to wait in queues in November 2021.

Six days to unload and load at the Port of Oakland

Marine Traffic and Blume Global data highlighted that the Port of Oakland topped congestion around May-end with vessels requiring six days to unload, load and import containers waiting for up to 11 days at the port before being shipped.

Likewise, the Port of Los Angeles was found to have the second-highest waiting time, with containers needing almost a dozen days to depart the port and five and a half days to process vessels. In comparison, rail delays that stretched to 6.2 days also made the port’s productivity inefficient, translating into the dwell times tripling over pre-pandemic times.

Congestion shifting trade flows to America’s east coast

Persisting port congestion on the US west coast has caused trade flows to shift to the US Gulf and east coasts, especially to the Port of New York and New Jersey. Blume Global chief executive Pervinder Johar noted that Asian manufacturers are shipping goods to ports on the east rather than routing through west coast ports.

Around May 16, the Port of Savannah saw 13 container vessels waiting, carrying as many as 100,000 containers. Marine Traffic general manager Alex Charvalias expected to rise by 100 per cent or three or more days of waiting time.

Consumer spending is a common factor

At most of the largest US container ports, customer spending is one common factors behind the congestion. Customers were confined to their homes during lockdowns, so they started placing orders for material goods using e-commerce channels. Rising demand could also have translated into congestion at ports as those with excess capacity may have accommodated more cargo without raising vessels’ waiting times.

Another scenario is that a port processing a lower quantity of cargo with longer delays had supply disruptions. Slower turnaround at the docks indicates a higher number of vessels arriving at a port and supply bottlenecks like stacking up empty containers hampering efficient handling of arriving cargo.

US ports in need of $168 billion investments

Supply chain bottlenecks at American ports have also risen due to insufficient port investments, as highlighted by the American Society of Civil Engineers, which gave a B – rating to US port infrastructure. In contrast, Global Infrastructure Outlook, a G20 initiative, has observed that the US ports have an investment gap of up to $168 billion in the years leading up to 2040.

Meanwhile, the IMF highlighted that a significant part of the global trade was processed by ports which fell into the supply-driven bottleneck category. In these ports, infrastructural weaknesses, labor shortages and backlogs from past or current Covid restrictions played a role.

In the second half of 2021, more cargo was diverted to less productive and more congested ports.  

Chinese logistics woes

Though Shanghai ocean terminals, warehouses and trucking services are operating as usual now, staff shortages and paucity of drivers have made these operations low efficient, ending up in Shanghai port’s overall productivity dropping, driven majorly by lockdowns keeping people off work. China’s zero-Covid strategy was stringent, freezing all activities.

Chinese logistical woes manifested in Tesla announcing recently that it was compelled to slash vehicle production in Shanghai due to a shortage of parts and Toyota halting production in eight factories in Japan because of similar constraints, including other automobile behemoths like Volkswagen, Mazda, and General Motors cutting production.

Due to lockdowns, Toyota announced in May that there would be production cuts for Lexus and Toyota. Shanghai and the eastern Chinese region are crucial centers for technology production whose disruptions are now poised to make it difficult for even Microsoft to make Xbox gaming consoles easily.

Industrial output in China and consumer spending have declined to the worst levels since the Covid pandemic, while analysts have warned that there will be no quick recovery. Bloomberg noted that China’s supply chain issues drastically compounded in April, with satellite data showing port activity falling to the lows observed during the 2020 lockdown and seriously affecting automobile and electronics manufacturing, including its impact being felt far and wide plus hitting local production and multinationals’ bottom lines.

Hospitals from Australia to the US suffer from the lack of chemicals used in x-rays to automakers finding it challenging to return to full potential and delayed materials disrupting American construction projects.

Other companies affected due to Chinese disruptions include the Danish Bang and Olufsen, which recently decreased its financial outlook because of restricted access to warehouses. At the same time, clothing and shoe factories in Vietnam cannot meet orders due to Chinese material supply issues.

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