'The Disneyland effect': The real reason the U.S. supply chain is still overloaded
As peak shipping season kicks off, America’s busiest ports are once again experiencing congestion and container vessels waiting off U.S. coastlines.
Some experts are calling it "the Disneyland effect."
"If you go to Disneyland or Disney World and use the app and it tells you how long it takes to wait for a ride, everybody sees that Space Mountain is 55 minutes and Indiana Jones is 15," explained Nathan Strang, director of ocean trade lane management at Flexport. "Everyone runs over to Indiana Jones and when you get there, the line is 60 [minutes long]."
Southern California dealt with a traffic jam unlike any other during the pandemic that resulted in a record number of container ships waiting in the waters outside the ports of Los Angeles and Long Beach.
The situation has improved off the coast of LA: In June, the port moved 876,611 twenty-foot equivalent container units (TEUs), and the backlog fell from a record 109 vessels to 21, according to Marine exchange.
But in the meantime, shippers have been routing more traffic toward ports in the Atlantic Ocean and the Gulf of Mexico. This trend has been going on for a while, according to East Coast port officials.
"There's a lot more pressure on supply chains on the U.S. East Coast now due to that reshuffling," Vivek Srivastava, senior trade analyst at VesselsValue, told Yahoo Finance.
The East Coast and the Gulf Coast have more ports than the West Coast, but they have smaller capacities as compared to those in LA County. These ports also don't usually see significant congestion, which presents new challenges for port authorities.
Officials at Georgia’s Port of Savannah, the fourth-largest U.S. gateway for seaborne container imports, said last week that docks in Savannah handled more than 5 million container units for the first time in the fiscal year ending June 30. The port moved nearly 5.8 million container units of exports and imports, up 8% from a year ago.
According to data from VesselsValue, container ships are waiting over 200 hours — the equivalent of 9 days — at the Port of Savannah. Meanwhile, at the Port of Long Beach, the average wait time is about 5 hours.
As of Tuesday, roughly 40 ships were sitting at anchor offshore waiting to transit the Savannah River and unload at the port's docks.
Causes of delay
A consumer spending surge in 2021 meant maritime traffic extended beyond what the ports could handle, — which, in turn, led to more congestion.
And while cargo levels have come down from where they were in 2021, Strang noted, they're still above pre-pandemic levels.
A lot of cargo continues to come into "ports that were already strained and already operating at pretty much near-maximum capacity, even before the pandemic," he said.
Strang also pointed to another issue: "Certain large importers aren't picking up their containers. So they're leaving them there and they're using the ports and the rail terminals as storage that is then causing... [an] artificial congestion... it is is causing them to back up into the docks. And then that is causing the delays out onto the water."
Supply chains were also disrupted by labor shortages in 2021, and the situation is different this time around.
"Last year the warehouses didn't have enough labor," Strang said. "This year the warehouse [has] plenty of labor, but they're full because there's nowhere to take the cargo to because sales are down or because there's too much cargo came in."
Strang expects some easing around October, and noted that by February of next year "we're probably not going to see ships at anchor."
However, he cautioned, "that doesn't mean there's not going to be congestion in 2023. They can easily come back."
The Ports of Los Angeles and Long Beach are in the middle of negotiating new contracts between 22,000 dockworkers and shipping operators. There have been some signs of progress with both parties coming to a tentative agreement on terms for health benefits.
"The message is that there is a problem," Srivastava said. "But with a bit of extra research, shippers and supply chain managers can find ports that are not congested on either coast, the West Coast or the East Coast. There's still ways to move your cargo into the U.S. without having to wait in long lines."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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