While the U.S. recovers from the aftermath of the pandemic, inflation continues to increase throughout the country due to ongoing congestion in the ninth-biggest container port complex in the world. The twin ports of Los Angeles and Long Beach combined are the largest gateways for trade in North America, handling approximately 40% of all incoming cargo for the United States. According to the Executive Director of the ports of Los Angeles, “90% of the world trade moves on water.” If one part of the supply chain is backed up, similar to a domino effect all the ports suffer. In 2019, 11.1 billion tons of goods were moved across the world’s oceans. Since the pandemic hit, cargo plummeted by nearly 20% in the first 5 months.
After making a two to three week journey across the Pacific Ocean, ships are forced to wait in line in Southern California before they’re allowed to enter the docks to unload payloads of thousands of containers. Companies that hire shipping lines to move their goods have to place their orders several months in advance, pay much higher rates and typically order in much larger quantities than they have in the past to ensure enough inventory on hand. This bottleneck (the point of congestion in a production system that occurs when workloads arrive too quickly for the production process to handle) combined with the collide of the pandemic is problematic for manufacturers in the U.S. While dozens of ships are waiting in the harbor days before they are able to unload, exporters are struggling to get their goods out of the country, leaving manufacturers waiting for months for parts or products to arrive.
According to freight forwarder Flexport Inc., the time it takes for goods originating in China to reach their destination through the San Pedro Bay has doubled to 62 days since January 2020. The normal amount of ships that are usually waiting in harbor are 0 to 1. At one point in mid-April in 2021, there were 23 ships waiting to dock at the ports. There is no doubt that this increase results from the pandemic, increase in e-commerce during the lookdowns followed by the stimulus checks boosting consumption. Because of this, to ship each 40-foot container from China to the West Coast currently costs roughly $10,000 to $15,000 – more than 5 times the pre-pandemic rate. With a combination of late-arriving ships followed by pandemic workplace restrictions, the increased demand for imports accumulated quickly and there weren’t enough truckers or warehouse workers to keep up with the accretion. To this day, workers are still catching up while inflation continues to rise.
How the Los Angeles and Long Beach ports work:
(paraphrase) There is a very complex process of moving containers from ship to ship. The ports sit on a combined 7,820 acres of land, having more than 150 cranes for moving containers and almost 50 terminals. Together they welcome 3,600 vessels and handle around 17 million 20-foot equivalent containers a year. When the ships arrive, they join a queue and are organized in two basic groups: those that are occupying a designated anchorage spot and those that are waiting in deeper water further offshore until one of the docks opens up. When ships first arrive at the berth (a ships allocated place or dock where the ship parks) the cranes remove the containers one by one, setting them on trucks so they can be carried to a staging area where they’ll await pickup trucks or get loaded onto trains. The trailers that containers sit on to be moved are called chassis, and they have been in short supply over the past year because the flood of imports overwhelmed the capacity of the chassis pool. Containers leave the port either on a truck chassis or by rail and los angeles has the advantage of some 116 miles of on-dock rail and six rail yards. Trucks with trailers line up at a gate on the port to do one of 3 things: Drop off an empty container and pick up an imported one (the efficient so-called dual transactions); Drop off an empty to full container for export and leave with an empty trailer; Enter towing a chassis to pick up a full container. Empty outbound containers have been piling up, sitting on real estate that could be used for inbound containers.
The Ever Given, The ship that got stuck in the Suez Canal:
In March of 2021, one of the world’s largest container ships was travelling through the Suez Canal, when it got stuck in a sandstorm. The strong winds resulted in a loss of the ability to steer the ship, causing the ship to halt at an angle. This stop blocked about 15% of ships to pass for 6 days, freezing nearly 10 billion in trade a day during a time when the buying surge was at its highest. This dilemma caused a ripple effect of many other sips getting stuck behind it. Thanks to a fleet of tugboats, dredgers and salvage crews, it took several days for the ship to be freed. Not only did this event disrupt international commerce, the prices of oil, other products but inflation was at it’s highest.
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How this all infects inflation:
https://www.forbes.com/advisor/investing/why-is-inflation-rising-right-now/