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10/20/2022

Expert Commentary: Update on U.S. ports

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Port congestion around the U.S. is continuing to cause issues with the global supply chain, and the situation being made worse due to the ongoing labor negotiations with both port and rail workers. Spencer Shute, principal consultant at global procurement and supply chain consultancy Proxima, provides insight into the current state of U.S. ports and other related topics in the commentary below.

Current state of West and East ports
“The U.S. is facing two primary issues: Capacity constraints across the board (led by all the backlogs that are coming into the U.S.), and the ongoing West Coast labor negotiations. Both have impacted shippers significantly and left them concerned about slowdowns and potential strikes. 

With ongoing issues at West Coast ports, many shippers began directing traffic to the East Coast and Gulf Coast ports, which significantly increased their volumes and has increased the overall backlog in the U.S., particularly the Savannah port.

The East Coast and Gulf Coast are affected slightly by some of the labor union negotiations on the rail side, but their biggest challenge is capacity, as they just cannot handle the volume that the West Coast ports do today.

West Coast labor negotiations and potential strikes
Because of the West Coast labor negotiations, shippers are still trying to figure out whether they should keep diverting to the East Coast and Gulf Coast or if it’s possible to resume shipping on schedule to the West Coast. We've had very little come out of the West Coast labor negotiations, so there is nothing preventing the labor unions from striking.

Additionally, there are other concerns such as California Assembly Bill 5 (AB5), which impacts gig workers, independent contractors within the trucking world and may result in rail strikes. Many companies are still apprehensive about shipping to the West Coast, so they’ve shifted shipping to the Gulf and East Coast, which just can't handle the overall capacity.

Port modernization and automation
The West Coast ports are trying to push for more automation to move more containers more efficiently, but they are facing some pushback from the labor unions. It is specific to each port in terms of what they're trying to do, but in the grand scheme of things, everybody is aiming to become more efficient with the goal to increase volume and optimize flow in and out of ports. 

It's fair to say that almost all ports are making some type of investment in improvement, but the type of improvement is going to vary based on where they're located and what their biggest pain points are. Some ports have a capacity issue, while others are a bit more antiquated and need some more modernization in terms of the overall equipment and how they process freight.”

Impact of Chinese Lockdowns
There are some projections that port volume is going to take a dip over the next two quarters, and we will be at a slight decline from 2021 overall. This is a bit misleading because the lockdowns in China greatly impacted the overall volume that the U.S. received, which is significantly less than what it was prior to the Shanghai lockdown.  

As Shanghai comes out of lockdown, they've been ramping up capacity over the last month, getting back to full production and shipping. There are a large number of ships still in Shanghai, so as the manufacturers and ports start shipping at full capacity, that volume will eventually start hitting U.S. ports again, in about six to eight weeks. This will create an additional surge and even more capacity constraints within the U.S. ports.

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