Your supply chain’s well-being is our top priority. We at Maersk aim to provide you the most relevant and up-to-date information to help you navigate this period of heightened volatility.
Key notes on supply chain
- Mass Covid testing in Shanghai and Tianjin continues: New Covid cases have triggered additional mass testing events in China this month, including in the city of Tianjin, home to the largest port in Northern China and the key economic hub of Shanghai. China’s zero-Covid policy is focused on epidemic prevention and control and has resulted in some areas of Shanghai continuing to be locked down, among others. Reporting indicates that the highly infectious BA.5 subvariant is present in the greater China area including Hong Kong, which is facing a Covid resurgence that is straining public hospitals. Port operations continue as normal, but the risk persists that fresh outbreaks could trigger new lockdowns.
- President Biden averts potential rail freight strike for 60 days: On July 15th, President Biden appointed a Presidential Emergency Board (PEB) to intervene and support negotiations between unions and freight railroads unable to settle on a new contract since negotiations began in late 2019. The action covers ongoing negotiations taking place between 10 labor unions representing 115,000 workers and railroads including BNSF Railway, CSX Transportation Inc, Union Pacific Railroad Co. and Norfolk Southern Railway. The PEB will issue non-binding recommendations after a 30-day period, after which the sides will then have until Sep. 18th to reach a voluntary settlement. Maersk continues to monitor the negotiations and does not anticipate disruptions in rail service at this time.
- ILWU members continue to work beyond expiration of contract: The coastwide contract between the ILWU and the PMA expired on July 1st. The PMA and ILWU issued a press release on July 1st advising that while there was no extension to the contract, cargo would continue to move through the ports as negotiations continue.
- California’s “AB5” law moves forward: The U.S. Supreme Court decided on June 28th to not hear the California Trucking Association’s appeal of the legality of the California law referred to as “AB5,” which means that AB5 has come into effect. AB5 changes the legal standard used in determining whether independent contractors in California should instead be classified as employees. It is not yet known to what extent AB5 coming into effect will impact current supply chains due to the fact that a large portion of the trucking community in Southern California has historically preferred and fought for the right to operate as independent contractors. Maersk has been actively working over the past several years to ensure its operations are compliant and does not anticipate that AB5 will negatively impact its ability to service customers in California.
Over the past month, shipped volumes have been steady compared to the previous month with imports into the East Coast continuing to remain stronger than the West Coast. This East Coast preference could possibly continue well into the third quarter of the year to reduce exposure to the potential risk of West Coast congestion and labor uncertainty given the ongoing ILWU/PMA negotiations.
Based on the most recent data from Sea Intelligence, overall industry reliability for Asia to North America West Coast trade routes increased by 1.0% month-over-month, reaching 21.9%. The 2M Alliance of Maersk and MSC was the most reliable carrier in the April/May 2022 period with 25.0% schedule reliability. For Asia to North America East Coast routes, industry reliability decreased by 1.9% month-over-month, to 19.8%. The 2M Alliance has consistently ranked among the top providers in 2022 to the East Coast. Sea Intelligence also reported that, globally, Maersk was the most reliable carrier in May 2022 with schedule reliability of 50.3%, followed by Hamburg Süd with 43.7%.
West coast highlights
In the Pacific Southwest, 68 ships are heading to San Pedro Bay with 37 slated for the Port of Los Angeles and 31 slated for Long Beach. Overall vessel wait times for LA now sit between 5-24 days with wait times of 9-12 days for Long Beach.
Transit times to LA have improved for some routes. We have managed to improve TPX service transit times from Yantian to Ningbo to Los Angeles Pier 400 to a range of 16-19 days.
We continue to face operational challenges in the Pacific Northwest in regards to schedule reliability and transit times, particularly at Centerm in Vancouver where yard utilization is at 100 percent. Centerm has moved to a single berth and is facing congestion. Centerm is expected to re-open its second berth no earlier than Labor Day in September. Average rail dwell is 14 days.
This has had a major impact on consistent vessel sailings with structured blankings in place for the foreseeable future. Additionally, labor shortages may be on the horizon given that cruise ship season has been reactivated in this location, which could exacerbate the overall situation. We are looking into solutions to optimize the port calls of the affected trade routes to reduce the overall impact being faced by our customers.
East Coast Highlights
Growing East Coast congestion has been driven by both strong Transatlantic trade but also due to activity coming across from the Transpacific market. Congestion persists with operational delays in some ports, disrupting schedule reliability and increasing transit times. In particular, vessel wait times in Houston range from 2-14 days whereas there are around 40 container ships at anchorage outside of Savannah (six of which are Maersk vessels) with wait times ranging from 10-15 days. At Newark PNCT wait times range from one to three weeks.
To provide the best possible service, we are taking numerous measures to mitigate delays where feasible while also developing additional strategies. For example, we have dropped the Newark PNCT call on the TP23 and directed the cargo to the TP16 that utilizes APM Terminals Elizabeth, which has waiting times of just two days or less.
In addition, we have strategically positioned two additional vessels as “gap loaders” on the East Coast in July and also identified another in August to minimize the impact from the lost capacity due to planned gap sailings. As always, we are also working with the terminals to review any upcoming changes and to understand how best to minimize delays and waiting times.
In the short term, we are reviewing consolidation of Newark PNCT calls on the TA2 trade. By omitting the first of the two Newark calls we will be able to limit impacts to the network given the potential for up to 21-day wait times. We are also looking to book diversions away from Newark where feasible to alternative ports like Norfolk, Baltimore, or Charleston, etc.
We continue to experience severe congestion within our inland, ocean, and rail terminals, which is impacting overall supply chain fluidity. More customer support is needed to clear the surge of dwelling imports, specifically from inland rail locations such as Chicago, Memphis, Fort Worth, and Toronto. For rail cargo in LA, high yard utilization continues to be a major concern. Yard density currently sits at 116% with Maersk rail container dwell time at 9.5 days. The terminal has been forced to convert yard space to tackle the high rail volume. There are restrictions on cargo heading to Chicago along with low westbound volume that continues to limit the terminal’s ability to execute an optimal flow of units heading eastbound. The availability of trained rail labor to manage the current demand continues to be a challenge for rail companies, with improvement anticipated by the end of July.
According to the Pacific Merchant Shipping Association, the average number of days inbound ocean containers waited at the ports of LA and Long Beach for rail transport in June was 13.3, a record high. Given that import rail cargo to Chicago via Pacific Southwest ports continues to face rail delays we recommend re-routing to U.S. East Coast & Gulf ports if possible.
Despite the ongoing challenges, we are working with our vendors daily to ensure we can provide our customers equipment as well alternatives to return empties. Empties volumes remain steady and healthy throughout North America. There are no issues expected for covering export demand.
Topics and trends
Supply chains key to Central banks’ inflation fight
Monetary policy makers seeking to prevent broad-based inflationary pressures from becoming an entrenched feature of their respective economies have been raising interest rates to cool inflation at the risk of an abrupt pullback in economic activity or even recession. Results have been mixed. For example, the latest U.S. Consumer Price Index reading had increased 9.1% over the last 12-months making it the largest 12-month CPI increase in 40-years, with energy contributing nearly half of the increase.
Supply chains are considered a major contributor to inflationary pressures. Prices have surged largely because of the shortages of both goods and labor in supply chains, in addition to high consumer demand and persistent supply chain bottlenecks.
As we head into the traditional peak season period for import freight it is imperative that supply chains remain fluid with congestion levels kept to a minimum. Maintaining equilibrium is a shared responsibility between shippers and carriers as we collectively aim to reduce the need for more aggressive policy actions to reduce inflation.
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