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Why import volumes are falling in Los Angeles when there are still a lot of vessels queuing outside

Last week, containerized import figures from the port of Los Angeles showed that Q4 ’21 saw a large slide compared to the preceding quarter, with containers processed at the port falling month-over-month since October. The port of Los Angeles handled 385,251 TEUs of imports in Dec ’21, which is 16% lower than in Dec ’20.

Does this mean a dearth in the number of vessels docking at the port of LA’s terminals? Not really. The port terminals have remained chock full for the better part of a year. The number of vessels queued in and around San Pedro Bay has more than doubled today since Jan ’21 (VesselFinder.com shows around 90 vessels near the coast of LA today).

The trucking sector has been the subject of finger-pointing, with truckers blamed in part for the landside bottlenecks. But interestingly enough, outbound Los Angeles spot rates for truckload capacity have been dropping across the West Coast.

Across the LA-Chicago lane, which is where a bulk of intermodal volume moves, you see volumes have come down. In January, the linehaul average rate was $3.03 per mile, which is 26 cents off from the high in December. Drive-in rates for LA outbound to all destinations have dropped roughly 10%. We’ve just seen volume fall away in the spot market. Contract rates are still pretty high — which isn’t a surprise — but the spot market is cooling,” said Dean Croke, principal analyst at DAT.

In January, the linehaul average rate was $3.03 per mile, which is 26 cents off from the high in December. Drive-in rates for LA outbound to all destinations have dropped roughly 10%.

So if trucking spot rates are cooling and freight volume leaving LA is falling, where exactly is the bottleneck that’s bogging down the port of LA operations? It looks like there may be not one but several chinks in the supply chain armor.

For starters, let’s look at terminal space availability in the port of LA, which sits at around 90% — about 20% higher than what would be an ‘ideal’ situation for the port to operate at a better efficiency. When operations exceed optimal conditions, they are bound to lose out on efficiency.

Ports are also having issues processing empty containers returned by drayage carriers. On average, for every two containers imported into the US, one of them goes back as an export, while one goes back empty. In the case of the West Coast ports, the ratio is even steeper — there are two empties sent back for every three import containers heading out of the port of LA.

This ratio had widened to 4.66 containers imported for every container being exported in ’21. Most of these imports came from China, which meant a proportionally high demand for empties to be returned to China. This led to ports being overwhelmed with returned empties, taking up space across the port,” said Croke.

That empties are choking port premises is evident from the fewer ship-to-shore cranes currently operating in the port of Los Angeles — thanks to the lack of space to offload containers on the terminal. The problem of returning empties ballooned beyond choking port premises, with container lines and yard operators opening up dedicated centers to store empties as terminals began pushing back on accepting empties.

That empties are choking port premises is evident from the fewer ship-to-shore cranes currently operating in the port of LA — thanks to the lack of space to offload containers on the terminal.

For dray carriers, returning empties has been another headache, as container lines laid out elaborate regulations on returning containers, including using container colors as means to reject inbound empties. While dray carriers weren’t in shortage, the difficulty with maneuvering the system did certainly result in freight bottlenecks.

The problem also has to do with rising inventory levels across the country. The Logistics Managers’ Index (LMI) reported 71.1 on its scale for Jan ’22, a month-on-month increase that has been unseen in the last couple of years. Inventory storage costs have remained at historic highs, with the index hitting 87.9 in Jan ’22. Being a diffusion index, LMI helps understand the momentum of the warehousing market — it is apparent capacity is fast contracting, thanks to peaking inventory levels.

import volume LA

Space constraints are well recorded across the Inland Empire in Southern California, with availability falling below 0.6% in Q4 ’21 even as prices climbed 60% year-on-year. Add to this the prolonged issue with intermodal movement to and from the West Coast, shippers with containers dwelling at the port struggle to answer a fundamental question — how and where will they move the containers out?

Shippers with import containers dwelling at the port struggle to answer a fundamental question — how and where will they move the containers out?

As for port operations, the Omicron variant has also been a setback. Over 1,200 people were positive in the first weeks of January across the West Coast ports, with 80% of the cases concentrated in Southern California. Around 8,000 people work in the docks of LA and LB, which meant COVID-19 took out nearly 10% of the workers from already strained operations. This would be on top of the workers who took extended days off for the new year — making it a troubled month for the port.

The issue of imports slowing down at the port of LA runs very deep. The trucking market, for instance, is not cycling the same velocity it used to on a pre-pandemic year because of holdups at loading docks, labor shortage, warehousing space constraints,” said Croke.

The US supply chain functions well at around 2 million TEUs a month, and anything over that is bound to create issues. Guess what? We were at about 2.5 million TEUs in December and have been around the 2 million mark since June ’20. The situation we see today isn’t getting better any time soon.


This article was originally published on The Logistics Rundown

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1 COMMENT

  1. Since the start of the on going Corona Virus pandemic, which has led to fractured supply chains, shipping routes, port operations etc, it appears like managers of ports globally have been called upon to think on their feet literally to achieve some resemblance of efficiency. This is not forgetting the various stakeholders to be managed some tinged with opaque political influence, the trade unions of the truckers and port workers etc. I wonder what kind of stories shall be shared post the pandemic.

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