If you thought your supply chain issues couldn’t get any worse…
With supply chain issues constantly in the news, it is not surprising that shippers have two common questions: First, “Is the worst behind us on the supply chain front?”
The answer: “No, the worst isn’t behind us.”
That leads to the second question: “How much worse could it possibly get?”
The answer: “Much worse!”
If you want to quickly get up to speed on why the supply chain crisis isn’t going away anytime soon, read this article “I’m A Twenty Year Truck Driver, I Will Tell You Why America’s ‘Shipping Crisis’ Will Not End.”
Truck driver Ryan Johnson explains in plain language many of the issues that are responsible for our current supply chain crisis and why they aren’t going away anytime soon. Put succinctly, we don’t have the equipment (a.k.a. chassis, trucks and containers) or drivers to handle the volume of freight coming in to our ports. Even if there was capacity to move the freight, there is no room to store the containers once they have been moved out of the ports, awaiting the trucks or trains to get to their final destination.
If you want to more fully understand why the situation can get much worse, look at how the government’s actions are magnifying and complicating the issues.
For example, on November 1, the Ports of Los Angeles and Long Beach instituted a surcharge that will be applied to containers that have sat at the ports for nine days—and the surcharge is a doozy!
After the ninth day, they will charge an escalating surcharge beginning at $100 per day. The surcharge will grow by $100 per day for each successive day, so if the container is there for three days after the nine day window, the ocean carrier will be charged $600. Right now, the situation is a mess! There is uncertainty as to whether or not the carriers will be able to “pass through” the surcharges to shippers and confusion about how the program will be administered.
There are at least three other big issues that will affect the flow of containers into and out of the West Coast ports.
The VAX Issue
Perhaps the biggest issue is whether the Biden administration will honor the American Trucking Associations’ (ATA) request to exempt truck drivers from the VAX mandate. This isn’t about politics. According to both the ATA and the Owner-Operator Independent Drivers Association (OOIDA), the transportation industry will lose between 70,000-80,000 drivers if the mandate is enforced. Obviously, this significant loss would dramatically affect capacity.
AB 5
AB 5 is legislation that affects the way California determines who is an “independent contractor” versus employee. Once again, this legislation will cause thousands of truck drivers to leave the industry, because many owner operators will not accept being classified as an employee.
California Air Resources Board (‘CARB”) Regulations
Under the CARB rules, all CA trucks entering the California Ports must be no older than 2011 models, or for older vehicles, have a newer or re-powered engine. In short, this reduces the number of trucks serving the ports.
There are also issues such as the contract between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association that expires on July 1, 2022. The ILWU has announced that to show their resistance to more automation, they may follow a strict adherence to rules which could significantly reduce throughput capacity at the ports.
Summary
2022 will likely be another very challenging year for shippers. While the factors addressed here are focused on ocean shipping and ports, there are other important issues that will affect the intermodal, truckload, LTL and parcel sectors.
Overall, with the carrier networks in each sector “flush with freight,” the carriers are in the driver’s seat. For example, in the parcel sector, FedEx made news when it “fired” over 1,000 customers. Additionally, FedEx and UPS have both used pricing to send signals about what type of freight they want to handle. The LTL carriers are using a similar strategy. For example, in October, several LTL carriers used pricing to discourage having to handle over dimensional shipments.
With “Code Red” conditions, shippers have one of two choices: Either adjust their internal practices and processes that affect their freight costs, or accept much higher freight costs. Adjusting these processes will require that shippers understand the current transportation issues and how they will affect their company’s freight budgets.
