Peak shipping season is coming soon — and the “parking lot” of container ships stuck at anchor off the coast of California is still there, with Oakland surpassing Los Angeles/Long Beach as the epicenter of congestion.
Shipping giant Maersk warned in a customer advisory on Wednesday that Los Angeles and Long Beach “remain strained with vessel wait times averaging between one to two weeks.” But it said “the situation is even more dire at the Port of Oakland, where wait times now extend up to three weeks.”
West Coast port delays are having severe fallout for liner schedules. Congestion in California equates to canceled voyages as ships can’t get back to Asia in time to load cargo. Even as U.S. import demand soars, the effective capacity in the trans-Pacific trade is being sharply curtailed by voyage cancellations.
For importers, that means even longer delays, even higher all-in freight rates and a cap on how much can be shipped at any price.
Maersk said that 20% of its capacity from Asia to the West Coast has been lost year to date as a result of operationally induced “blank” (canceled) sailings. It expects 16% of its capacity to be lost through the end of June and 13% to be lost through the end of August. “This unfortunately means Maersk may not be able to fully honor its original allocations for all customers,” the carrier admitted.
To put current cancellations in context, they are now running at the same percentage that carriers intentionally blanked in Q2 2020 to compensate for the sudden collapse of import demand when U.S. businesses were shuttered by nationwide lockdowns.
Deadline will be missed
Port of Los Angeles Executive Director Gene Seroka has repeatedly said that the San Pedro Bay anchorages need to be cleared before the traditional peak season surge begins. He has voiced a goal of June 1 for “few if any ships” at anchor.
That deadline, which is a week away, will not be met.
The daily number of ships stuck in San Pedro Bay is down from an average of 31.8 in January to mid-March to 21.3 from mid-March to Tuesday. However, the numbers have stubbornly refused to fall further. As of Tuesday, there were still 20 ships at anchor in San Pedro Bay.
Asked about his June 1 target for clear anchorages, Seroka told American Shipper, “Import volume continues to be heavy and consistent, more than we had anticipated earlier this year. Reduction in dwell times is leveling off and the subsequent decline in [ships at] anchorage has slowed. Our goal remains to clear as much of the at-anchorage situation as possible prior to late summer and the start of the traditional peak season.”
Unfortunately, the peak season is expected to begin sooner than usual this year. Time appears to be about to run out — which implies even more congestion.
According to Maersk, “Peak season is expected to start early this year as retailers prepare for a strong back-to-school season that will likely blend into the end-of-year holiday peak season that typically starts in August. This will unfortunately put more pressure on an already stretched network with the potential to cause further disruptions.”
Congestion woes in Oakland
As of Wednesday, there were around 10 container ships anchored in the inner harbor of San Francisco, off Oakland, according to Automatic Identification System (AIS) ship-positioning data from MarineTraffic. But that’s less than half the story. Off the coast, there were an additional 15 or more container ships drifting in the Pacific.
Inner anchorage (left); ships drifting off coast (right). Maps by MarineTraffic; ship positions as of early Wednesday.
The number of waiting ships has a different meaning for Oakland than for Los Angeles/Long Beach, as Oakland is a much smaller port. Oakland’s January-April import throughput was about one-tenth of the combined Los Angeles/Long Beach throughput.
Oakland has two berths temporarily out of commission. The ONE-operated NYK Delphinus suffered an engine room fire on May 14 and berthed in Oakland on May 18. AIS data showed the ship still at the berth on Wednesday. In addition, a berth at Oakland International Container Terminal has been unavailable for an extended period due to crane installations. That berth should come back online by the end of this month.
The bigger problem in Oakland, according to carriers Maersk and Hapag-Lloyd, is a shortage of available longshore labor. Maersk said in a client note last week, “Terminals are limited to two gangs per vessel on most ships due to the unavailability of the needed labor to cover the current demand.”
Hapag-Lloyd informed customers on Tuesday, “Massive import volumes combined with labor shortages are the biggest drivers of continued congestion and vessel operations delays [in Oakland].”
Asked about the labor shortfall, Andrew Hwang, the Port of Oakland’s manager of business development and international marketing, responded, “There is good news to report. It’s our understanding that the ILWU [longshore union] is preparing 300 new casuals to be added and another 150 ILWU members are being trained so that they can work skilled positions … needed to move cargo more efficiently. The new dockworkers and skilled labor are expected to be ready and able to join their colleagues this summer.”
Rough start for ZIM ‘fast’ service
One example of how Oakland congestion is affecting carriers and shippers involves ZIM (NYSE: ZIM). The Israeli carrier just introduced a new Asia-West Coast service called the Central China E-Commerce Express ZX3 that is designed to provide fast trans-Pacific service for time-sensitive cargo. It is scheduled to call in Oakland first, then Los Angeles.
It is not going as planned. The first ship, the 4,254-twenty-foot equivalent unit (TEU) Volans, was unable to get into Oakland on its inaugural call due to congestion and diverted to Los Angeles instead. A source told American Shipper that the vessel was quickly serviced in Los Angeles, with urgent cargo unloaded. On Wednesday, AIS data showed the Volans drifting with all the other ships off Oakland.
The new service is already so far behind schedule that the next ship in the string, the 4,250-TEU Navios Chrysalis, is due to arrive in Oakland just three days from now.
LA/LB congestion by the numbers
While the congestion is more extreme in Oakland, the anchorage situation off Los Angeles/Long Beach is more important from an overall import volume perspective.
American Shipper was provided the daily counts of container ships at anchor and at berth by the Marine Exchange of Southern California. The year-to-date numbers show the step-down in severity starting in mid-March and the persistence of the anchorage numbers since then.
Chart by American Shipper based on data from Marine Exchange of Southern California
Looking further back, to the pre-COVID era, shows the extent of the current import surge. In January-May 2019, Los Angeles/Long Beach averaged 14.9 container ships per day, including those at berth and at anchor. Year to date in 2021, the average is 53.9 ships per day, 3.6 times pre-COVID levels.
Chart by American Shipper based on data from Marine Exchange of Southern California; data from Dec. 2020 is daily, prior data is bimonthly
Looking even further back, the current congestion crisis can be compared to the last major disruption: the West Coast labor unrest that crippled port operations in January-April 2015.
American Shipper mapped the curves of ships at anchor during the 2015 incident against the current curve. Six years ago, the disruptions peaked three months after they began and came down quickly. The current crisis is already almost three times as long as the prior one, and the number of ships at anchor is still close to highs set back in 2015.
Chart by American Shipper based on data from Marine Exchange of Southern California
Realistically, decreased import demand is the most important factor that would allow the West Coast port system to dig itself out of its hole and thus allow carriers to add back canceled sailings.
But the data shows that import demand is still increasing.
FreightWaves’ SONAR platform features a proprietary index of shippers’ ocean bookings (SONAR: IOTI.USA) measured in twenty-foot equivalent units (10-day moving average) as of the scheduled date of overseas departure and indexed to January 2019.
While these are bookings, not loadings, the index provides a directional indicator of U.S. import volumes in the future, when ships from various export destinations arrive at American ports. The index has been considerably higher in May than in April, implying that volumes hitting U.S. shores next month will be even greater than current levels.
Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)
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