By Powell Slaughter, Contributing Editor
WILMINGTON, N.C. — Fears that ocean shipping’s turbulent waters are the new normal could be unfounded. Current scheduling, pricing, and equipment-positioning challenges will continue into next year, but barring new macro events on the pandemic’s scale, the cost of containers and the time their cargo takes to reach retailers should moderate next year.
That was one takeaway from Peter Tirschwell’s presentation on the state of ocean shipping at the June 13-15 AHFA Logistics Conference, themed “Seeking Calmer Waters.”
“The only thing that will bring down ocean shipping costs is if the supply and demand equation changes,” and signs such as a stock market in “correction territory,” inflation and softening consumer demand point to that change, said Tirschwell, vice president for maritime, trade and supply in S&P Global’s market intelligence division.
The longtime journalist and shipping observer also leads the Journal of Commerce’s global editorial team. In addition, he founded and continues to chair the TPM conference, the world’s largest container-shipping event. “It appears to me the ship is starting to turn. … Now we can see demand potentially backing off.”
Tirschwell believes it will take at least the rest of 2022 to work backlogs and upcoming holiday-season traffic through the ocean freight system.
“The system wants to work,” he said, noting that carriers were able to work through relatively quickly events such as 2015’s West Coast labor disruption, the 2016 Hanjin bankruptcy, then the world’s seventh-largest line; and the surge of shipments from China in advance of the Trump administration tariffs and a resulting traffic shift to alternative source countries. “There’s a narrative that says disruption of the container system is the new normal. It’s not.
“Those various other blips were resolved before the next one,” he continued.
Regarding the current situation, system shocks came in waves with no time to recover. The onset of the pandemic, the Suez Canal blockage, lockdowns in Shenzen, Union Pacific’s suspension of intermodal service contributing to clogged ports, the Shanghai shutdown and more hit in sequence with no opportunity to catch up.
Near-term
“This year is going to be rough all year,” Tirschwell said. “If volumes ease after the holiday season, if the economy slows, if there are no other ‘black swan’ events, we’ll be here next year, and things could be normal. That will result in more consistent service, and it will result in lower rates.”
Right now, however, drags on the system continue. Those include processing of existing shipment backlogs, and ordering and scheduling fluctuations driven by major retailers’ apprehensions about West Coast labor negotiations and uncertainty regarding consumer demand.
“You’re seeing Christmas and back-to-school goods coming in much earlier because of (major retailers’) lack of confidence in the supply chain,” Tirschwell said. It’s not helping that rising inventories stateside and chassis shortages hinder efficient container processing.
He noted one major ocean carrier told him “the amount of time from when an importer picks up a container to returning it empty ballooned 50% since April.”
Coast comparison
With memories of 2015’s “portastrophe” in mind, Tirschwell said importers are “scared about” West Coast labor negotiations to renew the International Longshore and Warehouse Union contract expiring July 1.
“Since the early 1990s, every single negotiation on the West Coast resulted in some disruption,” he said, and further implementation of automated cargo handling, now in place at three West Coast terminals, is a big issue this time around.
“There’s a concern among the labor movement that machines will replace people in droves, and the union wants to roll back automation rights. Owners say if you’re going to roll back ACH, where’s the $800 million?” in reference to benefits and wages the union had earlier negotiated with owners.
Noting that President Biden met with ILWU and PMA leadership in June, telling them to reach an agreement, Tirschwell said, “The pressure to get a deal done is white hot.”
Any port disruption from the union, he added, “would be like stabbing your friend in the back. Another dampening effect on disruption is the ocean carriers are very wealthy. They have the war chest to buy these guys off” with benefits such as long-term care insurance to offset the impact of automation.
The biggest disruption threat, he said, would come bottom-up from the union locals.
“There’s a disconnect between the union leadership and the locals,” Tirschwell said, noting grass roots disruption in 2015 at the Oakland in particular and also Seattle. “There are a few issues that could trigger that this time around. If these guys are (angry) at the local level they have the ability to take things into their own hands.”
Tirschwell foresees a long-term decrease in West Coast traffic for containerized imports from Asia, with a corresponding increase on the East Coast, where ports are seeing their own backlog of ships waiting in line even as backups have eased off LA/Long Beach.
“Part of that is demographics, but another part is concern about West Coast longshore disruptions,” he said. “You have to go back to the 1970s to find any major strike” on the East Coast, where port workers are represented by the International Longshoremen’s Assn.
“The current East Coast contract runs out in 2024, and the union appears to want to extend it another six years,” Tirschwell pointed out.
A long-term issue on the East Coast that bears watching is a contract stipulation that any new terminal must use ILA labor exclusively. Ports in right-to-work states North Carolina, South Carolina and Georgia utilize state workers , and the ILA’s threat to sue carriers using non-ILA-operated facilities already has prevented full utilization of Charleston’s Hugh K. Leatherman Terminal that opened last year.
