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The Stockout: West Coast ports are jammed, but for how long?

West Coast port congestion causing headaches for CPG supply chain coordinators. The Port of Los Angeles and the Port of Long Beach are experiencing such high volumes that ships are anchoring off the coast to wait for openings inside the port. 

Last week Hasbro CEO Brian Goldner told CNBC that Hasbro is in talks to shift some imports from the Port of Los Angeles/Long Beach to the Port of Savannah to help alleviate some of the stress on its supply chain. Along with being more time efficient for Hasbro, they will also be cutting costs in their supply chain.     

The Panama Spread is a proprietary dataset offered in SONAR that calculates the difference in shipping from China to the East Coast and then from Savannah to Chicago via intermodal compared to China to the West Coast and then intermodal from Los Angeles to Chicago. Typically this number is positive due to it being more expensive to ship to the East Coast due to the increased ocean mileage along with added charges to go through the Panama Canal. 

Most food and beverage commodities are unsuitable for intermodal due to the temperature control needed during transportation but CPG goods like paper products, household cleaners, and toys are perfect candidates for this mode. 

Due to such extreme intermodal demand and tight capacity out of the Los Angeles market, the Panama Spread has flipped negative since the end of May. It is now financially advantageous for shippers of all industries to ship to the East Coast from China if that is where their end destination is located. 

One interesting development over the past two months is that ocean rates from China to the West Coast/East Coast have flatlined amid a backdrop of strengthening volumes. One theory is that Chinese officials have advised against the China-West Coast rates cracking $4,000 per FEU out of fear that governments will intervene. While the rates appear that they have flatlined, carriers are finding ways to boost their profits. 

“The rate you see on the Shanghai index is the price you pay for standard, nonpremium services,” said Flexport Global Head of Ocean Freight Nerijus Poskus in an interview with FreightWaves. “But you don’t move a lot of freight these days at that price. You actually have to pay a significant premium on top of that price.”

Taking into account the premium service charges, it is likely that the Panama Spread is more deeply negative than what the index suggests. 

On Tuesday, December 1, the OCEAN Alliance announced that they were boosting capacity by 17% on their jointly operated trans-Pacific service starting at the end of December which includes the Port of Los Angeles. Added capacity on a certain service is not directly correlated with a leap in volumes but I believe it adds to the view that volumes will be strong through the first couple of months of 2021. 

Tight reefer capacity is widespread in port markets. Not only is port congestion causing problems on the West Coast, reefer capacity is extremely tight across the country and especially port markets. 

Reefer capacity in the Houston and Savannah market is strained with 50.71% and 70.63% of contracted reefer freight being rejected in these two markets which communicates that drivers are demanding higher rates amid a surge in reefer volumes. 

Heineken and Anheuser-Busch both use the Port of Houston. Over the past thirty days, ~14% of Heineken’s total imported TEUs came through the Port of Houston whereas ~30% of Anheuser-Busch’s total TEUs entered the country through this port. 

CPG goods that require reefer transportation can expect a surge in transportation costs due to tight capacity out of these two regions. This is also a sign that operators should be entering these markets to take advantage of spot rates. Reefer carriers are likely to have a multitude of loads available in these markets which will help optimize their route. 

The blockchain is proving to be a long-term trend in monitoring supply chains. As the blockchain becomes more widespreadly accepted, companies are increasingly likely to use this technology to securely monitor their supply chain. I previously wrote about how AB InBev started a blockchain initiative to track their European supply chain. 

Estée Lauder and its hair care brand Aveda have launched a blockchain initiative to help monitor the vanilla sourced from Madagascar. 

“Blockchain technology adds an extra layer of transparency to our sourcing practices, verifying our vanilla supply chain’s compliance with the highest ethical and environmental standards, and strengthening trust with our suppliers, consumers and investors,” Estée Lauder EVP Greg Polcer said in a statement regarding its blockchain initiative

I believe that there will be many more of these announcements in the future as CPG companies and consumers demand more transparency into their supply chain. These projects will cost more on the front end but brands hope that it will increase brand loyalty as consumers feel more confident in their brands’ social and environmental initiatives.