When DHL says it expects ocean shipping to remain congested well into next year, it makes sense to believe them.
Whom are you going to trust to tell you the truth on port congestion? With news that the Biden administration is coordinating with the media to spin coverage in a more positive direction, it’s important to take what they’re telling you with a grain of salt.
Industry sources seem more trustworthy. The logistics industry is one of the most thoroughly international industries in the world, so the political concerns of any one country will have little effect on the information that they report. Plus, those people all around the world have large amounts of money on the line if information is wrong. That’s especially the case right now, when people are working harder than ever and facing higher costs in the face of limited capacity.
So when DHL says it expects ocean shipping to remain congested well into next year, it makes sense to believe them.
Germany-based DHL’s ocean-freight-market update for December came out today, and it doesn’t show signs of a situation on the mend. The entire global prognosis isn’t rosy, but there are some signs that the U.S. is especially rough.
The only trade lane in the world where DHL sees a strong decline in capacity is North American imports from the Asia-Pacific region. “Capacity” here refers to the amount of ships, trucks, and trains to move freight. As Peter Tirschwell noted yesterday, capacity is stretched extremely thin in the U.S. right now, and that prevents containers from circulating as they should. Other regions are struggling with capacity as well, but DHL says it’s the worst on the most important trade lane for the U.S. economy.
In its global outlook on Asia-Pacific exports, the only port DHL mentioned by name was Los Angeles/Long Beach. It’s the only port in the world so consistently congested that it merits mention in a global update.
Global schedule reliability has been between 30 and 40 percent all year. In 2019, it was around 80 percent. Reliability took a nosedive starting in June 2020 and seems to have bottomed out. “We expect the situation to remain well into 2022,” DHL says.
Transpacific reliability is well below the global average, at only 10.1 percent. Far-East-to-East-Coast is only slightly better, at 15.6 percent. The delays are enough of a problem, but these dismal reliability numbers are what really make things difficult for businesses. If shipments consistently took twice as long as they’re supposed to, businesses could at least plan around that. Only being 10 percent confident that a shipment will arrive when scheduled makes planning nearly impossible.
With West Coast congestion making East Coast shipping more attractive, DHL also sees issues with European–North American trade. It notes:
Port/Rail/Intermodal system operating beyond their limits. Space demand remains high, while capacity is still affected by instable schedules and port omissions. Situation expected to last well into 2022.
DHL also doesn’t expect any changes in American consumer behavior. The unprecedented surge in consumer spending on goods is responsible for the flood of imports that have swamped our ports. With no signs of those patterns changing dramatically in the near future, there won’t be a chance for logistics companies to catch up.
It’s not just Americans. Global container trade is projected to grow by 3.9 percent over the next four years. But that includes 4.3 percent growth from the Far East to North America, which comes out to 21.8 million TEU (20-foot equivalent units), the second-largest absolute increase of any region in the world. We don’t have enough capacity now, and there are millions more containers on the way.
The higher prices on Far-East-to-U.S. trade are attracting new entrants into that market. DHL notes that one shipping line that started a new service from Vietnam to the West Coast last month has launched a new service from Vietnam to the East Coast this month. A different line that used to only operate in the Middle East and the Indian Ocean is also starting a Far-East-to-West-Coast service. That’s good for shipping capacity, but it doesn’t make our ports any larger. Without improvements there, expanded service will only result in more containers stuck onshore.
Carriers can afford new service because their profits are bananas. (That’s bound to happen when the price of your product goes through the roof.) Compared to the first nine months of 2020, net profit for ocean carriers through the first nine months of this year is up 1,235 percent, on average. One smaller carrier’s net profit is up 20,527 percent. There is some base effect in those numbers, for sure, but they’re still astounding. Ocean shipping is ordinarily not very profitable, and many shipping lines have been in bankruptcy court multiple times. These windfall profits this year, if invested wisely, have the potential to allow for significant long-term improvements in the industry.
Based on DHL’s outlook, there’s no reason to be optimistic in the short term that ocean shipping congestion will improve. In politics, “in the short term” means “until the next election.” Expect Democrats to try more positive spin before the midterms on supply-chain issues — and expect it to not be true.