China formally raise tariffs on American imports in China on 24 September 2018

Transpacific Volume is Surging. Are You Ready?

Categories: BCO/Shipper.

COVID-19 has rocked the freight world in expected and unexpected ways, and many businesses have struggled to keep up. As we enter the final quarter of 2020, a lot of uncertainties about the future of the industry remain.

One of those uncertainties is centered around transpacific freight. Right now, surging transpacific volume is causing problems on both sides of the Pacific. From an imbalance in intermodal container availability to the increasing importance of dual transactions at key logistics hubs, the heat is on. How are you going to adapt?

Here are our recommendations for keeping pace amid an ever-evolving situation.

Stay Flexible

Moving into Q4 2020, your motto should not be “We’re doing things the way we always have.”

The most successful organizations will be the ones that roll with the punches and write the playbook in real time. Like never before, consumer habits and geopolitical events dictate the ebb and flow of the industry, so flexibility is crucial for staying nimble.

Many ports across the U.S. reported record volume in September, and September U.S. ocean imports increased 15% year over year. But with this buoyant news comes some bad: Equipment shortages and high container leasing prices are troubling the supply chain.

​”This amount of cargo volume creates some supply chain complexities that must be dealt with on a daily basis,” said Gene Seroka, executive director for the Port of Los Angeles.

The surge in cargo at American ports has also led to issues like chassis availability and increased turn time. This has forced drayage carriers to implement a congestion surcharge, which 3PL and other transportation services are passing along to customers.

Supply chains, too, are struggling to manage increased transpacific volume, which has led to congestions at U.S. ports. However, with the increased volume comes increased revenue opportunity.

“After staying at home this spring, consumers are buying again, and retail supply chains are working overtime to keep up with demand,” said Jonathan Gold, vice president of supply chain and customs policy for National Retail Federation. “Nothing about this year is predictable, but retailers are making sure their shelves and warehouses are well-stocked for the holidays.”

Adopt Modern Technology and Methods

Legacy processes and other approaches might work when everything is stable, but added pressures mean that technology and business methods that scale, adapt, and maximize efficiency are more important than ever.

Severe congestion at the Ports of Los Angeles and Long Beach may lead to increased lead times in shipments, and the Port of L.A. expects the volume to increase in coming weeks, with large year-over-year increases in weekly important volume.

“We have been seeing record volumes in recent months being processed at our terminals,” said Phillip Sanfield, the director of media relations for the Port of L.A. “With this import surge has come… operational challenges for the supply chain at ports around the country.”

This stress on the supply chain means that businesses must adopt modern technology and efficiency methods. One way is through the use of dual transactions (where a trucker brings a container and picks up a container in one trip) when working at the gateways. This will improve efficiency, help ensure better equipment availability, and alleviate drayage and chassis shortages.

With the export demand, particularly on transpacific freight, expected to continue into the traditional slack season and beyond the Chinese Golden Week holiday, the equipment shortage is unlikely to improve, according to DHL.

Monitor Global Trends

Companies of all sizes need to stay tuned into global freight news, or they might be taken by surprise. Are rates spiking? Is there low container availability? If you want to ride the wave, you have to keep an eye out for what’s ahead.

A recent trend is the spike in U.S. rail traffic, led by an uptick in e-commerce and parcel service. In September, U.S. railroads originated some 1.4 million intermodal containers, which is an increase of more than 7% year over year.

“September 2020 was the fourth best intermodal month in history for U.S. railroads, as retailers and others restocked their inventories and prepared for the holiday season,” said John T. Gray, senior vice president of the Association of American Railroads.

While the jump in traffic means railroads might draw volume away from the trucking market and offer better pricing, whether this upswing continues remains to be seen. Intermodal volume is currently being driven in part by restocking, and it’s hard to know how long that trend will continue, according to Tony Hatch, an independent rail freight analyst with ABH Consulting. There are many variables that could affect the situation, including coronavirus case numbers and the potential of a second federal stimulus package.

In the meantime, the demands from e-commerce have led NFI to hire 5,000 workers over the next few months, signaling that the freight economy is improving. And smaller shipments of goods via LTL and parcel trucks have increased in the past few months, according to FourKites; September’s LTL shipments were up 42% compared to March. But driver shortage is causing capacity issues, even as demand increases.

“We clearly have a supply and demand imbalance,”  said Werner CEO Derek Leathers. “Normally, the market reads that by adding capacity … It’s going to be a long time to add back that capacity.”

Conclusion

The freight industry has been pushed to the extreme in nearly all aspects, and rigid systems and outdated approaches are being torn apart by the pressure. While many things are uncertain, it’s clear that the organizations that stay flexible, adopt modern technology and methods, and monitor global trends have a solid advantage.

Let the experts at GlobeCon help you navigate the complexities of transportation. Contact us!