The US supply chain is seriously congested

The US supply chain is seriously congested

America's largest ports continue to be congested, forcing many retailers in this country to accept chartering private ships to deliver goods in time despite the expensive prices.

Nearly 80,000 containers are piling up at the Port of Savannah (Georgia) - the third largest US port after Los Angeles-Long Beach and New York-New Jersey. This number is 50% higher than normal. "We've never had a yard full like this," said Griff Lynch, CEO of the Georgia Port Authority. He claims stress levels have "never been higher".

Because the port of Savannah was operating at full capacity, Mr. Lynch forced the ships to wait at sea for more than nine days. On a recent afternoon, more than 20 ships were stranded in queues, moored up to 27 kilometers from the coast in the Atlantic Ocean.

The turmoil in the shipping industry shows no sign of abating. Supply chain disruptions sent German industrial output down, inflation escalated, and American manufacturers now have to wait an average of 92 days to assemble the parts and materials they need to make goods. according to the Institute of Supply Management.

"The supply chain is overloaded. It's not sustainable at this point," Lynch said. On a recent afternoon, under the scorching sun, the port was on track to break records for a single day of activity, with more than 15,000 trucks arriving and departing. However, the pressure is still increasing. The new ship docked again and had to find a place for the cargo.

Mr. Griff Lynch, CEO of the Port Authority of Georgia at the Port of Savannah. Photo: NYT

Earlier this year, when shipping prices skyrocketed and containers became scarce, the trouble was seen by many as a temporary result of pandemic closures. They think that, when reopening, global shipping will be normal. But half a year later, congestion is worse, with nearly 13% of the world's freight capacity delayed, according to data compiled by Sea-Intelligence (Denmark).

Shipping across the Pacific is taking about 80 days, or twice as long as it was before the pandemic. The largest US retailers such as Walmart, Home Depot, Costco, Wholesale and Target decided to charter their own ships as part of plans to minimize supply chain disruptions. Some cover these increased costs by raising prices on goods.

In May, Home Depot executives were looking for new ways to get items on time. Sarah Galica, Home Depot's Vice President of Transportation, recounts how the idea of chartering seemed like a joke, but it turned out to be a reality. While products shipped by charter ship make up a small percentage of Home Depot's total imports, the change gives the company more control over when products arrive in stores and prioritizes those who need them. products most in demand.

Richard Galanti, Costco's chief financial officer, said the retailer has chartered three ships, each capable of carrying around 1,000 containers, to ferry goods between Asia and North America. Each ship will make up to 10 deliveries for Costco next year, accounting for less than 20% of the volume of imports from warehouses in Asia.

Walmart, America's largest retailer, has chartered its own ships before. This helps Walmart control arrival times and shipping rates, a spokeswoman said. Due to port congestion in Los Angeles, Houston and Savannah in recent weeks, Walmart has sent employees directly to the port to clear goods.

Retail chain Dollar Tree said the company has 16,000 stores for the first time to secure its supply with chartered vessels, including a large vessel that has signed a three-year contract. The company also aims to add more products domestically and internationally regardless of the transpacific routes.

"The use of small ships for trans-oceanic voyages is something we have never seen before," said Evangelios Marinakis, President of Capital Maritime Group (Greece). In addition to retailers, large companies such as Coca-Cola is also chartering ships to avoid supply disruptions.

The cost of shipping by vessels with a capacity of about 1,000 containers is on average almost twice more expensive than cargo on a 20,000-container vessel, operators say. However, chartered vessels will allow retailers to dock in open ports like Portland, Oakland, or the East Coast. It also helps that key products such as electronics and decorations arrive in time for the holiday season.

Currently, the price of renting a small boat is about 140,000 USD a day, many times higher than the pre-pandemic level. "At least they know that the inventory will arrive in time for the Christmas rush," said Vicky Zervou, sales manager at Athens-based freight forwarder Aritrans SA.

Chartering is a tactic that is beyond the financial reach of small retailers. Founder Jeremy Podliska said Podzly, a small retailer in Papillion, Nebraska, said chartering a boat or private jet was not an option for them. Two years ago, the company sold a pack of 12 sombrero party hats for about $32. They are now priced at $52 and could go up.

A cargo ship is docked in the port of Savannah. Photo: NYT

Meanwhile, delays at major US ports continue to escalate. According to the Southern California Maritime Exchange, more than 60 container ships were waiting to enter the ports of Los Angeles and Long Beach recently, up about 25 from a month earlier. The situation is also spreading to East Coast ports.

Forwarders say Covid-19 disruptions still haunt major ports and the large ships that use them. They said normally an empty container train from Europe would be held for a week outside of Shanghai, while the crew had to be tested.

On Wall Street, investors will enter third-quarter earnings season this week. As countries come out of restrictions due to the pandemic, bottlenecks in global supply chains are leading to shortages of goods. Soaring raw material costs are also putting pressure on manufacturers' profits.

Wall Street forecasts corporate profits to fall lower. Net profit margin for the S&P 500 is forecast at 12.1% in the third quarter, down from a record 13.1% in the second quarter, according to FactSet.

Even so, Morgan Stanley strategists say it's possible the supply chain impacts have not been fully reflected. And if it does, it's likely to produce some nasty surprises in the coming weeks.

"If companies have to pay more and can't pass it on to shoppers or consumers, that's going to hurt profits. That's something to be concerned about," said Holly MacDonald, chief investment officer at Bessemer Trust, speak.

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