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Container lines blame demand for supply chain delays

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As US president Biden seeks to solve US supply chain delays by issuing executive orders, the liner operators’ trade body the World Shipping Council has said that the cause of the problem is consumer demand and only normalisation of that will solve the issue.

The Covid-19 cargo congestion brought on by extreme demand in combination with operational disruptions is very real and felt across supply chains globally. In the U.S. in particular, all parts of the supply chain are facing unprecedented pressures – there is a lack of rail and truck capacity, warehouses are full, and ports are bursting at the seams. It is in part in this context that the President is issuing an Executive Order that addresses shipping along with other industries.

According to the WSC, the driver of these problems is demand for imports by US consumers and US businesses.  Of the past 12 months, 11 months have had a year-on-year growth in spending on consumer goods of over 10%. To put this into perspective, in the 18 years before the pandemic, the average growth rate was 4.7%. The impact of this sustained increase in spending on consumer goods is manifested in the volume of US container imports stressing the supply chain. In its most recent assessment of market conditions, Drewry Shipping Consultants concludes: “The surge in Asian exports being shipped to North America continues unabated. In the first three months of 2021, eastbound volumes grew by 34% – the highest quarterly gain by far since Drewry’s current records began in 1995.”

The WSC said ‘Ocean carriers are employing all available capacity and pulling out all stops to manage the operational disruptions brought on by Covid-19. But when marine terminals cannot clear the cargo already on the docks, ships cannot berth to discharge and load cargo. And marine terminals cannot clear cargo if the importers of that cargo have no warehouse or distribution space to put those containers. And containers are stuck in many places in the US waiting for adequate rail and truck capacity to move them’.

“This is not the fault of any given supply chain actor. Supply chains simply cannot efficiently handle this extreme demand surge, thus resulting in the delays, disruptions and capacity shortages felt across the chain. All supply chain players are working to clear the system, but the fact is that as long as the massive import demand from US businesses and consumers continues, the challenges will remain,” said John Butler, President & CEO of World Shipping Council.

Business contracts between shippers and carriers lay out the mutually agreed conditions for detention and demurrage for containers – how long shippers using containers can keep them and what the charge should be when containers are not returned within the agreed time. These agreements should be, and overwhelmingly are, well observed by the parties. If cargo owners do not return equipment on time, that equipment is not available for another customer to use.

“We agree with the White House that the FMC has the tools to investigate and is the appropriate authority to take action on any issues when it comes to detention and demurrage. Shippers can report any irregularities so that they are properly investigated, and action taken against any improper practices”, commented Butler.

“The current supply chain disruptions are the result of an historic surge in demand by Americans for goods from overseas. There is no market concentration “problem” to “fix”, and punitive measures levied against carriers based on incorrect economic assumptions will not fix the congestion problems. Only normalised demand and an end to Covid-related operational challenges will solve the bottlenecks in the supply chain,” explained Butler.

“We are dealing with a market aberration brought on by the pandemic and the resulting shifts in Americans’ consumption patterns. There are real and negative effects across the supply chain from those events, and ocean carriers are as anxious to return to a more predictable market as anyone.  In the interim we urge everyone to make decisions based on the real facts about the situation before we create long-term negative results through ill-considered regulatory changes to handle a temporary situation,” Butler concluded.

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