Shipping Container Rates Down 63%, But We're a Long Way From Back to Normal Operations

Of the many supply chain headaches brought on by the COVID-19 pandemic in 2020, shipping container backlogs were arguably one of the worst.

A record 109 bottlenecked ships were documented by the Marine Exchange of Southern California & Vessel Traffic Service Los Angeles and Long Beach in January 2022. 

As of last Monday, that ship count sat at eight—an all-time low.

L.A. Port officials are now asking for ships that diverted around the congestion to return.

But has the bottleneck issue been resolved, or moved somewhere else? The East Coast may now be carrying the burden.

East and South Coast Ports Status

Josh Brazil, vice president of supply chain insights at Project44, says the Port of Savannah, the Gulf Coast Port of Houston and the Port Authority of New York and New Jersey have taken on the west coast’s port congestion due to two reasons:

1.    Strong demand
2.    Potential for a labor strike

“There’s a lot to lose in the west, but the ports have mitigated a bit of that risk by pushing shipments towards the East Coast,” Brazil says. “When you combine that slight shift with some of the ground factors like the Port of Savannah’s closed births due to ongoing construction, or overall lack of capacity to hand incoming ships, it’s puts at least Savannah, Houston and New York on their heels.”

USDA announced pop-up ports along the Pacific coastline in February to ease port overflow. Brazil says the pop-up sites did work to ease port congestion and may be necessary in the East and South because “it’s not only the infrastructure, but also the port space” that’s available.

Not only have port congestion issues evolved, so have container shipment costs.

Container Costs Plummet

During the COVID-19 pandemic, container shipping companies were notorious for coming into U.S. ports with goods and leaving with empty containers, namely, in the highly profitable trade lanes like the Trans-Pacific trade lane from China to the U.S.

Numerous congressmen felt the empty container trend wouldn’t stop until legislation was put into place, but policy was already on its way when Sen. Amy Klobuchar introduced the Ocean Shipping Reform Act in December 2021.

The bill passed through Congress on June 13, 2022, putting an end to empty shippers while driving the extremely high cost of containers down.

“From China to the U.S. West Coast, if we compare the beginning of January 2022 to now, the container cost rate has come down 63 percent,” says Brazil. “It used to be about $14,000 and now sits at $5,250. On the East Coast, it’s come down 42 percent from a high of $16,000 in January to $9215 today.”

U.S. shipment and supply chain issues don’t stop short of coastlines. A U.S. rail union strike looked to hit the tracks this week, breaking the supply chain just before the busy harvest hour. However, some hope came this month.

Container Ships Run into Rail Roadblocks

In early September, a tentative labor deal was reached by three of the 12 rail unions and large U.S. freight railroads. These unions represent more than 15,000 workers, or 11% of the 140,000 strong rail workforces.

Class one railroads and its worker struck a five-year labor contract that will provide:

•    Wage increases
•    Expanded health coverage

Mike Steenhoek, Soy Transportation Coalition executive director, says his team hopes the new deal will push rail labor full steam ahead.

“Our hope is that, moving forward, this will provide some real momentum for the other remaining unions to come to an agreement,” he says. “Ultimately we want to make sure that rail service is improving, not taking a step back.”

As for the remaining 9 rail unions and large freight railroads, an agreement wasn’t struck until Thursday—only a day before the potential strike on September 16.

The deal, impacting 115,000 rail workers, will provide:

•    A 24% wage increase for the remaining life of the contract—2020 to 2024
•    Provide improved working conditions

The last widespread rail strike occurred in the 1990s and only lasted one -to-two days. The effects, however, went on much longer. Industry professionals say the case will likely be the same in 2022.

Rail Labor Trouble Ahead 

Max Fischer, National Grain and Feed Association’s chief economist, says the settlement won’t solder the rail supply chain back together over night.  

“I think we’ll still have problems with winter,” he says. “It may be a year before we start to have more normal rail service.”

According to the Association of American Railroads, any nationwide rail service interruption would “dramatically” disrupt economic output, costing an estimated $2 billion each day.

More on shipping:
Rail Strike Averted: Tentative Agreement Reached Between Railroads and Unions Comes on the Eve of Harvest
Will The USDA Pop-Up Site Solve The Clogged Ports Issue?
Ocean Shipping Reform Bill on its Way to the President