The new norm in ocean freight shipping

In May, the ILWU contract was ratified by 82% of union members. The end to the contentious relationship between workers and ports is now over for at least five years. However, memories run deep and while the West Coast appear to have been successful in clearing out the backlogs, it has highlighted the need for shippers to re-evaluate their supply chains on a more regular basis – not when a disruption is already underway but well in advance of such a risk and on a regular basis. Supply chains are not a “one size fits all” and certainly not be considered static. Instead, they are unique to the companies themselves so what works well for one may not work for another.

For example, the Baltimore Business Journal reported recently that Under Armour had re-evaluated its supply chain and the result was to shift some freight from the Port of Long Beach to the Port of Baltimore. While the article did not indicate how much was to be shifted, it noted that Under Armour is also reviewing six other shipping lanes. The company, along with others encountered long wait times in Long Beach due to the West Coast labor dispute with some trucks waiting in line for up to 8 to 9 hours a day to pick up cargo.

Meanwhile, Costco Wholesale indicated it does not plan to shift any of its US imports to East Coast ports. According to the company, “We bring product into North America in as close proximity to the appropriate distribution network as we can, whether that is West Coast depots or East Coast depots and we will continue to do that.”

And while shippers choose to either adjust their supply chains or not, the ports themselves are undergoing changes as well. What we witnessed in this last contract renewal highlighted how important global trade has become to the US. According to the US Department of Transportation, global trade will make up 60% of the US economy by 2030 thanks to the world population growing from 7bn to 9bn by 2050. This will add to continued increases in overall shipping volumes.

Added to this is the mega-ship. A new report from the OECD, The Impact of Mega Ships, highlights some of these changes such as bigger peaks and the need for flexible labor and 24 hour operations.

The ports are already experiencing the effects of these ships and are working to address the impact. According to the report, the average growth in container ship size between the Far East and west coast of North America was 54% over 2007-2015 period. The growth was less pronounced between the Far East and the east coast of North America at 31% because of the current constraints of the Panama Canal.

Ocean freight shipping is resulting in many changes throughout the supply chain and will continue to do so as the Panama Canal nears completion, bigger ships visit ports and demand for goods grow. Besides decisions in port usage, shippers will need to also evaluate domestic freight transportation, inventory management and alternatives for distribution centers and/or location of distribution centers.