Distribution expert pins steep freight rates and efficiency losses on West Coast seaports, carriers
Palos Verdes Peninsula, CA — All containers on deck logistics operators! Ever since COVID-19 rocked high seas shipping worldwide one year ago, Steve Hughes is sounding the horn that ocean freight transport is exponentially worsening on the Pacific coast.
The CEO of HCS International says that importers across most industries are overwhelming shipping carriers to ferry their 20 and 40-foot containers to California and Washington. Speaking with Aftermarket Business World from his office, nearby the Port of Los Angeles, Hughes worries that the automotive aftermarket will face continued cargo rate spikes and port bottlenecks. “There’s so much freight that’s coming over right now that it’s actually maxed the capacity ceiling of ocean shipping,” said Hughes.
Few consumer product sectors are spared as the owners of the goods race to find empty metal crates or space on the next available sailing. Due to the rebounding urgency to restock since mid-2020, explained Hughes, pre-negotiated contracts have yielded to spot rates. International shipping companies are gaining the upper hand from increasing market prices.
Even buyers of commodities to specialty auto parts are under financial stress. Brakes and filters stand particularly vulnerable as supply chain managers grapple with tamping down volatile spot-market price fluctuations. According to Hughes’ running tally of the rolling spot rates, purchasers can expect to pay four times more than before when the pandemic broke. “Right now, depending on how badly you need it, you’re paying anywhere from $4,000 to $10,000 to move it here,” said Hughes.
In December 2020, The Wall Street Journal reported that the amount for a 20-foot box to travel from Asia to Europe has more than doubled to $2,091 over four months last year, exceeding the $2,000 level for the first time since 2010.
How much longer the unpredictability will last is hard to gauge, concedes Hughes. “It’s tough for the industry because this is a transitional problem. And you’ve got every distributor struggling to address this.”
Hughes pointed out that unless the merchant marks up the product at the store cash register, the landed cost could erode profitability. So far into 2021, he calculates delivery costs on brakes have resulted in a loss of $3,520 per container when baking it into the resale of that batch of parts. The breaking point as to when to enact an increase has bedeviled many importers. Yet, while more 20- and 40-foot equivalent units enter the country, difficult choices must be made, forewarned Hughes. “As they bring in one box, they won’t raise prices, right? But if you think about it, with 100 containers times $3,520 a box, $352,000 is the real cost!”
Without freight expense control or mitigation mechanisms in place, the financial consequences fall directly onto capital expenses and more — wages, bonuses and hiring. “You can look at that it’s horrible for the commodity companies, but it’s horrible for everybody.”
Literally around the clock, the nation’s seaports continue to make up the turnaround time of arriving inventories. While Hughes calls the back up of vessels up and down the west coast a “logistical nightmare,” the Marine Exchange of Southern California, a real-time container tracker, reported that in the first week of February, 37 freighters queued up to fill the berths occupied by 27 ships anchored at the Port of Los Angeles. Other ships, tells Hughes, have waited two weeks offshore for a slip to open up. “The total port system in LA is congested!”
Meanwhile, in the Christmas holiday season leading up to the Chinese Lunar New Year, The Wall Street Journal wrote that more ships have steamed to Oakland and lesser jammed-up destinations as far north as Seattle. Bypassing the busier complex is anything but a casual decision to reroute midway, says Hughes. All parties paying for each crossing must reach a full consensus with the carrier operator to rechart a new destination.
Besides what has unfolded at the Port of Los Angeles, the USA’s most intense entry point, activities involving unloading to reloading each sailing has snarled up most of North America’s 33 major ports. Albeit tempting, hinted Hughes, finding an alternative port rarely makes practical sense. Like elsewhere, loaded containers are piling up on the massive port of LA property and slowly turning over, which has created a cross-docking crawl to the idling trucks and railcars to haul away the inventories.
Summing up this fragile supply chain ecosystem, Hughes said, “you’re not moving enough of the full and empty boxes as fast as you need to make the velocity through the terminals.”
Back at the massive Los Angeles complex, where Hughes has been casting an eagle’s eye on the growing container box shortage, nearly 700 employees fell ill in December, leaving the compound with fewer skilled handlers to move product. “It’s taking double the time with load shifts because of logistical problems, space issues and the shortage of labor.”
Unfazed by the hurdles at the LA facility, its director Gene Seroka offered one solution. In January, the port dangled an incentive for the owners to collect and empty their crates earlier than the allotted period given. But, says Hughes, it is too soon to declare Seroka’s plan a success. Everybody agrees that exporters need to fill those scarce metal coffins with their materials, catch the outbound crossing to Asia on time or miss the boat. Before the pandemic, Seroka advocated for shared information on advanced shipping notifications between all parties to better forecast container volume spikes and lulls.
Hughes applauds Seroka’s efforts to free up physical space and for transparent collaboration but insists that the aftermarket can benefit independently. Auto parts manufacturers and suppliers have an opportunity to adopt logistical best practices from the lessons from the coronavirus. Building a knowledge base in international purchase transactions will certainly accelerate lead time rather than let the system function on autopilot. He encourages underdeveloped businesses to join shipping cooperates that help companies navigate the logistic sector by finding the most affordable cargo service.
A member of Gemini Shippers Group that caters to the auto care industry, Hughes has experienced his fair share of pitfalls. “It’s critical for importers to have educated talent who understand international logistics. And that they are open to the opportunities to reduce their freight costs and build relationships with their transportation providers.”
