Solving the Supply Chain Bottleneck
Intermodal companies serving the North American supply chain – from shipping lines, to railroads, to motor carriers and all stakeholders in between – can be forgiven their complaints amid record traffic.
That's because they suffered a bad case of whiplash over the past year, first from the Covid-19 pandemic that forced a shutdown of business early in 2020, only to be followed months later by an historic surge of containerized import traffic that has bogged down ports, ramps and inland terminals throughout the U.S.
As congestion increased at China's ports, ocean carriers responded by levying congestion surcharges while container rates soared for trans-Pacific services to U.S. West Coast gateways. Vessels continue extended delays at anchor outside ports, while truckers wait in long lines for their container pickups. For U.S. importers, lead times lengthened by months have become the new normal.
Supply chain congestion got the attention of U.S. President Joseph Biden, who in June convened a meeting by executive order to review the situation with stakeholders.
At the same time, providers are implementing their own measures to improve fluidity and account for an environment that is no longer "business as usual.”
Citing "historically strong demand for intermodal services” across its network, BNSF Railway in early August implemented what it called "necessary steps” to ensure available capacity in key markets, such as Logistics Park Chicago and Los Angeles intermodal facilities, including additional ground-stacking and expanded off-site parking. It also modified free time and increased charges for storing containers.
A spokesperson for Union Pacific Railroad, the largest western U.S. carrier, has responded to unprecedented demand straining its supply chain "by surging assets into our network – including locomotives and rail cars – and communicating closely with shippers, marine terminals, chassis providers and other members of the supply chain to ensure we are all taking action that is most productive in handling the demand following impacts from the pandemic.”
Union Pacific recently held a symposium with ocean carriers to discuss supply chain challenges, identify areas of constraint, and review actions to relieve congestion. "We will continue to actively monitor the situation and will take further actions as needed based on the desire to find creative solutions for customers while simultaneously ensuring fluid railroad operations."
Supply chain issues aren't limited to east-west traffic; flows on north-south routes have been hit as well.
"Intermodal volumes have grown in areas where inventory restocking and shortages have occurred, such as consumer goods, for example,” said Kansas City Southern, which operates cross-border trains between the U.S. and Mexico. "Automotive volumes, both for finished vehicles and parts for automotive production, have fallen due to the semi-conductor shortage in the marketplace, both northbound and southbound between the U.S. and Mexico.”
Still, there have been positive takeaways for the intermodal industry in terms of managing business in a crisis atmosphere. KCS said it continues to closely monitor the situation with its business partners and customers.
"Intermodal allows shippers the flexibility to use multiple modes of transportation. KCS is prepared for the additional volume demand that we see in the U.S. and Mexico. KCS has seen volume increase in almost every market that we service for intermodal, and we continue to plan and identify where we need additional resources and capital to meet the demand. We continuously work with our customers and partners to look for additional ways to service the market. Customers, railroads and other channel partners are working closer than ever before to manage this business and these unprecedented times.”
Other stakeholders agreed and said paying attention to fundamentals, having extensive communication, and being nimble are key, since there is no one-size-fits-all solution.
"Gateways are a challenge; every hub is different,” said Mark Bartmann, vice president, sea freight drayage for Kuehne+Nagel. "A gateway isn't just a port; it can be a central rail hub, such as Chicago. Since I started managing drayage, we have defined our processes, changing our IT approach to adapt and be a good partner for our customers with high visibility and quick information.”
Ports remain a priority as a nerve center for intermodal activity, he said.
"You want good partnerships in the ports because most of the drayage companies are owner-operators. There are a lot of small relationships, which you have to positively move forward. This is a business where trust and honesty work really, really well. Everyone knows there are delays at ports, seven days, eight days. But if I have to pick up a container in Los Angeles tomorrow, I'll pick up a container in Los Angeles tomorrow. We have such a large volume that we can play with availability, but unlike in the past, if you play with one container, then something else happens to another container. You still have to shop around and locate.”
Bartmann observed that the Biden approach confirmed there are a host of issues that constrained supply chain efficiency laid bare by the pandemic.
"Number One: We don't have enough drivers. [The industry is short] 80,000 to 60,000 drivers currently, and within the next 10 years up to a million. We don't have programs to bring new drivers into the business, and there are many challenges. Owner-operator? Or finding somebody to drive for? And, we are seeing a quarter to a third of the [driver trainees] dropping out because of drug-related issues. It's not going to get better so there has to be a [government] program to make this job more attractive.
"Number Two: There needs to be a program to help [new drivers] buy trucks. The government needs to push this forward. Three: Infrastructure is terrible. Some of these bridges you are scared to drive over. The I-40 bridge in Mississippi breaks, and Union Pacific's Marion Intermodal Terminal in Arkansas is cut off from Memphis. So infrastructure is very important.
"The industry fluctuates, both ocean and trucking, and we can't just ‘do enough'; there has to be enough capacity and investment so we can go through these peak times.”
While industry observers don't see a return to normalcy until 2022, there are some early signs of relief.
Maersk, in a statement in early July, said conditions at China's Port of Yantian are "looking up” after a Covid outbreak forced a six-day stop on export containers at the end of May. "The yard density is down to 65%, making overall productivity increase to 85% of normal levels,” the carrier said.
If the Biden report is any indicator, still-larger issues loom for supply chain stakeholders. They range from policy and politics and promise to have a profound impact on trade and logistics, such as Trump-era tariffs on Chinese imports carried over by the Biden Administration.
"We must stop focusing only on China and apply a global strategy to protect U.S. national security, technology transfer, intellectual property and innovation on a global basis,” said Beth Pride, president of trade consultant BPE Global, based in San Francisco. "Eliminate the need to take jobs outside of the U.S., provide U.S. companies with a reliable trade infrastructure that allows them to predict their actual cost of goods sold on an ongoing basis by creating a certification program for exporters and importers.”
Pride advocates an increase in tariff predictability; that is, the government should provide enough advanced notice for companies to take appropriate action when Section Tariffs will be applied.
"Drive economic growth and prosperity,” said Pride. "Allow small, medium and large U.S. businesses to operate in a predictable trade environment that allows them to succeed globally.”