Containers are seen on a shipping dock as the global coronavirus disease (COVID-19) outbreak continues in the port of Los Angeles, California on April 16, 2020.
Lucy Nicholson | Reuters
A ship with 197 containers of peloton bikes and goods circled at anchor off the port of Los Angeles just before Christmas and entered a hold pattern on December 22nd until it was allowed to dock on January 2nd, according to global shipping data company MarineTraffic.
“The ship and Peloton’s expected delivery time lost 12 days while their product was almost swimming distance from shore,” said Import Genius trade data analyst William George. “This is a crazy example of the problem Peloton and other US importers are facing.”
The combination of record container volumes in the port of Los Angeles – the most heavily frequented container port in the western hemisphere due to its proximity to Asia – and delays caused by Covid-19 is slowing down imports into the USA, according to the International Longshore and Warehouse Union. Around 800 of the 15,000 members were due to Covid-19 unemployed – they either recovered from the virus or otherwise quarantined at home.
Record congestion in ports around the world has led some companies to abandon ocean shipping for air freight in order to get popular or seasonal items to shelves faster. This not only saves valuable time, but also money. According to Freightos, the international online freight market, airfares are still more expensive than shipping via ocean freight, but they have been falling in recent months.
400% more
“While air freight was volatile in the first few months of Covid, rising 400% between February and April 2020, ocean freight has become a bottleneck in global supply chains, making air freight a more profitable option in some cases.” “stated Eytan Buchman, CMO of Freightos.
Some of the congestion in U.S. ports is expected to decrease as more longshore workers are vaccinated against the coronavirus, which began Feb. 12. Only 5% of longshore workers have had vaccinations to date, said Gene Seroka, general manager of the Port of Los Angeles. He said the port is advocating “all levels of government” to vaccinate longshore workers to reduce congestion in the ports.
CH Robinson air freight
Source: CH Robinson
Peloton, who refused to comment on the article, referred CNBC to the company’s quarterly letter to shareholders published last month. The company said its profit margins for the last three months of the year were squeezed by additional shipping costs of $ 100 million during the critical holiday season.
“The global increase in shipping traffic has resulted in significant delays in all types of goods arriving in US ports, including Peloton products,” said Josh Foley, CEO of Peloton, in a February 4 letter to members. “These unpredictable delays have resulted in painful delivery dates for many people as Peloton bikes, treads and accessories have been kept in port for more than five times longer than usual.”
The Peloton shipment is just one example of the variety of goods held up in US ports.
Waiting for dock
According to MarineTraffic, 30 container ships were anchored in the ports of Los Angeles and Long Beach on Monday. More than 30 container ships are expected to arrive at the port of LA and more than 27 are expected to dock in the port of Long Beach in late March. Among the anchored ships waiting to be unloaded in the port of Los Angeles is the APL Charleston, which carried the late peloton deliveries in January. It arrived back loaded with Chinese exports on February 18.
The delays in December weren’t unusual, said Captain Adil Ashiq, MarineTraffic’s chief executive officer for the U.S. West Region.
CH Robinson air freight
Source: CH Robinson
“It is a reality that many ships, supply chain and logistics service providers are currently facing in the Port of Los Angeles and the Port of Long Beach,” he said in an interview. Port congestion data shows that the average time a container ship was anchored outside the dock last week was just over 7.5 days before it could travel inland, Ashiq said. “Now that the APL Charleston is at anchor again, it may face similar circumstances as it did on its previous port visit in December, but of course this is a cruise so anything can happen.”
The bottleneck in the ports has increased the cost of shipping, making air freight, which is usually considerably more expensive, looks like a relative bargain – especially considering the time savings. Airship prices have fallen dramatically in recent months.
A 250-kilogram air freight with a full container from China to the US has fallen in price from about 60% of the cost of a full container to only about 36%, he said.
“In other words, for the right kind of cargo, and certainly the right value, air is becoming a more compelling option, both with capacity and with far shorter transit times,” said Eytan Buchman, CMO of the international online freight market, Freightos.
Hot tubs and bikes
Brian Bourke, chief growth officer at Seko Logistics, said the time savings in product arrival justify the cost to their customers who have to meet consumer demand.
“If you’re looking to ship a hot tub across the ocean from Shanghai to New York, shipping a lighter hot tub will cost around $ 1,000, but it takes at least 35 to 45 days,” he said in an interview. That doesn’t include an extra 7-14 days if you have to book in advance, he said. Shipping air freight costs anywhere from $ 2,000 to $ 3,000, depending on its weight.
“But you only need three to four days to get your hot tub,” he said. “So if you pay two or three times, you save four to seven weeks now. In the end, the math makes sense for certain senders right now.”
Kim Peterson, transportation manager for Canyon Bicycles USA, said they ship most of their inventor by water, but their most popular bikes are being shipped via air to meet growing demand.
“Air is faster and we have to meet customer demand,” he said. “I could pay an additional $ 1,000 to $ 2,000 to get my product in an (ocean) container at the head of the line in China, but that doesn’t matter because the cargo is in LA’s congestion . “
60 to 75 days
Before the pandemic, shipping took 20 to 30 days, he said. Now it’s about 60 to 75 days while air freight takes three to five days, Peterson said. “It’s a big difference. We are currently behind in Asia,” he said. “We can’t wait. That would have an impact on sales.”
Shawn Richard, vice president of global air freight in New York at Seko Logistics, tells CNBC that they don’t expect the peak load to end anytime soon.
“We regularly fly 65-inch TVs from China to the US,” said Richard. “We saw air freight up 40% in December. Large items like hot tubs were also transported. Our ocean freight teams are now selling air freight.”
Richard says that large recreational items like ping pong tables and exercise equipment like treadmills are usually shipped by sea because of the cost. Now they are moving by air due to an increase in demand. In the Covid-19 pandemic, people are locked inside but are looking for ways to stay fit and entertaining outside.
“Barbecues and related merchandise like lawn / patio furniture, inflatable pools, filtering devices, and anything that could be used to improve safety at home instead of family vacations are now moving by air,” he said.
The lack of reliability in retail has pushed the functionality of the logistics and supply chains to their limits. John Foley, CEO of Peloton, recently told CNBC that the company would be spending an additional $ 100 million on expediting shipping to reduce delivery delays.
“We are seeing the industries in need of accelerated shipping being blown against the rush and waiting by the sea,” said Matt Castle, vice president, air cargo products and services, CH Robinson. Recreational vehicles and parts that used to be shipped by sea have shifted to air freight, he said. “One of the things I never thought air would move is vacuum cleaners. It’s a hot topic now with so many people at home.”
Seasonal deliveries
Castle said the drive to the air is a combination of factors: companies with a narrow seasonal window to sell products and production-based industries looking to re-establish a rhythm and catch up on inventory.
“Ocean congestion is increasing to meet orders and drive demand for air freight,” said Castle.
Stephen Svajian, CEO and co-founder of Anova Culinary, which sells its precision combi ovens and cookers to COSCO, Target and Amazon, said they are increasing their air freight orders in response to increasing demand for the “home dining experience”. “
“We decide which products to air freight based on the set retail date and consumer expectations. We don’t want to be sold out or fulfill orders,” said Svajian. “This year there is more pressure to use air due to delays at sea.”
This logistical strategy of getting some products in the air isn’t unique to the US. Castle said they are also seeing companies in Europe making the switch. “This market is very strong. There is a lack of container capacity everywhere.”
Ag exported
Air is also becoming an option for US exporters struggling to get their products overseas as carriers refuse US Ag exports to return empty containers. They make far fewer shipping exports from the US to China – $ 744 per container versus $ 4,922 for Chinese exports to the US. The time and money saved when empty containers do not have to be loaded, unloaded and cleaned offsets the lost money on the way back to Asia.
It also costs US farmers who are struggling to ship their goods overseas. Their access to international markets “is being severely undermined by the unprecedented dysfunction and cost of maritime transportation services,” said Peter Friedman, executive director of the Agriculture Transportation Coalition.
Richard of Seko Logistics said spices and perishable goods like lobster were shipped to China by air back in October.
There doesn’t seem to be a quick fix to unblock US ports, leaving companies like Canyon with few options.
“In the cycling world, when the sun comes out, people want to ride bikes,” said Peterson of Canyon. “Demand is still high. It’s pretty obvious that we need to keep going and ventilate.”
