After reaching historic levels, it appears port congestion may be letting up – albeit slightly. Demand levels are approaching pre-COVID levels. And there is less output from China. North American ports are beginning to see improvement in wait times.
But are we there yet? While some are optimistic about the future container prices and congestion levels, port congestion is far from over. And we may see a spike in shipments in the near future. Here’s the breakdown of this developing situation.
According to recent reports, Chinese orders are down 20-30% month-over-month. US demand is diminishing, and logistics sources responsible for moving these products are reporting that new orders have dropped off significantly in recent weeks. Shortages in raw materials may also be a cause in this trend.
Another factor leading to reduced shipments from China is the COVID lockdowns that continue to plague the Chinese supply chain. The country’s Zero COVID policy has crippled factories and their ability to generate finished products for export. As a result, the number of cargo ships leaving Chinese ports is suppressed. Indeed, China seems to be in a deepening economic contraction at present. Export growth slowed to just 3.9% last April, down from 14.7% the previous month.
However, new orders are still higher than pre-COVID levels. But the furious growth of new orders over the past years seems to have finally ended. What we are now experiencing is not so much a cliff as it is a gradual return to 2019 norms. The way one expert described it, the industry is no longer shipping at any cost, but rather shipping at a cost our inventory can accommodate.
In December of 2021, container shortages and port congestion were at an all-time high. More than 100 ships were drifting in open water at the Ports of Los Angeles and Long Beach with average wait times hovering around 18 days. And experts predicted the crisis would not quickly dissipate. To a large extent, this still holds true. Yet there are promising signs that the worst may be behind us.
Insights from Drewry Shipping Consultants reveal that North American port congestion has dropped from 20 times normal levels to just 10 times. Currently, “best case” transit times between China and North America are down to 20 days from 34 in January. Around the world, port congestion remains high – very high, even. But levels are clearly improving overall – especially on the North American West Coast.
However, many Gulf Coast and East Coast ports are struggling with the newfound activity, as many ships circumvent California to avoid the long wait times. New York berthing times are up to five days now – still much better than California ports. Savanah is experiencing delays amid a surge in traffic. The East Coast port is expecting 108 container vessels arriving in the next two weeks. In January, they averaged just 35 per week. Containers at the Port of Houston in the Gulf are up 20% year-to-date.
Some warn that the current easing of container vessel levels is causing only a temporary reprieve at the ports and that a new wave of port congestion is coming. One of the arguments for this position is that the US is sitting on elevated inventory leftovers that were ordered for the 2021 Christmas season but did not arrive until spring. This would explain why the Ports of Long Beach and Los Angeles reported only a line of 20 ships waiting for a berth last month, since inventories are already stocked.
It stands to reason that with inventory levels flush and Chinese ports being artificially held back by lockdowns, port congestion is temporarily experiencing some relief.
But with Chinese lockdowns beginning to ease up, this relief may turn to a tidal wave of new shipments. Currently, there are around 300 container ships waiting to be loaded in Chinese ports. Meanwhile, US warehouses are full. When China releases those 300 ships to the US where inventory levels are already high, the glut of freight could bring back the port congestion and container crisis of December, 2021.
However, if US companies are able to reduce existing inventory levels – during a downturn in demand – and if China’s new orders continue to drop at 20-30% levels as they are now, this new wave just might be blunted. The current easing of port congestion may continue to return to normal. Or it just might return to the highs of last year. Only time will tell.
