You may have heard by now that there is a major “shipping crisis” happening in the United States. A critical shortage of resources and infrastructure at nearly every step of the shipping process is causing major backlogs. We’re seeing this first hand with our own shipments, some LTL (pallet freight) shipments that previously took 1 week to pick up and deliver are sometimes taking 2 weeks now, or even longer. That’s actually the easy part of the equation – while there is still a shortage, most trucking companies do have drivers and trucks available. The real backlogs are with the bigger pieces of the puzzle; the shipping containers that bring goods from overseas manufacturers, to retailers and consumers in the United States.
Let’s face it, in the United States, we have a lot of great options when it comes to everyday consumer goods. We’re accustomed to ordering online and receiving things quickly. So when the pandemic hit, and everything slowed down, consumers here took notice. However, deliveries from Target or Walmart are still moving at a relatively quick pace, it’s not that bad when compared to moving entire containers. The problem we’re seeing – and this is one that will only get worse as we approach the busy holiday shopping season – is the shipping process that gets those goods from the manufacturer to the Target’s, Walmarts and small locally owned shops where consumers finally grab items off the shelf.
The center of all of these issues, the nexus of freight, is the humble shipping container. Before standardized container shipping, goods were loaded haphazardly onto ships in whatever packages, containers or barrels were available. The process was slow, inefficient, and dangerous. Shipping containers were invented in the 1950’s for use by the US Army during the Korean War, but they really took off in the early 1970s when international shipping standards were finalized. This allowed for ocean and rail ports across the world to buy standardized equipment for loading and unloading containers, dramatically increasing capacity, speed and safety.
The issue that started in 2020 during the pandemic was two pronged: consumers in the United States and Europe were stuck at home and purchasing record quantities of items that are manufactured overseas, which meant a deluge of containers leaving manufacturing centers in Asia and heading West. At the same time, exports to Asian countries (including recycling materials, which China ceased to accept in 2018), declined dramatically. So we had containers speeding West, but none were returning back to manufacturing hubs to be refilled.
This buildup of containers at ocean ports in the United States has now created a major issue, there’s a major shortage of storage space, personnel or equipment available to unload incoming containers. You may have seen images of container vessels anchored off the California coast, waiting for their turn to unload at Long Beach. The entire chain is backlogged; ships can’t unload because the ports are already full of containers, ports can’t release the containers because the trains that normally carry them away are full, trains can’t unload at railyards because the railyards are full, and rail yards can’t unload onto trucks because there aren’t any container chassis (the tractor trailers made to hold shipping containers) available to take containers to unloading warehouses.
So what can the shipping industry do to help alleviate the congestion and get things moving as normal again? Well, there’s a number of things that could happen, but it’s pretty likely that we won’t see any solutions anytime soon. As noted in this brilliant article on Medium written by a longtime truck driver, the freight companies involved in moving all of these containers really don’t have any incentive to change how they operate. While the rest of us wait patiently for our deliveries, these freight companies are seemingly making more money than ever. That’s normally what happens when there is extreme demand and limited supply, the suppliers get to increase their prices.
In order to attract more workers who could help increase our infrastructure’s capacity, shipping companies would need to pay workers higher wages. However, that eats into their profits. Why bother paying workers more, when they can simply charge customers more money to prioritize shipments? Increasing their workforce to alleviate the shipping congestion would just decrease demand. Normally in a supply and demand economy like ours, this type of situation would lead to more competition in the space. Afterall, if you are looking to start a business, why not provide a service that is in high demand? That’s how prices can be kept in check, with competition.
However, there are two problems that may be preventing existing companies from expanding, and preventing new competitors from entering the market. Firstly, they need a massive amount of money upfront to purchase the necessary equipment, hire the personnel and get the permits required to operate. We’ve already noted that existing companies don’t really have an incentive to do this, they can just continue to charge high prices and reap the benefits of the increased demand, without making new, large investments in their business. The second point is that any increase in shipping capacity, be that through the expansion of an existing business or the creation of a new one, could help to alleviate the backlog we’re seeing in container shipping, and once that happens, the increased demand that these companies sought to capture sort of...goes away. As Ryan Johnson says in his article, “things are so backed up that the backups THEMSELVES are causing container companies, ports, warehouses, and trucking companies to charge massive rate increases for doing literally NOTHING” outside of their normal operations.
So we have a catch 22 type of situation. Consumers are not going to stop buying goods, and freight companies are not likely to increase capacity since, to be fair, they don't have much of an incentive to make improvements. So without some major changes, it’s likely that the shipping backlogs we are seeing today, along with the price increases they bring, are going to stay with us for the long haul (pun intended).