Government needs to step up.
Cargo diversions are always bad for business. According to retailers, the current spike in shipping costs caused by ocean carriers routing away from the conflict in the Middle East could seep into longer-term rates if the federal government waits too long to help mitigate potential backups at U.S. ports.
“While many are focusing on the current situation, more challenges will be created the longer these disruptions continue.” Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, testifying on Capitol Hill on Tuesday.
“The federal government needs to start paying attention to these issues now to help avoid significant congestion in the coming months.”
NRF’s Jonathan Gold testified on Tuesday. Credit: House T&I Committee.
Gold told lawmakers at the hearing — called by the U.S. House Transportation & Infrastructure’s maritime subcommittee and titled “Securing Shipping Against Threats in the Red Sea”. That he is concerned about the effect that long-term disruptions in the region will have on annual contract negotiations his members will soon be entering into with the ocean carriers.
Contain Inflation and cargo diversions
Gold stated that his members are making important decisions regarding their back-to-school and holiday import shipments. They are considering shifting these containers back to the West Coast ports after having moved them away from the West Coast during the pandemic to avoid the congestion and backups experienced at that time.
“We need to make sure that our ports, terminals, railroads, harbor truck drayage providers and warehouses are ready for the increased cargoes. We are already hearing that the dwell times are starting to tick up on the rail side.”
More congestion buildup could begin in the next four to six weeks, Gold warned. “Efforts need to be made now to convene the right stakeholders to plan accordingly.”
The congestion on the West Coast sparked by the pandemic that occurred in 2020 and 2021 led to several efforts by the Biden administration to help improve goods movement into and out of the U.S. This including the Freight Logistics Optimization Works (FLOW) initiative.
MSC’s Bud Darr testified on Tuesday. Credit House T&I Committee.
Headed up by the U.S. Department of Transportation, FLOW coordinates and processes container shipping data from ocean carriers. Also, railroads, trucking companies, shippers, and others to allow transportation companies to anticipate potential congestion issues better.
The effort, Budd Darr, executive vice president of maritime policy and government affairs at container ship operator Mediterranean Shipping Co., testified at the hearing. He said “is a pretty good attempt to try and open up some more visibility with the hope that we can project forward patterns much better. It’s an example of a genuine public-private partnership that I think deserves some recognition.”
The cost of shipping
Addressing the rising costs that shippers have experienced due to ship diversions away from the Red Sea. Darr noted that containerized goods are “not all affected equally. The less volume goods occupy in a container, the less affected they are by potential price increases. “We’re not seeing anywhere near the price excursions in the open market that we did during the pandemic.”
But Darr conceded during the hearing that long-term shipping strategies. Also, their cost implications — could be upended by the current geopolitical crisis.
“We will adapt. Together will make it work. We will meet the world’s commerce needs. That’s what we do,” Darr said. “But it may not look like it does today. After six weeks of adapting our networks, we may call different places and shift volumes for transshipment to different hubs than before. Maybe we’ll avoid the Suez Canal altogether and all that may come from that regarding regional stability.
“All of those things are possible, but I can’t paint the exact picture. I can assure you that we will meet the need, but it will be more expensive. There will be costs associated with that.”
