Section 301 Investigations of Vietnam
On October 8, 2020, USTR initiated Section 301 investigations into Vietnam’s acts, policies and practices related to (1) the importation and use of illegal timber and (2) currency valuation. These investigations could result in tariffs, quotas, or other restrictions on imports from Vietnam if consultations do not yield a successful resolution.
Importers of wood products from Vietnam in particular could be affected by any such restrictions. These and other importers now have until Nov. 12 to submit comments on the issues being examined in these investigations.
For assistance preparing and submitting comments, or additional information on the potential impact of these investigations, please contact Nicole Bivens Collinson or Kristen Smith.
For more information, contact your BOC Representative.
China Tariff Refund Lawsuit for List 3 and 4A Goods
There is still an opportunity for importers who have not yet filed a lawsuit in the Court of International Trade to challenge the Section 301 tariffs on List 3 and 4A for goods originating from China.
There is an argument that there was no sufficient time to file a claim for List 3 based upon the September 24, 2020 deadline. If interested importers are urged to file a claim as soon as possible. The claims for List 4A have a deadline of August 19th, 2021, but importers are encouraged to file at their earliest convenience.
If you have any questions or interest please contact your local BOC representative and they will be able to put you in touch with one of our partners to assist with your filing.
BOC Bullets to Help the USA Importer During the Current Shipping Crisis
After another challenging shipping week, here are some tips and market updates we wanted to share to help our customers deal with this current shipping crisis.
1. Instruct your factories in Asia to inspect all empty containers very closely when picking up and loading for any holes or signs of damage. Your vendor should follow the 7 point inspection guidelines (https://www.cbp.gov/sites/default/files/documents/7_pcic.pdf) and take detailed pictures of the inside and outside of the container, including capturing the container number in the photos. This inspection process is your best protection to help your cargo from getting water damage. With a shortage of containers, many Container Yards are releasing lower grade containers that might not be seaworthy and leak water on your cargo.
2. Consider using the premium ocean services for urgent cargo. We see even spot rate ocean cargo (which generally gets priority) being rolled at origin or stuck at transshipment ports for one to three weeks. In the past 45 days, the ocean carriers are rolling approximately 1 of 3 all containers in the Transpacific market.
3. Plan for 1-2 week delays of availability for arriving cargo to the USA because of record volumes, lack of chassis, slow unloading and loading of vessels at the congested origin and destination ports, and extreme global trucking shortages. We have seen some USA truckers refuse to accept delivery orders from their regular USA import customers for 2-4 weeks. The delays unloading the vessels arriving LA/LB are being exacerbated by a shortage of stevedores at LA/LB terminals due to additional gangs being assigned for each shift because of the full ships, larger ships and extra loaders being deployed. One notable volume record was the Port of LA reported their largest container month ever in September – 888,625 TEU – and no blank sailings.
4. Ship essential goods early, well before the Chinese New Year holidays begins on February 12th. Door to door delivery times are expected to continue to be delayed well into 2021, and Asian bookings remain very strong with November space almost entirely consumed. We are also seeing Shipping Orders (SO’s) being released very late by the ocean carrier just prior to vessel cutoffs. The ocean carriers are intentionally delaying the SO’s to enable them to capture as much as possible of the higher-priced premium cargo and delay shipping the lower-priced fixed cargo to maximize their profits. Overall, market capacity is continuing to worsen. Due to lack of charter vessels and equipment shortages, the carriers so far have deployed an inadequate amount of TP November extra loaders with COSCO only adding three sweepers in weeks 45, 46, and 47 to USWC and Maersk providing some limited relief with Suez service transshipping over Europe to the USEC.
5. Prepare for higher air freight costs in the coming weeks. There are substantial rises in air freight prices on major lanes out of China and other parts of Southeast Asia, as surges in demand meet continuing constrained capacity due to Covid’s devastation of the PAX market. The simultaneous deluge of air freight caused by the launches of new versions of products(Apple’s 5G phones, Microsoft’s Xbox, Sony’s PlayStation, etc.), growing demand for 2nd wave PPE items, and a final push to move holiday gifts creates the perfect storm.
Please contact your BOC representative to help you with these issues or any other specific problems. We will get through this crisis together.
Chassis shortage in likely to persist into 2021
Bill Mongelluzzo, Senior Editor | Published on JOC.com
Intermodal equipment providers (IEPs) say while they are making an all-out effort to remedy chassis shortages in Southern California, the shortages will likely persist into next year if the ports of Los Angeles and Long Beach continue to handle record import volumes from Asia.
IEPs and truckers blame inefficiencies at marine terminal gates as a major cause of the chassis shortages, and want the ports to require that ocean carriers share advance shipment information that will increase cargo velocity throughout the supply chain.
The IEPs note that pushing record container volumes through the Southern California supply chain over the past three months has stretched the assets and manpower of marine terminals, truckers, railroads, and distribution warehouses beyond capacity. They say it is unfair to single out chassis providers as the weakest link in the chain, especially because the IEPs are taking charge of those issues over which they have control, such as repairing out-of-service chassis.
“We are maxed out on fixing bad-order chassis. Our mechanics are working flat out. We couldn’t employ one more mechanic,” said Ron Widdows, CEO of Flexi-Van Leasing. DCLI, TRAC Intermodal, and Flexi-Van operate the Pool of Pools through which the three IEPs manage the fleet of interoperable chassis in Southern California.
Truckers, meanwhile, say the issues that contribute to inefficiencies in the Southern California supply chain have been well known for years and did not suddenly emerge because imports from Asia recovered faster than anticipated this summer. Weston LaBar, CEO of the Harbor Trucking Association (HTA), said the ports’ main failing is they are not doing enough to bring ocean carriers to the table with solutions that will enhance cargo velocity.
“I am sick and tired of the lack of action,” he told JOC.com Wednesday. “What do they mean, ‘There is too much cargo’? This is what we all do. We move cargo.”
The HTA has called upon port authorities to incentivize — and, if necessary, compel — ocean carriers to share shipment information with other members of the supply chain, so all asset owners are prepared for the cargo volumes they will be handling. In the case of truckers, who suffer the brunt of the delays at marine terminals, the key is for carriers to provide them with reliable shipment information so they can arrange appointments that foster dual transactions, LaBar said.
Dual transactions, which involve hauling an export load or empty container to the terminal and taking delivery of an import load on the same trip, can greatly increase trucker productivity, but dual transactions only account for about 20 percent of trucker visits to the harbor, LaBar said.
“Dual transactions, dual transactions, dual transactions. That’s the solution,” he said.
Import spike expected to continue through January
Shipments of personal protective equipment, e-commerce merchandise, and home improvement goods have been strong since late June as the US economy reopened from initial COVID-19 lockdowns. Imports are expected to continue at a high level until factories in Asia shut down for the annual Lunar New Year holiday beginning Feb. 12, 2021.
The Los Angeles-Long Beach port complex in September handled 828,880 TEU of imports from Asia, up 22 percent from September 2019, according to PIERS, a JOC.com sister company within IHS Markit. In the four-month period from June through September, imports from Asia moving through the largest US container gateway totaled 3.09 million TEU, up 12 percent from the same period last year.
The three IEPs that operate the Pool of Pools in Southern California say they are doing everything they can to expand the chassis pool, which totals about 65,000 units, including purchasing new chassis, repositioning chassis from surplus locations in other parts of the country, and working overtime to repair damaged chassis that are not roadable.
Daily updates on the Pool of Pools website show the IEPs have made great strides in recent months in repairing out-of-service chassis. Some 4,246 units were out of service at the 12 container terminals and four intermodal rail ramps in Southern California as of Wednesday, down from more than 8,000 bad-order chassis in June.
“Our contribution to the Pool of Pools is up,” said Ron Joseph, executive vice president and COO of DCLI. He said DCLI is also repositioning chassis from surplus locations in the Midwest.
Widdows said Flexi-Van’s contributions to the pool actually exceed its original commitment. Flexi-Van in September began deploying the first of 1,500 new-order chassis into its Southern California fleet. “We will continue to acquire new chassis through the end of this year and into next year,” he said.
TRAC Intermodal has new chassis on order, but due to tariff issues between the US and China, the IEP had to shift its purchases to North American suppliers, which delayed the orders, according to Val Noel, executive vice president and COO. The new chassis will begin to arrive in the second quarter of 2021, he said.
Productivity down throughout the supply chain
Port stakeholders have struggled with supply chain challenges all summer and fall. The problems began when distribution warehouses became filled to capacity due to a shortage of workers as COVID-19 cases spiked this summer. Warehouse operators also had to spread workers out at their facilities for safety purposes, which contributed to a decline in productivity.
As a result, the average container/chassis “street dwell” time more than doubled from about 3 days earlier this summer to 7.1 days this week, according to the Pool of Pools website. The average container dwell time at Los Angeles and Long Beach marine terminals rose to 3.25 days from 2.8 days in July, according to the Pacific Merchant Shipping Association, while the average truck turn time in September was 77 minutes, up from a record-low 58 minutes in June, according to the HTA’s truck mobility data.
Chassis shortages have also emerged at rail ramps. Union Pacific’s Intermodal Container Transfer Facility (ICTF), located about five miles from the harbor, has recently begun to ground containers because the Pool of Pools chassis supply tightened, UP spokesperson Raquel Espinoza said. Truckers say that is adding time to their ICTF visits compared with the normal process of taking delivery of containers that have been pre-mounted on chassis.
“We are working cooperatively with truckers to identify and mount stacked containers, but there are some delays since that process is outside of normal operations,” Espinoza said.
Crystal ball hazy
The IEPs are developing their business plans for 2021, but are struggling to project how COVID-19 will affect consumer demand, economic growth, and retailers’ strategies for inventory replenishment and storage, Widdows said.
“What Q2 next near will look like is difficult to map out,” he said. “There are a lot of moving parts.”
LaBar, however, said the problems faced by truckers at marine terminals were present long before the coronavirus disease 2019 (COVID-19) and the explosive recovery this summer, and will persist into next year if something isn’t done quickly to improve communication among all of the supply chain partners, beginning with the ocean carriers.
LaBar noted that the Port of Los Angeles has invested millions of dollars in the Port Optimizer to enable the sharing of shipment information through the supply chain, and some of the terminals have invested in platforms that allow for advance sharing of shipment information, but participation by the carriers is still spotty.
“We need leadership from the two ports to make this happen. They need to do something bold to incentivize or compel dual transactions,” LaBar said.
TRAC Intermodal fully supports the sharing of shipment information in advance of vessel arrival, as it would make it easier for truckers to arrange dual transactions, resulting in benefits for the entire supply chain, Noel said.
“Collaboration and better shipment profile insight would be unbelievably valuable,” he said. “That’s a gap in the supply chain.”
Drayage shortage crimps supply chain amid quick demand recovery
Ari Ashe, Senior Editor | Published on JOC.com
The amount of available drayage capacity in the market to handle container movements has dwindled in recent months due to a combination of factors. Those include a quick rebound in volume at ports and inland rail terminals, a slowdown in shippers unloading and returning containers, and drivers exiting the industry during the COVID-19 pandemic.
The rapid swing in volumes has exacerbated the capacity shortage, as ports and railroads suffered double-digit declines year over year in the second quarter, only to see a quick return to year- over-year growth in the third quarter, according to intermodal marketing and trucking executives.
The supply chain is unaccustomed to such whiplash-like change, according to these executives, which has caused equipment and truck availability to become a problem.
“We find that capacity is limited and most dray carriers are booked out two or three days in advance,” said Jon Krystek, chief operating officer for Knichel Logistics. “The 53-foot drayage market right now is very challenging. Our recovery has plateaued, but it has not been due to the lack of demand, it’s the lack of drivers and equipment.”
Laden imports to the Port of Los Angeles declined nearly 15 percent year over year between February and July, but have risen 22 percent year over year in August and September combined, according to PIERS, a sister product of JOC.com within IHS Markit. The port of Savannah saw laden imports fall 23 percent between March and July, but they have risen 8.9 percent in August and September year over year, according to PIERS. Savannah and other East Coast ports began to feel the impacts of Chinese factories shutting down due to the COVID-19 pandemic a month later than the West Coast due to the longer transit times.
Domestic volume grew 9.8 percent year over year in the third quarter, setting a new third quarter intermodal record with 2.4 million units moved, according to the Intermodal Association of North America. While international intermodal fell 6.5 percent year over year in the third quarter, last month’s international rail volume was up nearly 3 percent over September 2019. Domestic volume surged 14.6 percent year over year in September.
CSX Transportation and Union Pacific Railroad illustrate the rapid shifts in volume on the rails. CSX had the weakest second quarter since 2011, while UP had its lowest volume since the Great Recession of 2008-09. In the third quarter, however, both railroads saw volume rise more than 6 percent year over year and grow 20 percent compared with the second quarter, according to the Association of American Railroads.
Ken Kellaway, CEO of drayage provider RoadOne IntermodaLogistics, said it takes time to react to rapid swings in volumes.
“Import volumes into West Coast ports doubled over a one- to two-month period and the drayage capacity and chassis are not available to react to this large of a surge,” he told JOC.com. “This same impact has been felt in most major import and rail intermodal markets nationwide, but to a lesser degree since West Coast ports are the closest access point to Asia. We anticipate this capacity challenge will exist for the next two to three months.”
“The system needs to adjust to the surge and the shipper and the consignee can help with flexibility — that is a big missing link,” added Sam Farruggio, owner of drayage provider Farruggio’s Express.
Finding drivers is a problem
When volume was at a low in the spring, trucking executives said they lost many drivers. Instead of riding out the downturn, they said older drivers decided to retire or take different jobs.
“Demand is extremely high and since most carriers had cut back on hiring earlier this year and fewer new drivers have entered the market, a perfect storm has been created,” said Ben Banks, vice president of drayage provider TCW Inc.
Kellaway said a great deal of drayage capacity left during the pandemic and it’s been hard to find new drivers.
“Many of these drivers have not returned, and have elected to go to other industries or other sectors such as truckload, which is paying a very high premium at the present time due to capacity shortages,” he said.
Dry van spot market rates have risen to levels even higher than in 2018 with a surge in e-commerce shopping and increase in purchases of durable goods such as furniture, appliances, and other home improvement items. Drivers who complained this spring about unsustainable pay on spot loads are now earning some of the highest per-mile rates in history.
Terminal congestion and slow unloading
Farruggio notes that driver productivity is also a real problem. Drivers are completing fewer deliveries per day and therefore more trucks are necessary to handle the same volume as in the past. “The Northeast markets are all short of drivers and the demand exceeds the workforce, the lack of efficient use of the supply of drivers is the real problem,” he said.
It’s an issue J.B. Hunt Transportation Service noted as a core problem in its intermodal results released Oct. 16.
“Rail terminal congestion and a slower pace of unloading at customer destinations have contributed to a meaningful slowdown in the velocity of the supply chain and thus the productivity of our equipment,” Darren Field, J.B. Hunt’s executive vice president of intermodal, said on the company’s earnings call.
Containers and chassis
Field said J.B. Hunt had to turn down business because there weren’t enough available containers to support new opportunities. The container problem has also been a problem on UP’s rail network this summer with rail-owned UMAX and EMP containers. Intermodal logistics executives have told JOC.com that less than 20 percent of requests for UMAX and EMP containers are being granted in California.
“Some weeks along the way have been a bit better, but to be honest there is no significant improvement since July,” Krystek said.
Chassis issues have popped up on both international and domestic containers, the trucking executives said. Available TRAC Intermodal chassis were running low in Columbus in recent weeks, and TCW’s Banks said availability is also tight in Memphis.
Farruggio said the bigger problem is on the domestic side.
“The international side has done a great job with chassis supply and quality,” he said. “The domestic, 53-foot world has fallen short on supply and quality. Many days we find units on the ground due to no chassis or placed on a bad chassis.”
That’s unusual because J.B. Hunt, Schneider National, and XPO Logistics have their own chassis, and Hub Group and EMP containers are stacked on Norfolk Southern chassis in the East. But it shows just how tight equipment is in the US right now.
Elevated Asia import volumes could last beyond October
The surge of US imports from Asia — with volume growing at double the pace from March through August compared with the same five-month period a year ago — could continue into November or possibly early 2021, well beyond when the peak typically subsides, multiple carrier and forwarder sources tell JOC.com.
Containerized US import volumes from Asia rocketed 91 percent between March and August, according to PIERS, a JOC.com sister company within IHS Markit. By comparison, inbound shipments from Asia grew 36 percent in the same period in 2019. Total US imports in the five-month period increased 102 percent, compared with a 47 percent expansion in the March-August period in 2019.
“This, combined with the record-level surge in ecommerce, is definitely contributing to an extension of the traditional peak season,” Ed Aldridge, president of CMA CGM (America), said in a statement to JOC.com
But with economists believing the sharp economic recovery seen in the US during the third quarter is already sputtering, questions are growing about how long the import surge will last.
“The second-quarter real GDP (gross domestic product) drop in most of the world’s economies was one for the records. The third-quarter rebound is likely to be unusually strong. After that, however, IHS Markit expects recoveries in most of the world’s largest economies to falter,” IHS Markit chief economist Nariman Behravesh said in a recent report. US GDP shrank 31.7 percent in the second quarter, and IHS Markit forecasts a 26 percent rebound in the third quarter. “I think [the import surge] could last a couple more months, but the faltering of key US data, such as retail sales and industrial production, suggests that this is a very temporary phenomenon,” Behravesh told JOC.com.
Volumes overwhelm port operations
The operational impact of an import surge that extends beyond the end of the typical peak is likely more relevant than the market impact on rate levels. If the volumes remain robust through November, it will perpetuate congestion and other operational challenges currently experienced at ports such as
Los Angeles and Long Beach, where terminals are operating at or near full capacity, chassis are in short supply, and drayage productivity is declining. It would also extend the duration of broader challenges such as carriers’ difficulties repositioning empty containers back to Asia.
But even a late-year slowdown in volumes will not necessarily translate into lower rates. Carriers are expected to re-run the playbook of 2020 in curtailing capacity through blank sailings, especially if that helps set a higher baseline for annual contracts negotiated in the spring of 2021.
This year, contract rates agreed to in the spring during the depths of the lockdown ended up being much lower than eventual record-setting spot rates, meaning carriers, despite experiencing a surprisingly profitable year, actually saw only limited benefit from the higher rates.
The highly unusual year of 2020, which industry sources anticipate they will be talking about for years, is culminating in an unusually robust peak season combining both holiday season goods as well as restocking
“We anticipate very robust volumes throughout the end of the year with a specific focus on Vietnam and India as their growth outpaces the market,” Aldridge said. “Our value-added solutions, including our SEAPRIORITY and EXX differentiated services, are also in high demand as our customers replenish their inventories and seek creative ways to get their products to market more quickly.”
The operational impact of an extended peak has industry executives concerned that the hole the industry is in — especially in Southern California — could become deeper and take longer to dig out of.
“Because of the decline in driver productivity related to port congestion, we are going to see the shortfall in driver capacity and containers getting picked up all the way through the peak. It is going to be the middle of November before things lighten up,” said an import distribution executive that asked not to be identified.
That said, the lack of forward-looking visibility into cargo volumes has been a central theme in 2020, and some believe that hasn’t changed. Container carriers, for example, say the length of time it took to restore capacity in the trans-Pacific, which led spot rates to spike to record levels in recent weeks, was due in large part to a lack of accurate forecasts from customers.
“When you go from the depths of demand cratering as recently as March, April, and May, when retailers having completely shut down their supply chains, canceling orders and bookings, how do you then forecast that in a matter of two to three months the top will blow off, with more vessel capacity deployed in the trans-Pacific than ever, historic volumes of e-commerce sales, restocking will be jumping, and that will happen in such a short period of time?” Ron Widdows, CEO of Flexi-Van Leasing, told JOC.com. “All this and there is still no ability to forecast what demand will look like beyond October, let alone next year.
“As we have seen in the past, when there is an unnatural event that results in a significant amount of friction in the transport chain … it really is a bit of the ‘pig-in-the-python’ dynamic; it takes some time to digest and fluidity to return,” he added.
Retail inventories needs restocking
Contributing to the duration of the peak season this year is volumes being driven both by holiday shipments as well as restocking, a phenomenon that is inherently temporary. Inventory-to-sales ratios in June, the latest available reading, fell to 1.2 from 1.35 in May, and were down 11 percent from June 2019, according to the US Census Bureau.
During the COVID-19 pandemic, “retail inventory-to-sales ratios have dropped far more than during the financial crisis, and it therefore is highly likely that efforts to rebuild the inventory levels back to ‘normal’ are currently under way,” said Alan Murphy, founder and CEO of Sea-Intelligence Maritime Analysis. “It seems unlikely that retailers can suddenly operate with inventories at 15 to 20 percent less than just a few months ago, when compared to the retail sales. If this is the case, we know inventory changes are strong drivers of container volumes, but we also know that such a driver is not permanent.”
Behravesh said there are three reasons for diminished expectations for growth after the third quarter.
First, he wrote, “catch-up spending and accelerator effects have pushed consumers’ purchases of durable goods well above the pre-pandemic level; we expect this overshoot to unwind. Second, fiscal support of the expansion dwindles by year-end. Third, COVID-19 infection rates remain stubbornly high and are expected to increase this fall as temperatures cool, activity moves indoors, and many schools and colleges attempt to reopen with in-person learning. In response, consumers and businesses will be slow to resume pre-pandemic behavior.”
The extended ocean peak season will trickle down into trucking and last-mile service, where executives expect a longer and larger peak season as imports continue to pour into US ports.
“We’re coming into the peak holiday season in the next 60 days or so and volumes are going to be off the charts,” said Greg Ritter, chief customer officer of XPO Logistics. “This year’s peak is going to be bigger, faster, it’s going to come quicker and stay longer.
“When we look at our retail customers, we see how busy they are today and they’re not at peak,” Ritter said earlier this week at the 2020 Council of Supply Chain Management Professionals (CSCMP) Edge Conference. “As we get into October, are volumes going to increase? Absolutely. We’ve got more product that is going to hit the West Coast ports and other ports.”