Twenty-twenty-one was clearly an inflection point for international trade and transportation. It is clear that the year 2021 was like no other. There were a number of overarching events in 2021 that have impacts on all aspects of our daily lives and will continue to do so for years to come.
While recovery figuratively and literally from the COVID-19 global pandemic is underway, with new variants and rising cases, it is obvious that disruptions are still in the forecast. WHO (World Health Organization) in late November said that the Omicron variant discovered in South Africa could turn into the next wave of infections and could set off another round of lockdowns and disruptions to life and global commerce.
Perhaps more than any other event in recent time, COVID-19 exposed the fragility of the modern supply chain. The COVID-19 pandemic, unlike an economic downturn or localized disruptions, could cripple life anywhere – manufacturers, farmers, ports, truckers, transportation providers and ultimately consumers. And while a post-pandemic economic rebound is underway, the return to a pre-pandemic style supply chain is untenable.
Of course, the supply chain was a big story in 2021 and will be in 2022. Beginning with the containership Ever Given’s March mishap closing the Suez Canal, the supply chain has become mainstream news. The congestion at U.S. ports, particularly the San Pedro ports of Los Angeles and Long Beach, caught national attention. The delays have impacted nearly everyone. The underappreciated complexity of the supply chain came into full view as one missing component from a supplier could add weeks to the shipping of a manufactured item. Once something akin to the chip shortage creeps into the manufacturing mix, the entire process can grind to an aggravating halt.
In a September letter, 70 agriculture associations delivered another urgent plea for intervention to President Biden. This was followed by the Biden Administration’s moves to address detention and demurrage issues. The ports of LA and Long Beach took “bold measures” in the words of Port of Long Beach Executive Director Mario Cordero in levying surcharges on the carriers to provide incentive to move the containers faster. And the importance of addressing the needs of the shippers was further amplified by the recent passage by the House of the bipartisan Ocean Shipping Reform Act of 2021, H.R. 4996, which passed by a convincing 364-60 vote and is expected to easily pass in the Senate.
Peter Friedmann, a well-known DC-based trade lobbyist, who represents Agriculture Transportation Coalition (AgTC) and the Coalition of New England Companies for Trade (CONECT) commented on the passage via a zoom meeting at the CONECT annual Trade and Transportation meeting in December, “Carriers won’t want to be on the other side [of a 364-60 vote].”
It is something of a double whammy for US shippers as freight rates were astronomically high (The cost to ship a container has increased between 300% and 500% in the past 2 years although leveled off some since September) and service quality low.
Of course, this isn’t just about the ocean carriers, every sector has been impacted. Air carriers have strapped in packages where passengers use to sit, as air cargo space, partly in reaction to the ocean shipping problems when space became tight. Trucking is also under pressure as a shortage of trucks, chassis and drivers has driven a run of mergers and acquisitions (see George Lauriat article on page 15). What the trucking industry will look like down the road is still anybody’s guess but fewer Mom and Pop operations are likely. Technology is both a boom and bane as increases in efficiency come with a price tag that smaller carriers often can’t meet.
One side effect of the supply chain crisis is a new emphasis on developing ports and services in the middle of the country and having the ability to reach both East and West. (read Peter Buxbaum’s article)
Railroads also have come into the crosshairs of shippers. Like the ocean carriers, shippers have vented that the railroads aren’t responsive enough to moving their freight through the port system.
Of course, the real conundrum in the supply chain is simply the fact that the volume of inbound consumer goods, largely from Asia, is greater than return exports, and considerably more valuable. The premium is put on getting the containers back to Asia for reload – but no elected official will ever support the notion that U.S. exports which are often agricultural are less valuable than imports.
Added to this mathematical problem is the ongoing political and economic wrangling between China and the U.S. The Biden administration, like the Trump Administration, see no reason to reduce tariffs – to give or relinquish the upper hand in negotiations. The problem is that weaponizing tariffs can entangle friend and foe alike and rarely works.
Climate change is compelling us to adjust to a new paradigm. Besides the infrastructure challenges like new seawalls (Port of San Francisco, for example) there are a host of yet untallied costs associated with climate change and the supply chain. Dr. Walter Kemmsies wrote in his presentation at CONECT that he believes, “More frequent disruptions will increase cargo owner and service provider’s direct and indirect costs. The indirect costs are mostly insurance costs, however risk monitoring costs will also increase.”
Dr. Kemmsies also said that the next generation of consumers cares about the environment and that it will influence their spending habits.
Recently in Minneapolis, home to Target, “Ship it Zero” held a press conference “to end its [Target’s] contributions to the nation’s port pollution” by transitioning to zero emissions of their ocean carriers by 2030. To emphasize the point, they gathered under a billboard that read, “Dear Target Please bring my toys on clean ships. – Amelie, 9.”
While Target’s goal of just getting their cargo delivered on time is paramount, there is a sea-change among consumers in demanding a cleaner supply chain.
It isn’t as if there isn’t a move to decarbonize the supply chain. Nearly every ocean carrier has a decarbonizing program underway. Many of the programs involve using LNG but other fuels are being explored. On December 8th A.P. Moller-Maersk announced that it will be building eight 16,000 TEU ships powered by “carbon-neutral methanol” with an alternative capability for low sulphur diesel fuel. Even use of sail as an assistant propulsion is being explored. While not entirely a new idea, going electric is another alternative that carriers are exploring along with fuel cells and other technologies.
On land, trucks are also turning to electric power and it has even been suggested that rail could use battery power as a replacement for diesel and in the process save over $94 million over 20 years.
Producing clean electricity is the key to clean transportation. Of the technologies available, wind power is the most advanced. In Europe and Asia offshore wind power is commonplace and expansion plans are well underway. The U.S. with only one active offshore wind farm lags far behind but the commitment to offshore wind on the East Coast could not only transform the U.S. power mix but create a new eco-system of supporting industries.
As 2021 draws to a close, it was indeed an unusual year and it is difficult not to believe that many of the headlining trends that began this year will be with us for years to come.