Right now, around 57 container ships are lingering outside the Port of Los Angeles—the largest port in the US—desperate to unload their cargo and move on. As the delays stretch on for weeks, the country’s midsized ports are racing to remind any impatient boats that LA isn’t the only game in town.
Last month, Texas governor Greg Abbott took to Twitter to debut an “Escape California” campaign aimed at large ocean freight companies. “Are your products stuck off Long Beach?” asks a cheery ad that Abbott posted. “Texas ports are wide open.” The Port of Oakland put out a press release in October insisting that “its marine terminals are congestion-free” and that it was “ready for more business,” and the Port of Jacksonville is offering cost savings and reminding companies that it is within a one-day drive “of nearly 100 million consumers.”
In theory, big freight companies should be eager to try out these contingency plans. The wait times outside Los Angeles are directly impacting what’s available on store shelves in the US. Shortages of tires and toys, announcements from brands like Hasbro that they have $100 million in unfilled orders, even the increasing costs of some consumer goods—all can be traced, in part, to the traffic jam at major ports.
But abandoning Los Angeles and Long Beach isn’t so simple. While smaller ports up and down the West Coast have received an influx of phone calls from ocean freight companies hoping to find new ports of entry, few carriers are actually making the switch. That’s because of how much US shipping has come to depend on its few major ports. In 1991, according to the American Association of Port Authorities, the top three ports—Long Beach, Los Angeles, and New York/New Jersey—accounted for roughly a third of US container traffic. In 2018, their share shot up to half. Last year, the pandemic accelerated those trends. As the first supply chain crunch unfolded, the top three ports grew even more.
“The downside to having one large import location for your country or region is that you’re reducing the points of failure that you can handle,” said Erik Oak, a supply chain research analyst at S&P Global. In the US, Long Beach and Los Angeles—which together accounted for almost a third of all US imports last year—“are almost singular points of failure at this point.”
And it’s also, unfortunately, a question of size. Over the past two decades, international shipping has relied more and more on extremely big ships—and now a lot of those boats just won’t fit anywhere else.
The story of the container shipping industry over the past half-century is a story of cascading consolidation. A shrinking pool of ocean freight carriers, with names like Maersk and Evergreen, operate the vast majority of container ships. The top 10 carriers are currently responsible for about 85 percent of all world container shipping capacity.
These companies have, in turn, adopted a relatively uncomplicated growth strategy: to make more money, build bigger boats. The Ever Given, the notorious “big boat” that got stuck in the Suez Canal earlier this year, is larger than the Empire State Building—and it no longer looks out of place on the high seas. The average container ship nearly doubled in size between 1996 and 2015. While ships that carried between 10,000 and 15,000 containers didn’t exist at the turn of the century, by 2020 they accounted for 17.5 percent of arrivals on the West Coast.
Container ships have gotten so big so quickly that many ports can’t really accommodate these giant boats, creating a backlog that directly explains why your holiday gifts are arriving late. Plus, small and midsized ports risk getting sized out entirely. A recent paper found that 436 world ports (out of a total of nearly 3,000) rely on vessels with a capacity of under 1,000 containers. But container ships of that size are disappearing, and a fifth of those ports might be unable to accept bigger ships at all.
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One ominous sign arrived in 2015, when the Port of Portland, Oregon, lost all of its container shipping contracts, in part because its channel was too shallow to accept the new generation of large ships. (In 2020 it won a new container shipping contract with a small South Korean freight carrier.)
For now, only a small number of ports risk exiting the container business entirely because of supersized ships. The ports in Texas, Jacksonville, and Oakland that are pitching themselves to ocean freight carriers right now are all big enough to avoid that fate. But as big container ships proliferate, so will the strain they cause on ports below the top tier—making the largest ports the most attractive places to dock. While the mammoth ports at Long Beach and New York/New Jersey saw import volumes increase about 8 percent each last year, midsized ports in New Orleans and Jacksonville witnessed double-digit declines.
Ultimately, the major issue for the supply chain in 2021 is a size problem of a different sort: Demand for products is way up across the board, and shipping companies haven’t recovered from other pandemic-related bottlenecks. But our reliance on such a small cluster of major ports means there are few backstops in a crisis like this.
To some extent, these are uniquely American problems. When very big boats arrive at ports in other countries, local authorities tend to unload their containers in pieces and spread them to smaller ports throughout the region. That way, the containers aren’t all coming ashore at once. As the Journal of Commerce noted, major ports in Europe and Asia do this far more often than US ports. In the US, instead, the megaships dock at a single port with all tens of thousands of containers in tow.
To create enough space to welcome this ballooning number of megaships, some ports have responded with extensive ocean-dredging projects. But it isn’t cheap. Jacksonville is spending $484 million to deepen its channel. Houston’s dredging project will cost closer to $1 billion.
Yet even the occasional dredging project might not be enough. “You can do things like dredge channels, you can expand your footprint, but not every port is necessarily going to be able to accommodate that,” Oak said. He pointed to physical limitations on how much can be dredged, as well as uncertainty over whether local governments will support a costly and potentially environmentally damaging project. “It is very possible that some smaller ports are just not able to accommodate the larger vessels ever, just because of the natural landscape around them.”
Even those ports that do dredge enough to accept the new megaships might not have the infrastructure to support unloading all of those containers. Ports rely on extensive networks of warehouses, rail lines, and trucking stops to funnel products from a container ship to, say, a retail store. Just because a port can accept a ship into its waters doesn’t mean it can dispatch those products to consumers quickly. The tiny port of Hueneme, California—known mainly for handling banana shipments—has seen imports double year over year thanks to its proximity to Los Angeles, but it has scrambled to find the basic equipment that will allow it to unload containers.
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One way out might involve simply investing in smaller ships. Right now, the retailers successfully circumventing the worst of the supply chain crisis are the ones with the financial resources to charter their own, regular-sized container ships and dispatch them to less crowded midsized ports. Amazon, for instance, is sending ships to ports in Houston and Everett, Washington.
A return to smaller ship sizes could also reduce congestion even in normal times. Megaships are uniquely conducive to traffic jams. (Even before the pandemic, seven of the top 10 ports in the US reported that they were struggling with congestion.) Thanks to their growth, wait times at the top 25 US ports increased by an hour between 2018 and 2019.
In 2016, the Advisory Committee on Supply Chain Competitiveness—an entity within the Department of Commerce—weighed how to stop big boats from causing port delays. Many of their suggestions—including merging port terminals and encouraging more investment in port technology to speed up the offloading process—would certainly alleviate some of the problems we’ve seen compound in recent years.
But those patches will still allow the big-ship cycle to continue. Even if ports become more efficient, global shipping businesses will continue to leapfrog each other in size and ports will continue to play catch up. Until container ship sizes come back down to earth—or until US ports devise a decentralized system that will spread the cargo from megaships to regional ports—then the margin for error at the major ports will only tighten.
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