Shippers Can Take Steps to Mitigate Port Issues, Congestion, Flexport Says
Barring a steep drop in demand, port congestion and supply chain problems are unlikely to improve next year, and shippers should continue to expect container issues and equipment shortages, Flexport CEO Ryan Peterson said. But companies can take steps to mitigate issues caused by delays and high container fees, including routing shipments away from highly congested ports and minimizing empty space in containers.
“It feels like the key to really the next 50 years of business is going to be all about how do you adapt to the chaos that's inevitable,” Peterson said during a Dec. 1 webinar hosted by the freight forwarding company. “I'm not seeing a lot of things that show me it's going to get dramatically better.”
Peterson said companies should make sure their containers are “fully loaded so there’s no empty space,” which may mean redesigning packaging or working closer with their factories. He said Flexport sees an average of about 30% empty space across containers. “You can do a better job optimizing these things,” Peterson said. “That's the easiest way to save money, is to put more stuff in the same number of containers.”
Shippers and forwarders can also avoid ports with the highest levels of congestion, he said. “It's still a little bit frustrating to me to watch how all these containers still get routed through the Port of Long Beach when there's less congestion in Oakland and Seattle and other West Coast ports,” Peterson said.
Peterson also stressed closer collaboration with factories, calling it “painful” when shippers have to cancel their bookings because the factory “wasn’t ready.” He said about 30% of all bookings were canceled before the pandemic, which created “chaos” because ocean carriers were forced to overbook to ensure they have full containers.
This could lead to new trends in shipping contracts, including enforcement clauses that would force shippers to pay for their bookings even if they “don't show up,” Peterson said. He also hopes to see more “reward mechanisms” in the shipping industry, such as lower rates or higher loading priority for shippers who prove they are reliable.
“I think there's going to be an evolution, an opportunity in this market to create more market-dynamic pricing that factors in the reliability of the customers. Are they meeting what they said they would in terms of their cargo-ready date and actually being there to pick up?” he said. “We still see pretty high cancellation rates of containers even in a world of scarcity.”
As port congestion continues, companies should also closely monitor the labor contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union, whose contract expires in July, Peterson said (see 2111240052). The last time their contract expired in 2015, there was a “three-month port strike where nothing shipped on the West Coast,” he said. “So all of the ports on the West Coast are at risk next summer of either an absolute shutdown with a strike or slowdowns as negotiations take place.”