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Stubborn supply chain woes are resisting Biden’s remedies

California ports announce new fees as offshore traffic jam worsens

Nighttime operations continue at the Port of Los Angeles on Oct. 25. (Mario Tama/Getty Images)

A deepening freight logjam is defying President Biden’s hopes of restoring normal cargo movements, hampering the economic recovery and threatening consumers’ holiday shopping plans.

Two weeks after Biden administration officials announced steps toward round-the-clock operations at the nation’s chief port complex, the backlog of ships anchored off the coast of Southern California has only grown larger. There is little sign that truckers are taking advantage of terminals’ extended hours to move containers off the crowded docks.

At APM Terminals’ Pier 400 in Long Beach, Calif., the largest such privately owned facility in North America, nearly half of the 2,000 available appointments for truckers went unused Friday, according to Maersk, which owns the site.

As complaints mount from affected shippers, administration officials are pressing ports, terminals and truckers to rethink their operations. On Monday, the ports of Los Angeles and Long Beach said they would impose new daily fees on cargo carriers in a bid to clear the docks and make room for containers stuck on ships offshore.

Starting Monday, the ports will bill carriers $100 per day for each container that remains on the dock for more than three days, if slated to move by rail, or nine days for truck-bound cargo. Those per-container fees will increase in $100 increments for each day of additional delay, the ports said.

John Porcari, the administration’s port envoy, who helped develop the initiative, said it would reduce port congestion. But some retailers fear they will get stuck with the tab.

The “decision to apply new surcharges does not resolve our ever-worsening supply chain crisis and we fear carriers will see this as another opportunity to stick shippers with the bill on top of already massive freight costs,” said Stephen Lamar, president of the American Apparel and Footwear Association.

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The new surcharges come just days after city officials in Long Beach — responding to what they called a “national emergency” — relaxed regulations limiting the height of stacked shipping containers. For the next 90 days, warehouses and industrial sites in the city will be allowed to stack containers four high, twice the normal limit, to provide an outlet for cargo stuck on the docks. (The shift does not affect port terminals, which already pile the rectangular metal boxes six high.)

Chronic port crowding shows that pandemic-related shifts in Americans’ spending habits have overwhelmed the nation’s supply lines. Consumers are spending less today on services like airline travel and restaurant meals than they did in early 2020. But they are purchasing about 15 percent more goods like furniture and computers, with many of those products traveling from Asia through the Southern California ports.

More than 30 million tons of cargo now rests aboard vessels idling outside U.S. ports, economists at Goldman Sachs said Tuesday. The investment bank said port congestion will not ease until the second half of next year.

The gridlock is contributing to inflation that is lasting longer than the Federal Reserve expected while denting corporate profits, despite accelerating economic growth.

Consumer and industrial companies alike have cited supply chain headaches in recent earnings calls.

Lennox International, a maker of heating and cooling systems, told investors this week that supply chain disruptions and covid impacts shaved $25 million off its third-quarter operating profit and would have a similar impact over the remainder of the year. The company is struggling with shortages of computer chips as well as wooden pallets and corrugated cardboard.

Likewise, supply snags including labor shortages are preventing Kimberly-Clark, a manufacturer of sanitary paper products, from filling all its orders, Maria Henry, the company’s chief financial officer, said on an investor call this week. “I don’t see a near-term catalyst for them improving,” she said of the holdups.

The White House is keenly aware that fallout from supply woes that Biden calls “significant” has become a political liability — and officials are struggling to identify solutions for largely private-sector problems.

In a recent CNN town hall, the president said he “absolutely, positively” would consider using National Guard units to alleviate cargo backlogs, a move that few logistics experts expect to happen.

Porcari last month facilitated a decision by the neighboring Southern California ports to extend their hours, with some terminals operating around-the-clock at least a few days each week.

But the initial results have been disappointing. The 77 container ships anchored in Southern California’s San Pedro Bay on Tuesday exceed the 56 that were there when Biden announced the longer hours.

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Truckers have been reluctant to take advantage of the late-night and predawn appointments for collecting containers, either because they lack the necessary chassis to hold the cargo or their customers’ warehouses are full.

“Operational details still need to be worked out on 24/7 operations at the ports of Los Angeles and Long Beach. This level of operations is not an overnight, simple solution to implement — and does not solve the broader supply chain capacity challenges and shortage of workers in trucking, warehouse and supply chain jobs,” Narin Phol, Maersk North America regional managing director, told an industry conference in South Carolina on Monday.

The new surcharges, which the L.A. and Long Beach ports announced late Monday, were developed with Porcari, the administration’s ports specialist. The fees will be spent on investments to boost capacity and ease bottlenecks, the ports said.

Some industry executives, who spoke on the condition of anonymity to discuss confidential conversations, said the fees could prompt carriers to deploy “sweeper ships” to collect thousands of empty containers clogging the docks or to secure additional storage space inland. Administration officials in recent months scoured Southern California for unused government land without success.

Carriers are regarded as having the deepest pockets in the supply chain. The seven largest publicly traded shipping lines — including Maersk, Cosco and Hapag-Lloyd — reported more than $23 billion in profits in the first half of this year, compared with $1 billion in the same period in 2020.

But Matt Schrap, CEO of the Harbor Trucking Association, whose members service the ports, said the new fees would do nothing about the “tens of thousands of containers” sitting empty on chassis, either at the port or at area warehouses that are too full to unload them.

Until those chassis can be unloaded and returned to the port to collect fresh loads, the backlog will linger, he said.

The National Retail Federation, representing companies such as Walmart, Target and Macy’s, also said the new surcharges are insufficient. “Key issues such as chassis availability and empty container returns still need to be addressed. We encourage ocean carriers to continue to work with importers and truckers to move cargo as quickly as possible and not just pass along the cost of the fee, which will further exacerbate the problems,” the industry group said.

The new fees threaten to intensify complaints from retailers and other shippers over fines they pay for not quickly collecting their containers from the docks. This summer, the Federal Maritime Commission said it would audit these “demurrage” billings by the top nine ocean carriers, following complaints from shippers about exorbitant charges.

Demurrage charges are intended to encourage shippers to collect their containers in a timely fashion, freeing up space needed to make vessel loading and unloading more efficient. But with supply lines jammed, many shippers say they lack the equipment or storage space needed before they can pick up their goods.