Containers are seen on a shipping dock as the global coronavirus disease (COVID-19) outbreak continues in the port of Los Angeles, California on April 16, 2020.
Lucy Nicholson | Reuters
A ship with 197 containers of peloton bikes and goods circled at anchor off the port of Los Angeles just before Christmas and entered a hold pattern on December 22nd until it was allowed to dock on January 2nd, according to global shipping data company MarineTraffic.
“The ship and Peloton’s expected delivery time lost 12 days while their product was almost swimming distance from shore,” said Import Genius trade data analyst William George. “This is a crazy example of the problem Peloton and other US importers are facing.”
“The ship and Peloton’s expected lead time lost 12 days while their product was almost swimming distance from shore,” said William George, Import Genius trade data analyst. “This is a crazy example of the problem Peloton and other US importers are facing.”
The combination of a record number of containers arriving at the port of Los Angeles – the busiest container port in the western hemisphere due to its proximity to Asia – and Covid-19 is slowing imports into the US. Around 800 of the International Longshore and Warehouse According to the union, the 15,000 union members were unemployed due to Covid.
Due to the congestion in the ports, some companies are foregoing ocean shipping in favor of air freight in order to get popular or seasonal items onto the shelves faster. According to the international online freight market Freightos, airfares are more expensive than shipping via ocean freight, but they have been falling in recent months.
“While air freight was volatile in the first few months of Covid, rising 400% between February and April 2020, ocean freight has become a bottleneck in global supply chains, making air freight a more profitable option in some cases.” “Eytan Buchman, Freightos’ chief marketing officer, said.
Some of the congestion in U.S. ports is expected to decrease as more longshore workers are vaccinated against the coronavirus. Only 5% of longshore workers have had vaccinations to date, said Gene Seroka, executive director of Port of Los Angeles. He added that the port is using “all levels of government” for more vaccines to reduce congestion.
CH Robinson air freight
Source: CH Robinson
Peloton, who refused to comment on the article, referred CNBC to the company’s quarterly letter to shareholders published last month. The letter said that for the last three months of the year – including the critical holiday season – profit margins were depressed by $ 100 million due to higher shipping costs.
“The global increase in shipping traffic has resulted in significant delays in all types of goods arriving in US ports, including Peloton products,” said Josh Foley, CEO of Peloton, in a February 4 letter. “These unpredictable delays have resulted in painful delivery dates for many people as Peloton bikes, treads and accessories have been kept in port for more than five times longer than usual.”
Peloton’s December shipping battle is just one example of the variety of goods held up in US ports.
Waiting for dock
According to MarineTraffic, 30 container ships were anchored in the ports of Los Angeles and Long Beach on Monday. More than 30 container ships are expected to arrive in Los Angeles by the end of March. During this time, at least 27 ships are expected to dock in Long Beach.
Cargo ships will be waiting to dock outside the ports of Los Angeles and Long Beach starting March 1, 2021.
One of the anchored ships waiting in Los Angeles to be unloaded is the APL Charleston, which carried the delayed Peloton shipments in December. The ship arrived again fully loaded with Chinese exports on February 18.
Captain Adil Ashiq, chief executive of MarineTraffic’s U.S. West Region, said the December delays were not uncommon.
“It is a reality that many ships, supply chain and logistics service providers are currently facing in the Port of Los Angeles and the Port of Long Beach,” Ashiq said in an interview. He added that the average time a container ship was anchored outside the dock last week was just over 7.5 days before it could travel inland.
“Now that the APL Charleston is at anchor again, it may face similar circumstances as it did on its previous port visit in December, but of course this is a cruise so anything can happen,” Ashiq said.
The bottleneck in the ports has increased the cost of shipping, making air freight, which is usually considerably more expensive, looks like a relative bargain, especially when the time saved is taken into account. Airship prices have also fallen dramatically in recent months.
The price of 250-pound air cargo traveling from China to the US has dropped from about 60% of the cost of a full container to about 36%, Ashiq said.
“In other words, for the right type of cargo, and certainly the right value, air is becoming a more compelling option, both with capacity and with far shorter transit times,” said Buchman of Freightos.
Changes in air freight compared to sea tariffs.
Hot tubs and bikes
The time saved in moving a product justifies the cost of some customers trying to meet consumer demand, said Brian Bourke, chief growth officer, Seko Logistics.
“If you’re looking to ship a hot tub across the ocean from Shanghai to New York, shipping a lighter hot tub will cost around $ 1,000, but it takes at least 35 to 45 days,” said Bourke. He added that there is no extra seven to 14 days included if you have to book in advance. Shipping air freight costs anywhere from $ 2,000 to $ 3,000, depending on its weight.
“But you only need three to four days to get your hot tub,” said Bourke. “So if you pay two or three times, you save four to seven weeks now. In the end, the math makes sense for certain senders right now.”
Kim Peterson, transportation manager for Canyon Bicycles USA, said the company ships most of its inventory by water, but added that the most popular bikes are being shipped by air to meet a surge in demand.
“Air is faster and we need to meet customer demand,” said Peterson. “I could pay an additional $ 1,000 to $ 2,000 to get my product in an (ocean) container at the head of the line in China, but that doesn’t matter because the cargo is in LA’s congestion . “
60 to 75 days
Shipping by sea took 20 to 30 days before the pandemic, Peterson said. Now it’s about 60 to 75 days while air freight takes three to five days.
“It’s a big difference,” added Peterson. “We are currently behind in Asia,” he said. “We can’t wait. That would have an impact on sales.”
Shawn Richard, Seko’s vice president of global air freight, told CNBC that he doesn’t expect the high congestion rates to subside anytime soon.
“We regularly fly 65-inch TVs from China to the US,” said Richard. “We saw air freight up 40% in December. Large items like hot tubs were also transported. Our ocean freight teams are now selling air freight.”
Richard added that large recreational items like ping pong tables and exercise equipment like treadmills are usually shipped by sea due to the cost. Now they’re moving by air in response to a surge in demand as the pandemic locks people up indoors and seeks ways to stay fit and entertain outside.
“Barbecues and related merchandise like lawn / patio furniture, inflatable pools, filtering devices, and anything that could be used to improve safety at home instead of family vacations are now moving by air,” he said.
The lack of reliability has pushed the functionality of logistics and supply chains to their limits.
“We are seeing that those industries that need accelerated shipping are being blown rather than hurrying and waiting on the coast,” said Matt Castle, vice president of air cargo products and services, CH Robinson.
Recreational vehicles and parts that used to be shipped by sea have shifted to air freight, he said. “One of the things I never thought air would move is vacuum cleaners. It’s a hot topic now with so many people at home.”
CH Robinson air freight
Source: CH Robinson
Castle noted that the move to airships was triggered by a combination of factors: companies with a narrow seasonal window to sell products, and production-based industries looking to re-establish a rhythm and catch-up inventory.
“Ocean congestion is increasing to meet orders and drive demand for air freight,” said Castle.
Stephen Svajian, CEO and co-founder of Anova Culinary, which sells its precision combi ovens and cookers to Costco, Target and Amazon, said they are increasing their air freight orders in response to increasing demand for the “home dining experience”. “”
“We decide which products to air freight based on the set retail date and consumer expectations. We don’t want to be sold out or fulfill orders,” said Svajian. “This year there is more pressure to use air due to delays at sea.”
Companies outside of the US are also shipping more products by air. Castle said he also sees companies in Europe making the switch. “This market is very strong. There is a lack of container capacity everywhere.”
Air is also becoming an option for US exporters struggling to get their products overseas. Shippers make far fewer US shipping exports to China – $ 744 per container versus $ 4,922 for Chinese exports to the US. The time and money saved when empty containers do not have to be loaded, unloaded and cleaned offsets the loss on the way back to Asia.
It also costs US farmers who are struggling to ship their goods overseas. Their access to international markets “is being severely undermined by the unprecedented dysfunction and cost of ocean transportation services,” said Peter Friedman, executive director of the Agriculture Transportation Coalition.
Sekos Richard added that spices and perishable goods like lobster were shipped to China by air back in October.
However, there doesn’t seem to be a quick fix to unblock US ports, leaving companies like Canyon with few options.
“In the cycling world, when the sun comes out, people want to ride bikes,” said Peterson of Canyon. “Demand is still high. It’s pretty obvious that we need to keep going and ventilate.”
Correction: This report has been revised to correct the name of an Anova Culinary customer. It’s Costco.