In today’s business climate, hardly a day goes by without my hearing someone speaking about the international shipping and logistics crisis. Words like “supply chain,” “logistics,” “chassis,” and “containers” have become everyday terms, accompanied by ever-present handwringing from both suppliers and consumers. As one friend in the logistics industry said to me recently, “Everyone used to ignore logistics companies, and now we’re the most popular speakers at events.”
I live in Utah and am an unabashed Utah business evangelist for a variety of reasons. Utahns of all stripes on both sides of the aisle regularly put aside their differences and come together to solve problems. I have seen this happen in the political and business communities. Domestic and international diplomacy are regularly lauded and celebrated as virtues here. And the U.S. frontier “work hard and get the job done” mentality is often mentioned in business circles here.
Yesterday I attended a World Trade Center Utah (WTCU) board meeting with the who’s who of international business leaders in Utah. Though it is remarkable to have so many leaders engaged in this way, it is also par for the course in Utah. But the keynote speaker at yesterday’s meeting illustrates Utah at its best.
U.S. Federal Maritime Commission (FMC) Commissioner Carl Bentzel traveled from Washington, D.C. to help Utah continue to try to solve the global shipping crisis. You read that right. You may be surprised that Utah, a landlocked state of three million people, cares or has the will or resources to attack such an intractable problem. I have watched, first as a bystander and now as an enthusiastic participant, as Utah and WTCU and its members have contributed and continue to contribute more than their fair share of ideas and person power. Utah’s economic and political will, culminating in the establishment of the Utah Inland Port Authority, has put Utah ahead of almost all U.S. states in dealing with the global shipping crisis.
Commissioner Bentzel’s trip to Utah was a significant milestone in WTCU’s efforts stretching back many years but reaching a healthy sprint starting earlier this year. His visit marks the first trip to an inland state by a Federal Maritime Commissioner. Here are some highlights from his presentation, with my gloss:
- The effects of the current shipping crisis will continue through 2022.
- Shipping rates are currently 10x pre-pandemic levels.
- Container prices are now up 3-5x depending on the container size.
- 100% of the world’s shipping containers and 85% of the chassis are made by three Chinese SOEs.
- Shipping delays are now stretching into months.
- Many of the deep water coastal ports are operating at 120-130% capacity.
- He nodded to Utah’s Inland Port Authority’s leadership in this area as one of the key valve mechanisms for alleviating pressure on the coastal ports. Other coastal states can learn and benefit from Utah’s work, and FMC will be looking to Utah’s Inland Port Authority to help spread its model and success.
- The United States is already in a shipping and logistics crisis (the first since WWII), which is particularly concerning for the healthcare and pharmaceutical industries.
- The federal government will probably need to take emergency action to handle key cargo.
- LA/Long Beach, California has 30 ships at berth and another 60-70 “loitering” offshore (loitering is a newly incorporated term into international trade parlance in the U.S.).
- Savannah, Georgia has 20-30 ships loitering offshore.
- Seattle/Tacoma, Washington has 12-13 ships loitering offshore blocking the otherwise stellar views from Bainbridge Island.
- The number of global shipping companies (carriers) has decreased to eight, with four each owning more than a 10% market share.
- FMC has implemented a carrier audit program, but its oversight largely does not extend into private contracts between carriers and companies contracting for shipping services. This means that companies should be reading their carrier contracts carefully and negotiating where possible. (To address this negotiating power imbalance, Utah is forming a Crossroads Export-Import Alliance as a 501(c)(6) organization to help companies pool their shipping needs and negotiate with carriers for better rates and balanced contract terms.)
- FMC would have to institute some regulatory changes to ensure fair performance terms get included in every shipping contract, and FMC could “probably” implement these changes through rule-making rather than legislative action.
- FMC will shortly be rolling out rule-making aimed at addressing problems that are not already covered, such as unfair trade practices like excessive detention and demurrage charges. (FMC doesn’t think it’s fair for carriers to charge you for days where the carrier is closed or will not otherwise give you access to your containers.)
- FMC has limited enforcement powers but can address fraudulent business practices.
- FMC has formed its first ever shipping advisory committee where carriers can recommend how to improve the current issues.
- FMC is launching a New Supply Chain Transparency Initiative/Project in December 2021.
- Companies can go to the FMC’s website here to raise their concerns and comment on forthcoming rules.
- We need more rail connections to deep water ports.
- We need more digital infrastructure to see into the black holes of the current shipping environment. The U.S. Department of Transportation and the Department of Commerce will be pushing for comprehensive data regarding every aspect of the industry and tracking of all available assets to maximize efficiency.
- Attracting talent to the aging long-haul trucking industry and to port docks is very challenging.
- Cybersecurity continues to be concerning regarding data breaches, information flow, and gap analyses.
Jack Hedge, the Executive Director of Utah’s Inland Port Authority (UIPA), also shared the following:
- UIPA has entered into agreements with LA/Long Beach and Oakland ports and is finalizing an agreement with Seattle/Tacoma to provide “back office” services to alleviate storage and processing burdens at those ports.
- UIPA will be providing a 5G LTE network at the Utah inland port and at its partner deep water ports to assist in getting and sharing real time comprehensive data.
- The rail lines are currently operating at only 40% capacity.
- Rail carriers have contracted with each other to provide “running rights” on each other’s rail lines, but those rights are not comprehensive enough to be commercially significant or helpful in alleviating the current stress (limited to single stack trains on a limited basis).
- The port of LA/Long Beach has 13 terminals with 13 different companies running the terminals. They are using different operating systems and cannot easily share information.
- The U.S. does not have a national freight plan to champion efficiency in this industry.
- Improving transloading capacity and locations where transloading is permitted are both important.
I will be watching and participating in this process. Utahns have never shrunk away from a tough situation, and I was heartened to see so many intelligent and service-minded people coming together to try to reduce the impact of the international shipping and logistics crisis. This type of bipartisan industry leadership and dedicated thought leadership will be important as other inland states try to address their own companies’ shipping issues. I can confidently say that any business and government leaders who want to visit Utah to sit down with elected officials, WTCU, or the UIPA will receive a warm welcome.
