'Containergeddon': Supply crisis drives Walmart and rivals to hire their
own ships
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[October 07, 2021] By
Lisa Baertlein, Jonathan Saul and Siddharth Cavale
LOS ANGELES (Reuters) - The Flying Buttress
once glided across the oceans carrying vital commodities like grain to
all corners of the world.
Now it bears a different treasure: Paw Patrol Movie Towers, Batmobile
Transformers and Baby Alive Lulu Achoo dolls.
The dry bulk cargo ship has been drafted into the service of retail
giant Walmart, which is chartering its own vessels in an effort to beat
the global supply chain disruptions that threaten to torpedo the retail
industry's make-or-break holiday season.
"Chartering vessels is just one example of investments we've made to
move products as quickly as possible," said Joe Metzger, U.S. executive
vice president of supply-chain operations at Walmart, which has hired a
number of vessels this year.
The aim is to bypass log-jammed ports and secure scarce ship space at a
time when COVID-19, as well as U.S.-China trade ructions, equipment
shortages and extreme weather, have exposed the fragility of the
globe-spanning supply lines we use for everything from food and fashion
to drinks and diapers.
More than 60 container ships carrying clothing, furniture and
electronics worth billions of dollars are stuck outside Los Angeles and
Long Beach terminals, waiting to unload, according to the Marine
Exchange of Southern California.
Pre-pandemic, it was unusual for more than one ship to be in the
waiting lane at the No. 1 U.S. port complex, which handles more than
half of all American imports.
Other big retail players, such as Target, Home Depot, Costco and Dollar
Tree, have said they are chartering ships to deal with the
pandemic-driven slowdown of sea networks that handle 90% of the world's
trade.
Or, as Steve Ferreira of shipping consultancy Ocean Audit describes the
escalating concern: "Containergeddon."
U.S. retailers' traditional lifeline from Asia is freezing up due to a
resurgence of COVID-19 in countries like Vietnam and Indonesia plus a
power-supply crunch in China. The supply snarls coincide with booming
demand as consumers spend more on goods than going out, and the festive
shopping frenzy nears.
Burt Flickinger, managing director at retail consultancy Strategic
Resource Group, said at least 20-25% of the goods stuck on ships were
unlikely to make it onto shelves in time for the Nov. 26 Black Friday
kickoff for the holiday shopping season, a period when retailers make
more than a third of their profits.
ROUTE FOR GREAT PROFIT
The biggest chains are taking matters into their own hands.
In a typical year, Walmart would have moved those toys from China to Los
Angeles in hundreds of 40-foot (12-metre) cargo boxes stacked like
colorful Lego bricks on gigantic container vessels that serve multiple
customers.
But 2021 is far from typical. Incoming cargo at the Port of Los Angeles
is up 30% from last year's record levels. Trucks and trains can't remove
it fast enough, leading to logjams, said the port's Executive Director
Gene Seroka, reflecting the surge in consumer demand.
"It's like taking 10 lanes of freeway traffic and squeezing them into
five," Seroka said.
Chartered ships that offer valuable cargo space and can sidestep the
container terminals play a critical role in this second pandemic holiday
season, particularly for time-sensitive goods like Christmas sweaters
that won't sell if they arrive too late.
The Flying Buttress, for example, entered Los Angeles waters on Aug. 21.
It got stuck in a queue outside the port before it bypassed clogged
terminals and unloaded its goods at a separately operated bulk cargo
dock nearby on Aug. 31, according to Refinitiv data and shipping
records.
During that voyage, Walmart circumvented the shortage of 40-foot
containers typically used for global shipping by switching to bigger
53-foot containers that are almost exclusively used to move goods by
truck and train within the United States.
[to top of second column] |
The congested Port of Los Angeles is shown in San Pedro, California,
U.S., September 29, 2021. REUTERS/Mike Blake
Other companies are also playing the shipping game including Home Depot which
said it was "creatively working to obtain additional capacity".
The home improvement retailer dodged the Los Angeles gridlock by sending its
Great Profit charter ship nearly 125 miles south to the Port of San Diego.
On Sept. 15, the ship's onboard cranes hoisted 7-foot Halloween "Spellcasting
witches", Christmas lights and other holiday decor onto docks there, said Ocean
Audit CEO Ferreira, who helps shipping customers claw back overpayments.
"This is the home stretch. They're doing whatever it takes" to win in an
overheated market, he said of retailers.
WHY PORT SIZE MATTERS
Yet there is a limit to such workarounds.
Great Profit moored at a terminal that handles everything from sugar to windmill
blades but can only accommodate a maximum of 500 containers from one to two
ships per month between now and the end of the year, said Greg Borossay, the
port's maritime business development principal.
That's because San Diego, like many other U.S. seaports, doesn't have the
towering gantry cranes needed to pluck boxes from massive ships. Rail service is
equipped for autos and other specialty cargo. And, roads in surrounding
commercial and residential areas aren't set up for the fleets of trucks needed
to whisk thousands of containers to other parts of the country.
"We'd have a very unhappy community if we had 3,000 (boxes) coming off a ship,"
Borossay added.
Not all retailers will hire ships to support sales, and other factors could be
significant in picking out potential winners and losers.
Clothing and accessory retailers have seen their inventories decline even as
sales have accelerated, stoking worries about sell-outs, said Jason Miller,
associate professor of logistics at Michigan State University's business
college.
General merchandise retailers like Walmart and Target, on the other hand have
done a better job of keeping inventory on pace with sales, he added.
PAYING $20,000 PER CONTAINER
The global supply crunch is providing lucrative opportunities for bulk cargo
ship operators, though; they are cashing in on a record spike in container
shipping rates that has sent freight costs above $20,000 per box on the biggest
liner vessels.
Global container shipping players like AP Moller Maersk and Hapag Lloyd, are
flush with cash from the soaring rates. Major lines are "putting in every ship
we can find", Hapag Lloyd CEO Rolf Habben Jansen said.
Several shipping sources said other firms were snapping up second-hand container
vessels of all sizes.
Hong Kong-based Taylor Maritime, which according to shipping databases manages
the Flying Buttress, did not respond to a request for comment.
Dry bulk transporters have a short window of time to prepare decks to safely
secure and carry cargo boxes. They typically transport commodities in below-deck
cargo holds.
Genco Shipping & Trading is seeking approval from its ship safety certifier to
prepare some of its own dry bulk vessels to carry containers.
Genco isn't going all-in on container shipping, said CEO John Wobensmith, who
called the project "opportunistic".
Separately, agribusiness giant Cargill said it is looking into using some of the
dry bulk ships it charters to instead hold containers, if only as a temporary
solution, to "alleviate bottlenecks".
(Reporting by Lisa Baertlein in Los Angeles, Jonathan Saul in London and
Siddharth Cavale in Bengaluru; Additional reporting by PJ Huffstutter in
Chicago; Editing by Pravin Char)
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