Although a tentative agreement has been reached to settle a lengthy loading and off-loading slowdown among 20,000 dock workers at 29 U.S. West Coast shipping ports – which account for 40 percent of the nation’s incoming international cargo – UPS is projecting that it will take four to five months before wharf operations return to normal levels.
As with other industries, the situation continues to create “risk and uncertainty” for aftermarket businesses dependent upon timely deliveries: Just-in-time manufacturing cycles are jeopardized, parts are delayed in reaching repairers’ and retailers’ shelves, seasonal stocking and purchasing trends are disrupted, and cash flow issues can arise amid the lingering impact.
And even with alternative shipping methods being implemented to ease the assorted logjams, the problems associated with backed-up shipments remain. UPS notes that a single ocean-going vessel’s cargo of containerized goods would fill close to 550 747 airplanes.
Q: Are you seeing companies change their shipping plans because of the West Coast port slowdown? If so, what are they doing?
A: Yes. UPS has been working with our customers since early 2014 to develop contingency plans in case the slowdown occurred and we’ve been putting those plans in action since delays began taking place. These contingency plans vary by customer, but typically use a combination of ocean, rail and truck transportation that balances inventory levels, fill rates and cost. In some cases, automotive companies are augmenting with air freight to meet consumer demand and maintain high levels of customer satisfaction.
Automotive aftermarket businesses should carefully evaluate how ocean shipping delays are affecting, or may affect, their business. Sometimes the optimum solution involves looking at the situation beyond simply transporting products via ocean, air, rail or truck. Some of the criteria that UPS addresses with customers includes the risk of lost sales, penalties from not meeting contractual agreements, the added cost of carrying more inventory, the cost of redirecting shipments that are already in transit, and the ability to source products from other vendors or production facilities.
Q: Are you diverting ocean shipments from the West Coast ports to other destinations including Canada, Mexico and the Eastern U.S. ports?
A: UPS is not recommending changing shipping routes through the U.S. West Coast ports for a variety of reasons. The U.S. East Coast ports are already at capacity and can cost twice as much to transport products through compared to the West Coast ports. Canada and Mexico offer some viable options but are not bolt-on solutions.
Canada’s West Coast ports are experiencing some volume-driven delays from congestion related to the U.S. West Coast port situation. Shipping into Mexico, meanwhile, extends transit times and has some inland transportation limitations that require additional cost to transload ocean cargo onto over-the-road trailers. If an automotive aftermarket company can secure vessel space to Mexico, UPS has specialized cross-border customs and ground transportation services that quickly transports products into the United States.
Q: What can a company do if their shipment is already in transit going through a U.S. West Coast port?
A: It is not possible to re-route in-transit ocean cargo while it’s onboard a vessel and it’s very difficult to alter the routing of cargo once it’s in an ocean carrier's possession, even if it’s before or after the ocean voyage. Automotive aftermarket companies have much more control over altering their transportation options before they book an ocean shipment.
Q: How do you approach disruption contingency planning?
A: The first step is communication, keeping our customers informed about potential situations so they can make the best possible decisions for their business. Next, we evaluate the various ways to work around the disruption. Sometimes it’s simply a matter of adjusting shipping routes or adding warehouse capacity. In other cases, our customers include the issue in larger business discussions such as shifting vendors and near-shoring or re-shoring. We ultimately arrive at a contingency plan that provides consistent delivery speed, cost and value.
Q: Do you anticipate that the tactics that companies have been using to minimize ocean port delays will continue to be utilized even as the labor dispute appears to be settled?
A: In some cases, yes, although that will depend on the business and their consumers’ preferences. This is an opportunity for automotive aftermarket companies to reevaluate their import and export strategies and put preventative measures in place that help guard against future disruptions.
Q: What has been the impact of this dock slowdown on UPS’ operations?
A: The slowdown is having an adverse effect on shipping in general – carriers and customers alike have really felt this one. For UPS, though, it has been an avenue to showcase the breadth of our global portfolio. When automotive aftermarket companies need products to arrive at destinations within a set amount of time, we’ll find the best solutions to meet those needs.
Q: How would you rank the impact on shipping efficiency related to the dock slowdown? Is it taking packages longer or are the costs going up?
A: The slowdown is causing delays of ocean freight shipments by several weeks, which can be averted by air freight or planning alternate shipping routes. Using different shipping options may cost more because of mode or route but can arrive earlier with greater visibility and consistency.
Q: Are you putting extra planes in the air, and if so how many? How much could the cost go up if the customers want to ship by air?
A: UPS’ air freight services have seen an uptick as more customers use this service to avoid ocean shipping delays. This increased demand is being absorbed into our daily network of small package and heavy freight shipments. As a leading integrator, UPS is leveraging its global airline network to offer additional aircraft lift for key customers in the automotive industry in particular and other industries that have demand for air services to supply factories in the U.S.
To supplement our Browntail airline network’s 1,955 daily flight segments, UPS has secured additional freighter capacity from charter operators to fulfill additional customer demand in February and March. While air freight is more expensive than ocean, some customers and their consignees can’t afford the risk of ocean delays to keep their factories and supply chains moving. Under normal market conditions, air freight can average 8 to 10 times more expensive than ocean, and in today’s market conditions, air freight prices could rise 30 percent to 50 percent from normal levels, depending on the origin/destination and customers’ time in transit requirements.
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