Point Global Logistics News of The Week — 10.8.21

Get On Point with news from Point Global Logistics.

Global supply chain nightmare may be behind California oil spill

An unremitting shipping logjam in the waters outside of Los Angeles has already contributed to higher costs, delays and intermittent goods shortages across the U.S. Now, it could be to blame for California’s biggest oil spill in 27 years.

Although the official cause of a pipeline rupture that spilled as many as 3,000 barrels of crude oil into the ocean off Orange County remains unconfirmed, preliminary reports indicate an anchor may have hooked the pipeline, tearing the metal open. About 4,000 feet of the pipeline had been moved 105 feet from its original position and divers found a 13-inch split in the line that’s likely the source of the release, the Coast Guard said.

The pipeline was “pulled like a bowstring,” Martyn Willsher, chief executive of line operator Amplify Energy Corp., said at a briefing this week. “It is a 16-inch steel pipeline that’s a half inch thick and covered in an inch of concrete, and for it to be moved 105 feet is not common.”

The volume of oil that flowed from the leak is likely to be revised downward, Willsher said on Wednesday. About 5,000 gallons have already been recovered, according to the U.S. Coast Guard.

The spill discovered over the weekend, which sullied nearby wetlands and closed popular beaches along the Orange County coast, happened at a time when there’s a near record backup of ships waiting off Southern California ports. The massive vessels are queueing to unload containers of goods to satisfy booming American demand for everything from construction materials to bicycles. A shortfall in the number of truck drivers and a lack of available warehouse space are slowing deliveries.

“The more ships you have at anchor, the more risk there is that something could happen,” said Paul Blomerus, Executive Director of Vancouver-based Clear Seas Centre for Responsible Marine Shipping. “There are some examples of anchors snagging critical infrastructure” in the past, including power cables, he said.

Such accidents are a rare occurrence, according research group Clear Seas. In 2017, in two separate incidents in January and April, ship anchors snagged power cables in Vancouver, the organization said.

On Monday, as workers scrambled to contain the southward drift of crude oil from the pipeline incident, a total 146 vessels, almost two-thirds of them container ships, were anchored or at berth in the Ports of Los Angeles and Long Beach, close to the record reached late last month, according to the Marine Exchange of Southern California, which monitors ship traffic off the coast. Nine out of the ten so-called contingency anchorages off Huntington Beach, near to where the pipeline breach happened, were occupied and 33 vessels were drifting in deeper waters in the ocean.

Critical infrastructure such as underwater pipelines are carefully marked on nautical maps so vessels can steer clear. But ships can sometimes drag their anchors when moving for “any number of reasons,” James Kipling Louttit, the Marine Exchange’s executive director, said by phone Wednesday. He said he couldn’t comment on the cause of the pipeline rupture specifically other than that it’s not interfering with marine traffic. Spokespeople for the ports of Los Angeles and Long Beach also said the spill hasn’t impacted their operations.

The oil spill was first discovered early Saturday after a low-pressure alarm on the pipeline sounded at about 2:30 a.m. The pipeline carries oil produced and treated on three platforms located in the Beta oil field, more than eight miles off the coast.

Satellite imagery shows what appeared to be an oil slick forming at 10:58 p.m. Friday, according to John Amos, president of SkyTruth, an environmental watchdog group that tracks incidents in the oil and gas industry.

“What could cause this kind of a sudden, high-volume release?” Amos said in a Zoom interview. “An anchor strike.”

One of the ships in the vicinity at the time of the leak was the Rotterdam Express, owned by Hapag-Lloyd AG, according to Amos. The Coast Guard didn’t immediately reply to requests for comment.

Nils Haupt, spokesperson for Hapag-Lloyd AG, confirmed the Coast Guard went on board the vessel at around 12 p.m. PT  Wednesday, where it interviewed the crew and examined the navigation systems. “The anchor was dropped exactly as requested and confirmed by San Pedro Traffic. During the period in question the vessel has not moved from anchorage and has not passed over the pipeline,” he said. “During anchorage no oil in the water has been spotted. Hapag-Lloyd is fully cooperating with all authorities involved.”

Source: Bloomberg News

Global supply chain nightmare may be behind California oil spill

Plateauing and even declining container spot rate indices, coupled with weakening US economic barometers and modest port flow improvements in Southern California, are signaling a cooling trans-Pacific, at least for now.

Yet with import demand forecast to be strong for at least the next six months and capacity from Asian ports to US destinations maxed out and easily shaken by new disruptions, analysts warn any easing will likely be temporary and fragile. Container lines and analysts warn that US import pressures will continue through 2022 and even into 2023, challenging efforts of major US ports to restore cargo flow.

As measured by Drewry, trans-Pacific spot rates this week plunged $1,000 per FEU to the West Coast and more than $700 per FEU to the East Coast. But a Drewry analyst and US forwarder see the dramatic decline as a temporary reaction to a drop in production in China and not the beginning of a downward trend in freight rates.

“Drewry’s reading of the current trans-Pacific market is that record-high spot rates have now paused their crazy upward curve — and softened a bit — but we do not rule out further increases in the next few months because the supply chain disruptions have not been resolved,” Philip Damas, Drewry’s managing director and head of supply chain advisors, told JOC.com Thursday.

Given the delays in the supply chain, most retailers can’t get goods currently in Asia for the Christmas season into stories in time via ocean shipping , but there’s still plenty of imports needed given low retail inventories-to-sales ratios, Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, told JOC.com Thursday.

The import pressure may be waning, but it’s still strong. US retailers on Thursday said they expect to bring record volumes this month, but Global Port Tracker sees signs of a slight dip in volumes when compared with last year levels. October volumes are on track to be down 0.3 percent in October, which was the busiest month in 2020. November’s projected imports of 2.16 million TEU will be 2.9 percent higher than November 2020.

Global Port Tracker (GPT), published monthly by the National Retail Federation and Hackett Associates, expects imports to then slip 0.2 percent in December to 2.1 million TEU. But in January, GPT expects imports to surge again, rising 5.7 percent year over year to 2.17 million TEU, and then inch up 1.4 percent in February to 1.9 million TEU.

“Although we see no signs of [beneficial cargo owner] orders slowing down, the recent Covid outbreaks in China and Vietnam coupled with the power crunch in China may be affecting output by spreading out shipments,” said Noel Hacegaba, deputy executive director and COO at the Port of Long Beach. “At the same time, the US supply chain is beginning to show signs of adjusting to the record cargo flows.”

Reflecting modest improvements in cargo flow through Southern California, the average rail dwell has fallen from a high of 12 days to eight days. The number of vessels at anchor has also fallen from a peak of 73 to 62, he said.

Consumer confidence ebbing?

US consumer spending was weaker than expected in August, according to IHS Markit, and is happening in parallel with a slowdown in demand for imports. Year-over-year growth in US containerized imports from Asia has fallen steadily in recent months — albeit from stronger year-on-year comparisons in 2020 — from 44 percent growth in May to 23 percent in June, 11 percent in July, and less than 1 percent in August.

Economists at IHS Markit, parent company of JOC.com, said the slowdown in personal consumer expenditures was partly related to supply chain shortages, particularly in automotive, but most is linked to an easing of underlying demand, which makes the trend meaningful as a potential leading indicator of port congestion. US consumer sentiment is near a 10-year low, according to a University of Michigan index.

Container spot rate indices measuring US-West Coast spot rates have also been softening in recent weeks, although it’s not yet clear whether the ranges of premiums and surcharges that are added to spot rates to guarantee bookings are also easing.

David Bennett, COO at the non-vessel-operating common carrier Farrow, said spot rates in the eastbound trans-Pacific have indeed softened a bit over the past 10 days for several reasons, including production cutbacks in China and a steady increase in vessel capacity this summer in the largest US trade lane.

Due to electrical power shortages, manufacturers in China have been forced to cut back production over the past month as the government rations power supplies to the plants. Many factories in China shut on Oct. 1 for the annual Golden Week holiday.

Vessel capacity has increased this summer as some eight to 10 large retailers chartered vessels to handle their freight, with some of the unused capacity on the ships being opened up to third-party shippers, Bennett said.

“I see some softening [in rates] in the next few weeks, though not a huge drop,” he said.

Source: Journal of Commerce

Inbound containers staying elevated into 2022, congestion limiting ‘larger gains’

The National Retail Federation expects imports to the nation’s largest retail container ports to continue at a high clip through at least February. In a Thursday update, the group said its forecasts would have been even higher but congestion, capacity and labor headwinds are limiting throughput.

“The cargo is there for larger gains at several ports but congestion issues are impacting fluid operations,” said Jonathan Gold, NRF’s vice president of supply chain and customs policy.

Final numbers for August didn’t produce a new monthly record as expected. The ports tracked by the NRF handled 2.27 million twenty-foot equivalent units in August, up 3.5% sequentially and 7.8% year-over-year. That was tied for the second-busiest month in the dataset’s 20-year history.

May produced the highest monthly throughput on record at 2.33 million TEUs.

Congestion and bottlenecks were the reasons for the August shortfall.

“Just when we thought things couldn’t get any worse with the logistics supply chain, we’ve been proven wrong,” said Ben Hackett, founder at Hackett Associates, which works with the NRF to forecast future container throughput at the ports. Hackett called out numerous issues from port shutdowns in Asia to congestion and a lack of drivers and equipment in the U.S. as the reasons.

For months now, ships have been waiting longer for berths at the ports and freight is being further delayed once it has landed. A lack of equipment, truck capacity and labor have impacted fluidity throughout the supply chain. Delays unloading containers at warehouses as well as a lack of industrial space to store them have caused most points in the flow of goods to consumers to become pinched.

Further, a high level of consumer spending and retailers still catching up on and pulling forward inventory has the NRF calling for the current dynamic to remain in place through at least February, its last month forecasted.

The group’s preliminary expectation for September, as numbers are not yet final, calls for a 6.7% year-over-year increase to 2.25 million TEUs. October is forecast to decline 0.3% compared to a very strong comp from 2020, “when imports surged dramatically … and retailers rushed to meet pent-up consumer demand.” That would be the first monthly decline since July 2020.

November (+2.9%) and December (-0.2%) round out the forecasts for the year.

Growth expectations for January (+5.7%) and February (+1.4%) compare to tough comps from a year ago; +13.2% and +23.8% in January and February 2020, respectively. Those comps weren’t really impacted by COVID shutdowns as it was March 2020 when Asian factories didn’t come back online after the Lunar New Year holiday.

The NRF’s new full-year 2021 forecast was raised 50 basis points from last month’s expectation. This year is on pace to see container throughput of 26 million TEUs, up 18.1% year-over-year and a new annual record.

Source: Freight Waves