In this episode, guest Peter Friedmann, executive director of the Agriculture Transportation Coalition, joins us to discuss how the shortage of ocean containers is having a devastating effect on the export of agricultural products. Farmers and other producers can't get the containers they need to export their goods. That's because ocean carriers find they can make more money returning in-demand empty containers more quickly to Asia, rather than sending them to the Midwest to be filled with agricultural products.
Washington is talking again about infrastructure, and the Biden administration has promised to deliver a workable bill to repair our nation's crumbling roads, bridges, tunnels, ports, and more. Is there the political will to finally pass a bill, and how will it be funded? Are there alternatives to the federal gas tax to pay for repairs?
Last month's winter storms caused chaos and destruction in the South, especially in Texas. Beyond the human suffering in that part of the country, the storms also disrupted our nation's supply chains. New figures show just how bad it was.
Articles and resources mentioned in this episode:
Podcast sponsored by MHS
Other links
In this episode, guest Peter Friedmann, executive director of the Agriculture Transportation Coalition, joins us to discuss how the shortage of ocean containers is having a devastating effect on the export of agricultural products. Farmers and other producers can't get the containers they need to export their goods. That's because ocean carriers find they can make more money returning in-demand empty containers more quickly to Asia, rather than sending them to the Midwest to be filled with agricultural products.
Washington is talking again about infrastructure, and the Biden administration has promised to deliver a workable bill to repair our nation's crumbling roads, bridges, tunnels, ports, and more. Is there the political will to finally pass a bill, and how will it be funded? Are there alternatives to the federal gas tax to pay for repairs?
Last month's winter storms caused chaos and destruction in the South, especially in Texas. Beyond the human suffering in that part of the country, the storms also disrupted our nation's supply chains. New figures show just how bad it was.
Articles and resources mentioned in this episode:
Podcast sponsored by MHS
Other links
David Maloney, Editorial Director, DC Velocity 00:01
Port congestion and the shortage of containers are having severe ripple effects. Washington tackles infrastructure again; will they succeed this time? And we see evidence of just how bad last month's storms in the south were on supply chains. Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome. Logistics Matters is sponsored by Material Handling Systems, a single-source systems integrator based in Kentucky. MHS is driven by a customer-first mentality to go above and beyond for distribution and fulfillment operations. They provide automated systems that combine robotics, sortation, software, controls, and more, with full support over the entire system lifecycle. To learn more about MHS, please visit MHSglobal.com. As usual, our DC Velocity senior editors Ben Ames in Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today: The amount of imports from Asia has risen tremendously since the second half of last year. The surge in volumes has caused major congestion at our West Coast ports, and a shortage of shipping containers. This had a ripple effect down to those who desperately need and can't get the containers required to send products from the United States back to Asia. Among those most affected are America's farmers and other producers of agriculturally based products, who rely on the export markets. To explain just how serious the situation has become for them. I spoke yesterday to Peter Friedmann, the executive director of the Agriculture Transportation Coalition. Here is our conversation. Peter, thanks for joining us. It's great to have you with us today.
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 01:57
Thank you for covering this topic and spending time with me.
David Maloney, Editorial Director, DC Velocity 02:02
First of all, can you tell us a little bit about the work of the Agriculture Transportation Coalition?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 02:08
The Agriculture Transportation Coalition was formed 30 years ago with this premise: There's nothing that we produce in agriculture or forest products in this country that cannot be sourced somewhere else in the world. If we can't deliver it, affordably and dependably, to our foreign customers, those customers overseas, they will find some other source in some other country, and we can lose that business and those customers forever. Our membership includes all of agriculture and forest products: cotton, poultry, beef, protein, milk, dry dairy. Any agriculture you can think of, we export, we represent in assisting in the transportation supply chain to keep our products competitive overseas. That also includes forest products, such as the boxes in which all those Amazon products that are coming into this country—those boxes are produced here in this country by some of our members, and going overseas.
David Maloney, Editorial Director, DC Velocity 03:26
And obviously, with all that exporting, the importing affects a lot of that, and we've written extensively in DC Velocity about the huge surge in imports for the past six months or so, for the latter half of last year and carrying in through this year, and the large amount of products, especially coming from Asia, that are currently tying up a lot of the U.S. ports. So we have ships out in the water waiting to be able to unload, because there's so many imports that they just can't find capacity right now in the ports. And that's causing a lot of problems for your members as far as having available containers. Can you tell us about the current situation and why that's a problem for your exporting members?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 04:07
It is not an overstatement to say that it is devastating to U.S. agriculture—all agriculture—agriculture exports of products such as soybeans and hay, which our largest-volume exports off of our coasts; cotton and the sort of manufactured processed foods as well, refrigerated and dry. And the reason it's devastating is twofold. One is, ocean carriers are looking at the revenue that they can get on that inbound cargo coming from Asia, or we call the eastbound. Those imports are paying six, eight, 10, in some cases 12 and $14,000 freight for a container coming to the United States. U.S. agriculture exports, because we have to compete with agriculture all over the world, cannot afford to pay out those kind of freight rates. The value of the cargo in those export containers is not that high. Therefore, the export revenue that the ocean carriers get for carrying the cargo westbound to Asia is more like 400, 800, maybe 14 or 15 hundred dollars. Now, some of our exports pay $3,000, but that's at the high end. So, ocean carriers are making the economic decision to forego carrying cargo outbound across the Pacific in order to quickly turn around the empty containers that arrive in Asia, filling them with cargo coming—consumer goods coming into the United States. Now, the reason they do this is because our agriculture exports originate where agriculture is grown and processed. The stockyards for beef are no longer in downtown Chicago. They are in places where there are fewer consumers, and thus fewer import distribution centers. So those containers to be loaded with our agriculture exports have to travel away from the gateway ports to inland points, to places like Kansas City, where our dried dairy comes from; Arkansas, where the pork comes from; and soybeans come from Minnesota. So, those export containers have to travel quite a distance and are not on the ship where the revenue is made: going outbound.
David Maloney, Editorial Director, DC Velocity 06:54
So, what's happening, really, is that these containers are going back empty, so that they could just be turned around a lot quicker once they hit Asia, and it's not giving you an opportunity to fill any of those containers. That's the basic problem, we're finding?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 07:07
That's correct, and the other aspect is that ocean carriers are imposing penalties on failure of containers to arrive at the terminals in time, or when they arrive too early to the terminals—the so-called demurrage and detention. The Federal Maritime Commission has viewed those penalty fees as unreasonable, spent two years developing guidelines to the ocean carriers as what are reasonable practices and what are not. Most of the practices underway today are deemed unreasonable by those guidelines, yet they continue. And the charges that the carriers are imposing are collectively in the hundreds of millions of dollars. Those penalty fees, which the FMC has already determined to be unreasonable, are in fact, more than the basic freight charges that the carriers charge to carry our exports. So, the freight budgets are more than double due to those penalty fees, the demurrage and detention charges. Those are putting quite a few exporters—as well, I would add, importers—in financial risk.
David Maloney, Editorial Director, DC Velocity 08:31
And we know there's not a lot of available capacity right now in the market, even in the trucking industry. There's very limited capacity with trucking, so it's very easy to rack up a lot of those charges, because there are delays within the system that just are inherent with the way things are right now.
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 08:48
Yes, and there are delays and difficulties that ocean carriers have in maintaining their vessels' schedules. So, therefore, if one is an exporter, it is difficult to get the cargo to the terminal at precisely the right window that the carrier has provided when the carrier is changing that window constantly, because the schedules of sailing are changing rapidly. That's why the FMC says those are unreasonable charges. Yet those charges continued to be imposed, and if exporters don't pay them, the carrier won't carry their cargo, even on those export containers that are still being loaded.
David Maloney, Editorial Director, DC Velocity 09:33
You mentioned some of the products that were affected. What are the most effective products, or what kind of products have a limited shelf life that would basically just rot before they could get to their destination because of some of these delays that you're experiencing?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 09:47
We find that, frankly, all of agriculture exporters' exports should be considered perishable. First of all, you have the obvious products. Those would be the chilled products, where you have to monitor temperature. Soybeans and hay go out. A lot of that soybean's animal feed. The hay, forage, is animal feed. So, if we can't get our hay, and soybeans, and animal feed over to Asia in a timely way, the animal feed might still be good, but those animals that depend on it may not survive. And that is why some of those countries over there have invested considerable effort, time, and money in developing alternative sources for forage and soybeans. When we prove to be undependable, that's what we lose.
David Maloney, Editorial Director, DC Velocity 10:49
So what can be done to alleviate the problem?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 10:52
First, folks are providing complaints—examples—to the Federal Maritime Commission in hopes, expectation that the FMC will self-initiate enforcement actions. At the same time, we are going to Capitol Hill. Over 140 of the 540 members of Congress have written letters—and we expect that number to double soon—written letters to the Federal Maritime Commission, to the Department of Agriculture, seeking intervention. Over 70 of the largest agriculture trade associations in the United States have written to President Biden and Secretary Vilsack of that Department of Agriculture, seeking intervention. And, finally, we are developing legislative remedies: amendments to the shipping act to mandate action, reasonable behavior by the ocean carriers. Look at, the situation in the world of commerce now is in turmoil due to the volume of imports coming into the United States and e-commerce. The ocean carriers and the ports cannot be blamed for that. That is a situation they are trying to adjust to. Neither the ocean carriers nor anybody else has enough capacity to handle this avalanche of imports into the United States. We seek together—agriculture exporters, together with import, all the big importers and the retailers, the manufacturers—we seek fair treatment by the ocean carriers. In other words, when the ocean carriers change their sailing schedule, and thus change the window of opportunity for loading the ship arriving the cargo to the terminal, the exporter should not be held responsible for failing to meet that window because the carrier's changed it at the last minute, and the carrier should refrain from imposing these demurrage and detention charges. The lack of capacity by the ocean carriers—enough containers, enough chassis, enough ship space—is now a global challenge.
David Maloney, Editorial Director, DC Velocity 13:27
Do you expect any kind of remedy anytime soon on this, or is this going to be something that we're going to be faced with for some time to come?
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 13:35
Well, first, as long as the import cargo continues to come in, and anybody who orders anything by e-commerce, that this flood of imports is going to continue well into the fall of this year and perhaps well into 2022. So, that flood, it will continue. We do believe that ocean carriers are going to gain additional capacity. We do believe that there will be exports and imports that are going to shift from the most troubled, congested ports, primarily on the U.S. West Coast and shifting more to the Gulf ports like, such as Houston, and more to the southeast ports, which are Savannah [Georgia] and Charleston [South Carolina], Norfolk [Virginia]. Already, at the East Coast ports, they have endeavored to address some of these problems of demurrage and detention charges in a very constructive way, and we'll see if they will continue to do so and thus attract more cargo from the most congested West Coast ports.
David Maloney, Editorial Director, DC Velocity 14:52
That's certainly a difficult problem, and we'll continue to track it. Thank you Peter, for being with us. We have been talking to Peter Friedmann, the executive director of the Agriculture Transportation Coalition. Thanks again very much for your time today. Peter,
Peter Friedmann, Executive Director, Agriculture Transportation Coalition 15:06
Thank you for covering this essential, critical, urgent issue.
David Maloney, Editorial Director, DC Velocity 15:13
Now, let's take a look at some of the other supply chain news from the week. Ben, you reported this week about the new efforts from the by the Biden administration to address our nation's crumbling infrastructure. Do you think there's a chance that something gets done this time?
Ben Ames, Senior News Editor, DC Velocity 15:27
That's a great question, Dave, because we've seen this scenario play out several times before. In fact, the phrase "infrastructure week," which is supposed to give a focal point for talking about the need for such a bill, has almost turned into a punchline in recent years. But theoretically, an infrastructure bill should have plenty of bipartisan support behind it this time around, for a couple of reasons. One, as we said, Congress has been trying to get something done in this area for years, no matter which party has the majority, and two, as anyone in transportation and logistics can tell you, the issue is, it's not a matter of opinion, the nation's infrastructure truly does need repair. We're talking about roads, bridges, ports, and rails. It has to happen sooner or later. Still, there's one major sticking point here, and that's how to pay for it. Transportation Secretary Pete Buttigieg has talked about an array of options, like raising the gas tax; borrowing the money—which they call in Washington deficit spending; partnerships with private industry; and another option is charging for the number of miles that vehicles travel on the roads. And this week, we learned that one industry group, the American Transportation Research Institute, or ATRI, said that mileage fee, also known as the vehicle miles traveled, or VMT, tax is going to need some changes before it would be a good fit for raising money for this infrastructure bill. So, ATRI is concerned that a VMT tax assessed on all of the nation's some 270 million private vehicles would be a really inefficient way to raise money. That's because the federal government would have to interface with a huge number of private cars, as opposed to a gas tax, where it really only collects the money from a handful of hundreds of different major gas vendors. Also, ATRI's worried about issues like the high upfront hardware cost, because to make a VMT tax work, you have to install these electronic dongles in every vehicle that digitally track and report the mileage; also about fees lost through evasion if people cheat or don't comply; and finally, about privacy concerns for drivers who have to report the number of mileage, the miles that they've driven.
David Maloney, Editorial Director, DC Velocity 17:47
Yeah, those sounds like a lot of tough challenges to fix. Are there some groups that still support a vehicle miles traveled tax?
Ben Ames, Senior News Editor, DC Velocity 17:55
Yeah, there are. And they have some big names among them. We mentioned Pete Buttgieg, of course, on the Democratic side, and also, on the Republican side, U.S. Representative Sam Graves, who's the ranking minority member on the House Committee [on] Transportation Infrastructure. So, you know, those are going to be two of the big leaders in this conversation, whatever happens. Also, on the industry side, the American Trucking Associations President Chris Spear—who's a familiar name in any of these discussions—he also said that a VMT is probably the way to go. In a statement about ATRI's research, actually, he said, most experts agree that some sort of VMT system is a part of the future. But he agrees that it needs some tweaks. So, as this infrastructure bill proceeds, we're going to see how some of those tweaks happen. For example, we might learn some lessons from some states that already use it, because it's worth remembering that several states like Kentucky, New Mexico, New York, and Oregon, already use a VMT, so we might be able to see how they tackle some of those problems. Another change might be that some people think that, as opposed to the ATRI study, the VMT tax wouldn't completely replace the gas tax, rather, it would supplement it. Or another option is that maybe it won't apply to all those 270 million private cars, but maybe just to commercial vehicles like trucks. So, there'll be a lot of details to follow as this plays out.
David Maloney, Editorial Director, DC Velocity 19:26
Yeah, there certainly will be, and I know that, right now, trucks are gathering that kind of information, now, for the other purposes, so it would be a lot easier to apply, but that's not really fair to truckers to have them pay the majority of it.
Ben Ames, Senior News Editor, DC Velocity 19:39
Great points. Yes, truckers have the ELD, the electronic logging device that a lot of them are required by law to have—by regulation anyway—so we might be able to get around that. But but you're right, there are a lot of fairness concerns remaining.
David Maloney, Editorial Director, DC Velocity 19:53
Yeah, certainly will be a major change from the current funding model ,and a lot that we'll be tracking in future months. Thanks, Ben. Sure thing. And Victoria, you wrote about how on-time delivery suffered greatly as a result of the major storms the battled Texas and other parts of the South last month. Just how bad was it?
Victoria Kickham, Senior Editor, DC Velocity 20:10
Yeah, it was pretty bad. We saw some evidence this week. So, we all know, natural disasters can wreak havoc on supply chain operations, and the data, as you say, on the winter storms in Texas are really helping to put that into perspective. So, I came across some information from a supply chain technology firm FourKites this week, which analyzed February data from its supply chain visibility platform. They found that nationwide shipment volumes and on-time delivery rates, as you say, declined sharply in mid-February, when the storms ravaged Texas and other parts of the South. I'm going to give you some statistics here, so bear with me: Manufacturing, food and beverage, and pharmaceutical industries bore the brunt of the problem, according to their research, and during the week of February 14, which was when the storms hit, they said total shipment volumes declined by 20% compared to the previous week, with manufacturing falling 31%, food and beverage 23%, and pharmaceuticals 19%. The storms had a similar effect on on-time delivery, which you mentioned, Dave, and rates there fell 32% overall during the storm week. The pharmaceutical industry was hardest hit by this measure, with on-time delivery falling 36% the week of the storms and dwell times on pharmaceutical shipments increasing 92% the week before the storms and more than 300% the week of the storms. FourKites called the dwell-time increases unprecedented and well above average dwell-time rates—dwell times, excuse me—across all industries. So, again, all of this information is nationwide data, so it underscores the ripple effects incidents like these have throughout the supply chain.
David Maloney, Editorial Director, DC Velocity 21:45
Yeah, sure. Sure does. Did they say how these set of storms compared to other recent storms?
Victoria Kickham, Senior Editor, DC Velocity 21:51
Yeah, they did. It's interesting, because I asked Glen ketki. He's the Senior Vice President at portaits, who conducted the initial research. And he said that overall, the delays and disruptions mirror those seen and other natural disasters. He gave an example as hurricane Laura, which struck Louisiana late and in late August of 2020. And he said the company saw similar declines in on-time delivery and overall shipments during that event. So, yeah, so things are pretty much, this is pretty much what happens when these these terrible natural disasters befall us. I should also point out, though, with the February storms, the volume rebounded fairly quickly, starting the following week. There was one segment that showed some residual delays, and that was the food-and-beverage industry. So, again, you know, all of this came on top of supply chain challenges and increased activity from the pandemic. We've been talking a lot about that. So, again, I thought it was just an interesting look inside the supply chain and a reminder of the challenges companies face, you know, in getting products where they need to go in a timely manner.
David Maloney, Editorial Director, DC Velocity 22:53
Right. And unfortunately, while most supply chain managers can figure out how to deal with a lot of the problems they encounter, we still can't do much about the weather.
Victoria Kickham, Senior Editor, DC Velocity 23:02
Exactly.
David Maloney, Editorial Director, DC Velocity 23:04
Thanks, Victoria.
Victoria Kickham, Senior Editor, DC Velocity 23:05
You're welcome.
David Maloney, Editorial Director, DC Velocity 23:06
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. And check out the podcast Notes section for some direct links on the topics that we discussed today. Thanks, Ben and Victoria, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity 23:21
Thanks, Dave. always glad to do it.
Victoria Kickham, Senior Editor, DC Velocity 23:22
Yeah, thank you. A pleasure to be here.
David Maloney, Editorial Director, DC Velocity 23:25
And again, our thanks to Peter Friedmann for being with us today. We encourage your comments on this topic and our other stories. You can email us at podcast@dcvelocity.com. We also encourage you to rate this podcast if your podcast platform allows for that. We do appreciate your feedback, and it really does help people to find us. And a reminde: Logistics Matters is sponsored by MHS. See why leading supply chain organizations turn to MHS as their trusted integration partner by visiting MHSglobal.com. We encourage you to subscribe to Logistics Matters on Apple, Google, Spotify, Stitcher, Amazon Music, Pandora—wherever you get your podcasts. Just search for "Logistics Matters" to find us. Our new episodes are uploaded each Friday. We'll be back again next week with another edition of Logistics Matters, when we will look at how sustainable packaging can make a huge difference for our supply chains, so be sure to join us. Until then, please stay safe and have a great week.