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Interview with an Expert

Andrew Bower, the Director of Sales for OEC Group’s Liquid Logistics Division, discussed the state of North South trade between US and LATAM. He also offers advice to shippers on how to best navigate the current market.

What are some of the biggest challenges in North-South trade right now?

On our side, many Gulf Coast ports are either experiencing severe backlogs or facing frequent skipped calls due to congestion. Both backlogs and skipped calls are often caused by the huge growth in Far East import volumes. In Latin America, specifically northernmost countries with ports that carriers often use as trans-shipment hubs, there are also severe problems with congestion and missed connections. These difficulties are a result of many carriers removing vessels from those lanes to use elsewhere, changing their model from direct call services and switching to hub and spoke. While all calling ports are still served, transit times have suffered, and effective capacity is typically seriously diminished by the second leg of transport. Reallocated vessels from North-South lanes have been reassigned to other trades with more traffic and significantly higher rates, or they are rotating with other vessels that have to be dry docked for maintenance.

Houston and New Orleans are structurally two of the biggest ports in North America but not in terms of container traffic. Over the last few years they’ve processed more freight than ever before, but they are still relative newcomers and are having difficulty adjusting to recent surges in container traffic. To their credit, both ports have a number of expansion projects in progress, but the high volume of imports during and directly following the prolonged impact of COVID-19 is more than they could have been expected to handle.

How are shippers adjusting to these new realities?

At first, most North-South shippers reacted very slowly because there were little to no immediate repercussions from the booming trans-Pacific trade. These shippers typically trade exclusively along North-South lanes and rarely experience any delays to their specific bookings. Over time, skipped calls, blanked sailings, and vessel delays forced some customers to realize their traditional supply chain plans weren’t working. That made them investigate underlying causes and consider alternative routes that were potentially more expensive.

What are some things shippers need to understand about the current North-South environment?

First and foremost, shippers who operate exclusively in North-South trade lanes need to understand that their business can be impacted by factors outside of their core routes.

Second, paying more to keep your goods moving (maintaining velocity) is the only short-term solution to prevent a growing backlog of pending orders. Manufacturers, customers, and retailers can only look to suppliers that are able to deliver their goods on time. If you consider the true cost of delays, like money lost due to halted production, lack of inventory, and any other opportunity cost situation, keeping your inventory flowing and using secondary and often more expensive routes are likely to improve your bottom line.

Third, an understanding of the market can help maintain and build new relationships. Educating the end consumer on recent market difficulties is important for them to understand why their costs are higher. Understanding the market will build trust with consumers while allowing them to accept that the higher costs are legitimate. This will give them the agency to adjust their own supply chains to current market demands.

Finally, shippers must accept that the old market is gone for now, and it’s not expected to come back. The faster shippers realize that, the faster they’ll have success.

Does it look like the market will remain consistent for the near future so that shippers can catch up?

It’s difficult to make concrete predictions in this environment. ILWU negotiations have the potential to create a brand-new set of difficulties, and you can see with current shutdowns that China’s zero-COVID policy can still pop-up and cause global disruptions. Even though a lot of these issues don’t seem directly involved in North-South trade, they will have an overflow effect and potentially cause further disruptions.

What is best thing that shippers can do to navigate this environment?

Shippers should work with their industry experts to gain a better understanding of market constraints. That knowledge will allow them to consider alternate routing options and help with their overall supply chain planning. This will also give some shippers the ability to describe the climate to their clients. Bottom line, the earlier you reach out to logistical partners and book early, the more success you’ll have navigating our evolving market.

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