Global Supply Chain Disruptions May Affect Railroads

International shipping is being hindered by container shortages, congestion at ports, high shipping prices and limited availability of dockworkers and truck drivers.

“‘I’ve never seen anything like this,’” Lars Mikael Jensen, head of Global Ocean Network at A.P. Moller-Maersk, the world’s largest shipping company, told The New York Times.

The news report said there has been a surge of orders from factories in China that is sent to North American in containers.

The orders are being driven by increased ecommerce in America.

That has resulted in containers accumulating at American ports and thus creating shortages of the boxes in Asia.

Other containers have been piling up unused in Africa and South America countries because shipping carriers have concentrated their vessels on their most popular routes, which link North America and Europe with Asia.

Pileups of containers also have occurred in Australia, New Zealand and India.

Shipping companies have reaped record-high freight prices with shipping company Maersk reporting more than $2.7 billion in pretax earnings in the last three months of 2020.

The situation has led to higher costs for transporting American grain and soybeans across the Pacific, which in turn is could increase food prices in Asia.

The container shortages might last through the end of the year, some industry observers said.

Railway Age reported that North American railroads could be affected by having grain shipments disrupted.

Jim Blaze, one of the magazine’s contributing editors, said that under normal circumstances containers are loaded with grain at such inland terminals as Chicago and Kansas City for export to Asia.

But ocean carriers are increasingly unloading containers of consumer goods at California ports and immediately returning the containers empty to Asia without loading them with grain or other American exports.

This has resulted in supply chain disruptions in some places although Blaze said the history of logistics is littered with such occasional disruptive trade patterns.

He said it is a matter of back haul economics in which some commodities are seen as more valuable than others and thus will be favored by shipping companies.

Hurt in these scenarios are back haul “filler” customer whose markets are disrupted in the head-haul direction.

“This is nothing new in the history of trade routes. Those risks should have been vetted in their business-case due diligence,” Blaze said.

Blaze believes global buyers at the delivery end of supply chains will act to re-balance their logistics costs and reliability,.

He said they will be do this by changing supply sourcing and transport hub (port and rail link) geography.

Similar measures were undertaken, for example, in response to labor strikes at West Coast ports about a decade ago.

Blaze said there may be longer term significant loss of market share for BNSF and Union Pacific to Norfolk Southern and CSX as more containers are routed to East Coast ports rather than West Coast ones.

He predicted that events of the past year during the COVID-19 pandemic are likely to accelerate the pace of this shift in maritime/rail container trade lanes.

Also likely to be affected are intermodal role players such as J.B.Hunt and Hub Group because many maritime smaller-cubic-capacity TEU (20-foot-equivalent unit) and FEU (40-foot-equivalent unit) containers are transloaded at ports such as Los Angeles and Long Beach to 53-foot domestic boxes for long-distance rail moves.

Shifting traffic patterns could mean fewer of these transload moves.

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