Congestion & Detention: How Businesses Are Flipping the Bill for Supply Chain Disruption
Let’s start with a hypothetical. Say you’re a small business that sells thousands of patriotic pinwheels on Independence Day. Ironically, you need to order these pinwheels from a factory in Guangzhou, China. Being the savvy business owner that you are, you realize that we are smack in the middle of a global supply chain crisis, which means you’ll have to order your pinwheels by early May at the very least for them to arrive by July 4th.
Fast forward a month, using your handy electronic data interchange software, your container of goods has arrived at a U.S. port waiting to be picked up. Just as you planned, you still have plenty of time! A few days pass…a few more days pass…a week passes, and your pinwheels are still sitting idle. You finally come to the realization that domestic intermodal transportation is so backlogged that there’s little chance you’ll receive your goods by the 4th.
Here’s where things really start to hurt. Weeks after the 4th—after you’ve missed out on your potential profits and you’re in the hole for goods you never received, the warehouse starts charging you storage fees until your container is picked up. These pesky fees can reach thousands of dollars and until they are paid, your patriotic pinwheels aren’t spinning. Your initial loss starts turning into a dangerous financial threat to your business.
While this is a satirical example, the scenario is very real. According to the Journal of Commerce, one importer was forced to pay upwards of $11,000 in storage fees to secure a container filled with over $250,000 in goods. Some carriers, such as Maersk, are going as far as offering their customers an ‘Online Demurrage & Detention Calculator’ to estimate their unforeseen costs while stuck at the terminal.
Domestic transport can’t get goods out of warehousing and intermodal terminals quickly enough. Rail traffic is nearly 14% higher YoY (FreightWaves) and carloads are up 8.3% YoY. Overall, intermodal volumes are 18.5% higher. It’s easy to say that all parts of the supply chain should be operating 24/7 but unfortunately, labor shortages are nothing new in the freight industry, which only adds insult to injury during this crisis.
Unfortunately, there’s no silver lining in this situation except for how we might learn from these events in the future. In the short term, the most realistic outcome will be continued rate hikes to try and decrease shipping volumes. Especially with peak shipping season right around the corner, these increases will continue placing a heavy burden on customers and businesses.
At M.E. Dey, we are working with our clients to keep them informed on their shipments and will be doing everything in our power to keep their best interests in mind. A recent update from President, Sandi Siegel, mentioned that we are doing our best to reroute cargo to avoid congested ports and we are actively collaborating with industry affiliates to work towards a productive solution.
Regardless of the supply chain stresses, we are all facing, we hope you had a safe and healthy Independence Day, hopefully with a patriotic pinwheel in hand.