Rampant port terminal congestion, particularly in the key ports of Los Angeles and Long Beach continues as of this writing, and the contagion is spreading inland. The damage has been widespread, and controversy will continue for months to come as detention and demurrage bills are presented and protested. Could all this have been avoided?

Tracing things back to the root cause, the answer is: of course. There are not too many events that can drive cargo surges like that which we have just experienced, but now we know that the threat of 25 percent tariffs is one of them. It turns out that not only are trade wars not easy, but also that significant collateral damage can occur even if the war itself is avoided in the end.

But decisions on tariffs lie far beyond the realm of the participants in the supply chain. Was there anything that they could have done differently to avoid the recent chaos?

The stage was set by the ocean carriers, whose efforts in the summer to reduce capacity to meet a perceived reduction in demand probably overshot the mark. As a result, the system entered the peak season with some backlogs already in place.

If the ocean carriers loaded the congestion gun, then beneficial cargo owners (BCOs) pulled the trigger. The opening bell was the Aug. 2 announcement by the Trump administration of the possibility of 25 percent tariffs on a wide range of imports from China, followed by another announcement on Sept. 17 that contained a deadline of Dec. 31 for triggering the higher rates. Importers swung into action, production was upstreamed, and all efforts were made to move volume into the US prior to the end of the year.

As is so often the case these days in the international supply chain, decisions that made sense individually created collective chaos. Each BCO made its own calculation balancing the potential cost of the tariffs versus the inventory and warehousing costs that would be incurred by bringing in goods months early. But obviously they did not factor in the costs that were created by their collective action, including detention, demurrage, and sky-high warehouse and dray rates.

As volume originating in China began to spike, ocean carriers, with abundant excess capacity at their fingertips, were more than happy to lay on unscheduled extra-loaders to move the freight. Again, it made individual sense because if one carrier wasn’t willing to add capacity to move the surge, then the BCOs would simply move their freight to another carrier that was more willing to accommodate them by ensuring that the freight would get moved in time. The ocean carrier would ensure that the cargo would reach the United States by Dec. 31. What happened thereafter was somebody else’s issue.

The die was therefore cast because, unlike the steamship lines, none of the North American links in the supply chain had large amounts of unused empty capacity at their disposal to handle the surge of inbound cargo. That included port terminal operators, chassis providers, railroads, coastal warehouses, and port cartage carriers. Essentially, if the US West Coast ports were the equivalent of a cargo bathtub, instead of freight coming out of the faucet, it was pouring in via a firehose. But the bathtub drain was still the same size as always.

Solutions are easy to state but hard to implement. Underlying it all is the fact that the inland system doesn’t have the capacity to handle exceptional mega-surges, and it’s unrealistic to expect that it will at any time in the future. To do so would require substantial costly excess capacity that would be needed only occasionally at best. This would be capacity for which BCOs will likely be unwilling to pay until and if they need it.

From a BCO standpoint, this means that in the rare instances where global forces are in play, shippers need to realize in advance that everyone will be subject to the same issues and likely will react in the same manner, meaning that the main gateway(s) will likely be overloaded. Therefore, business as usual will not suffice, and secondary, more costly or slower routings may need to be proactively employed. Barring that, the shipping calculus needs to include a clear-eyed view of possible congestion costs.

Additionally, ocean carriers need to begin looking beyond their current horizon which begins and ends where the water does. The seeds for this are already being laid as forward-looking carriers are beginning to reach inland as a means of escaping the commoditization of ocean container transport. The erratic short-notice push and pull of blanked voyages and extra-loaders puts unacceptable strains on the rest of the supply chain and needs to be tamed.

Finally, the fragility of the port-to-consignee portion of the supply chain needs to be reduced and resiliency increased. Again — much easier to say than to achieve.

While, ironically, the root cause of this 2018 surge — 25 percent tariffs on Jan. 1 — turned out to be a mirage, the problem has only been delayed for now and looms again at the end of this month. In today’s world of increasing volatility, we don’t know where the next challenge after that will come from. But I’d be willing to bet another one is waiting beyond the horizon.

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