Preparing for what’s next

Transportation has presented numerous problems for the recycling industry in recent years, and the situation was made worse during the height of the coronavirus pandemic. While some issues have been resolved, freight rates have not dropped significantly, and ports are still struggling with congestion and capacity issues.

During the 2022 Paper & Plastics Recycling Conference in Chicago Oct. 19 -20, Nini Krever, export sales manager for Wilmington Paper Corp., Pine Brook, New Jersey, led a panel discussion on ways businesses can overcome lingering transportation issues and improve freight operations.

The panel included Gregory Edwards, director of sales and strategic export accounts for Virginia International Terminals, Norfolk, Virginia; Karyn Booth, partner and chair of the transportation practice at Thompson Hine LLP, a Cleveland-based law firm; Krissy Van Niekerk, head of digital and forwarder sales at Maersk, headquartered in Copenhagen, Denmark; and Matt Schrap, CEO of Harbor Trucking Association in Long Beach, California. Panelists discussed several transportation issues still facing the industry and the outlook going into 2023.

Growing issues

As a result of COVID-19, there have been raw material shortages, limited availability of some products, production slowdowns and stoppages, employee hiring and retention issues, port shutdowns and shipping delays. Panelists agreed that proposed policy changes could continue to affect the transportation of materials even as the pandemic slows.

“A lot of things that happen out West typically have a tendency to blow east, whether it’s environmental policy, labor policy, other regulatory policy [or] safety,” Schrap said. “There’s a lot of challenges that our industry faces daily.”

Specifically, the trucking industry in California is dealing with the impact of Assembly Bill 5, which applies an ABC test to determine independent contractor status. An ABC test is used in many states to determine whether a worker is an employee or an independent contractor and thereby eligible for workers’ compensation or unemployment compensation.

Schrap said this law removed the ability of a single-truck owner-operator to lease to an overlying motor carrier, eliminating that business model. A version of the bill is being considered by the U.S. Department of Labor, he added.

Other regulations in California that have been implemented over the years present challenges for the transportation sector, Schrap said. The California Air Resources Board passed several regulatory policies for diesel users beginning in the 1990s and became more aggressive once it deemed diesel particulate matter is a toxic air contaminant responsible for thousands of premature deaths annually in California. As a result, the board introduced rules that drove many of the federal diesel engine standards. He said this includes requiring the purchase of certain types of engine controls for diesel vehicles with a gross weight of more than 14,000 pounds.

Beginning in 2023, nearly all vehicles must have engines certified to the 2010 engine standard or equivalent, which Schrap said will remove about 20 percent of trucking capacity from the ports of Los Angeles, Long Beach and Oakland.

“Starting on Jan. 1, 2024, [California] will have a zero-emissions entry standard for any first-time heavy-duty vehicle put into port service,” he said. “That means hydrogen or battery electric [will need to be used].”

Schrap said this is not an opportunity for alternative fuel or renewable fuel, but rather a tailpipe-driven standard that requires every truck that registers after Jan. 1 to be zero-emission.

Booth, who is based in Washington, added that politicians have increasingly become concerned about rising ocean freight costs, port delays and difficulties securing bookings and containers.

“There has been a lot of pain with respect to exporters and importers and what they’ve had to endure and all of the business interruption and the challenges,” Booth said. “‘Supply chain’ is the new buzzword in Washington, D.C.”

Ongoing congestion partly is to blame because of low schedule reliability. Edwards of Virginia International Terminals said on-time vessel performance has been perhaps the biggest challenge ports have faced in the last few years, though the numbers are starting to improve. Before the pandemic, vessel performance was up to 90 percent, Edwards said, but during the pandemic, that number dropped to 10 percent and has slowly increased to about 30 percent.

At the beginning of the year, the Wall Street Journal reported that a surge of imports backed up ports on both coasts. Large backlogs of containers and long wait times at terminals on the West Coast led to ships being redirected to the East Coast, causing backups in major ports such as the Port of Charleston in South Carolina. The congestion was in part because of a vast collection of empty containers waiting to be shipped back to Asia.

Now, goods manufacturers and importers have begun shifting supply chains from the West Coast to the East Coast because of prolonged labor contract negotiations with dock workers in western ports, which began in May, according to a separate Wall Street Journal report.

As a result, the Journal says the neighboring ports of Los Angeles and Long Beach handled 630,231 loaded inbound containers in October, down 26 percent from the same month a year ago. It is the lowest volume of goods coming into the ports since May 2020. However, loaded imports at the Port of New York and New Jersey rose 12 percent year over year in September.

Warehouse capacity in the U.S. also has been affected by the pandemic. An increasing volume of goods that need to be moved in and out of warehouses has caused capacity constraints, Schrap said.

“I’ve been to these warehouses; I’ve seen them bursting at the seams,” he said.

According to a report from GlobeST, a New York-based news organization covering commercial real estate, only about 1 percent of warehouse capacity is available. It has become such an issue in the U.S. that companies are prepurchasing leases on space even if they don’t need it at that moment and purchasing leases for warehouse space in buildings that haven’t been constructed yet.

In a follow-up interview, Joe Harris, spokesman for the Port of Virginia, says companies have resorted to temporarily storing products in shipping containers and trailers and to using drop lots— vacant patches of land at ports—to store cargo and supplement warehouses.

According to CTSI-Global, a transportation logistics firm in Memphis, Tennessee, this practice strains already low numbers of available sea containers and trailers, causing congestion at warehouses and distribution centers.

Photo by Mark Campbell Productions

Potential solutions

The Ocean Shipping Reform Act of 2022, which Booth helped to author, is designed to help ease some tensions around container shipping. The legislation gives the Federal Maritime Commission (FMC) the authority to regulate ocean carriers and establishes new power for the FMC to register shipping exchanges. It also authorizes the FMC to self-initiate investigations of ocean common carriers’ business practices and apply enforcement measures.

Additionally, the legislation requires ocean carriers to certify that late fees, or detention and demurrage charges, comply with federal regulations. This shifts the burden of proof regarding the reasonableness of charges from the invoiced party to the ocean carrier, Booth said.

Under the legislation, ocean carriers are prohibited from unreasonably refusing cargo space accommodations for U.S. exports and from discriminating against U.S. exporters. It also requires ocean common carriers to report to the FMC every quarter on total import/export tonnage and 20-foot equivalent units (loaded or empty) per vessel that makes port in the U.S.

Booth said one of the ways operators can ease transportation strain is by learning how the Ocean Shipping Reform Act can benefit them. This means learning how the FMC will weigh in on things like demurrage and detention and how those policies are shaped. She also encouraged businesses that have been charged excessively to come forward because the law protects companies that file complaints from retaliation.

“[The act] is intended to influence the behavior of regulated parties and hopefully start improving the environment in which you’re operating,” Booth said.

Maersk’s Van Niekerk added that issues such as fuel costs and labor can be addressed using digital solutions.

“The need for visibility, quick communication and efficient operations is stronger than ever,” Van Niekerk said. “It means there’s an opportunity to improve your business by investing in the digital transformation of what you do.”

One such way is investing in digital infrastructure, which Van Niekerk said might mean partnering with a large company that’s already operating in the digital information space. This includes E2Open, Freightos and CargoSphere, which can help move information between a company and its vendors, suppliers and carriers. A company also can familiarize itself with what carriers offer to improve digital infrastructure.

Edwards also said new warehouse capacity soon will be available in Virginia for companies on the East Coast. She estimated several million square feet of new capacity will be online within the next two years.

Photo by Mark Campbell Productions

The new normal

The panelists also discussed what normal could look like in 2023 and beyond.

Van Niekerk said Maersk is seeing a downturn in imports and exports as fewer containers enter the U.S., while more sit in ports.

“Historically, imports have always exceeded exports 2 to 1 [or] 3 to 1, depending on the trade,” Van Niekerk said. “So even as we potentially reduce services for import cargo, there’s still more than enough space for exports. Even if we consolidate some services to try to improve our schedule reliability, we expect to have more than enough space … on that service for export customers.”

She said the best news for exporters with an import market downturn is that it allows for cleaning up some of the congestion at ports. It also provides the opportunity to expand windows needed to engage cargo.

Schrap added that from his perspective, the market and financial outlook are not looking good for the first quarter of 2023. According to those whom Schrap has spoken with about this subject, the country is heading into a recession.

Van Niekerk agreed, saying the recession is expected to come in the fourth quarter of 2022 and will carry through to the second and third quarters of 2023. For this reason, she said, demand for products won’t increase, thereby easing the lingering congestion issues at ports.

“I think the main thing is that we have to stop searching for this new normal and agree that whatever comes next is going to be completely different from what we had in the past,” Van Niekerk said. “It’s just about preparing ourselves to continue to be agile.”

The author is digital editor of the Recycling Today Media Group and can be reached at akamczyc@gie.net.