Port congestion is an increasingly dangerous threat to maritime logistics. Because of port congestion shipping companies can be forced to increase their operational costs.
But it doesn’t stop there. The congestions also affect the cargo. When stuck at port, the cargo can miss its connecting ships or trucks to different destinations and give scheduling problems.
But what is port congestion?
Port congestion is when ships arrive at the port and cannot load or unload, as the port capacity is already full. The only choice for the ships it to queue up and wait for their turn to get a spot at the port.
And the average waiting time at the ports has gone up. Let’s take the German Port of Bremerhaven. The waiting time has increased from 45 to 55 hours.
Port congestion creates pressure on cargo owners, shipping lines, and in turn on port management. The port management needs to increase efficiency in handling the ships, expand the infrastructure of the ports, and hire more workers.
These factors collectively force the shipping companies to increase operational costs, as they might lose their credibility to transport goods at the promised time. Congestion also means the cargo can miss their connecting ships or trucks to different destinations and scheduling problems.
Shipping companies and port congestion
Ports are an integral part of international trade. According to UNCTAD, Maritime Logistics represents 90% percent of the entire world supply chain. But what is blocking the efficient execution of activities between ships and ports is port congestion. And this means shipping companies are losing time and consequentially money.
Some of the major costs apart from time is increased fuel consumption and at times accidents. Every other cost that could arise from this is proportional to the time the ship spends on the port waiting. In 2012, the National Bureau of Economic Research stated that when the ships don’t unload and are in transit, they pay 0.6% to 2% of the value of the goods every day.
Another impact of port congestion, increased anchorage wait time. Ships usually wait at the anchorage before they can enter the port. Anchorages are locations where the ships can halt and protect themselves from bad weather.
Port congestion and demurrage are deeply intertwined. The container user is the one being charged demurrage – let’s say that’s you. You’re leasing a one-way container. You have a set amount of free-days to deliver the container back to the shipping line. But for some reason – it might be because of port congestion – you don’t deliver it back in time. You are then charged demurrage for every day you’re late. You will usually have between 3-5 free-days. Days that are used on unloading and returning the container. Any extra time beyond the agreed time is called ‘Laytime’ and the penalty is charged. Our blog on Demurrage and Detention explains in detail on how these charges are levied.
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While demurrage is a penalty for holding the ships longer, the cargo owner will also pay up. Because the cargo owner pays Port Congestion Surcharge to the shipping lines. There is no one way to calculate the Surcharge. It usually involves the cost of running the ship while waiting, such as fuel expenses. Ships usually try to travel faster in the sea to make up for the delay in ports. The Surcharge may be charged as a percentage of the cargo or a percentage of one TEU.
According to the House Committee on Transportation and the Metro Manila Development Authority, the Philippines lost 2.5 billion (42 million euros) Philippine pesos a day in the year 2014 due to Port Congestion. According to Chittagong Port Authority in India, shipping businesses stand to lose money because of congestion. Up to as much as 80 crore Rupees (10 million euros) a month.
What are the main drivers for congested ports?
Globalization has been a major contributor to the increase in World Logistics. The technology is developing. The global production is multiplying. All of this leads to more cargo, that needs to be distributed around the globe. This increase in demand has skyrocketed the level of goods being transported in all directions contributing to Port Congestion eventually.
To meet this global demand, the world’s second-biggest shipping line Maersk has been constantly increasing its fleet size. As of July 2019, Maersk has the capacity for 4 million TEUs. Maersk owns 2.3 million of them. And the rest 1.8 million is chartered capacity. 31 of Maersk’s ships have a capacity of 18000 TEUs each. Maersk owns 18.5% of the total world merchant container fleet.
Businesses around the world continuously expand their business capabilities. So do the shipping lines, by expanding their fleets. But while everything has been growing, the ports haven’t followed in their footsteps. Something that we can now see, with the issues of managing the incoming demand. Especially, the infrastructure and workforce are following behind.
Apart from the root cause identified here, we have major port-related blockades that cause Congestion,
Other causes for port congestion
- Uncertainty in the income of goods. The port management tries to assess the volume of goods, that arrive at the port. However, the calculation can be different from when the ships arrive. But the issue now is that the port does not have enough space to hold these ships. Which brings us to the next reason.
- Lack of Labour: Towing, pilotage, and clearing the ships of the port. All these tasks require workers. And the port might not have enough workers to be able to keep up. But workers are also known for leaving the industry – especially because of low wages and mistreatment. At the same time, workers also go on strikes demanding better pay. All of this means an unstable workforce and work that isn’t done on the ships.
- Loading and Unloading Equipment: More and more ships have to find space at the ports. That means the demand for loading and unloading equipment is raising. Something the ports might not always be capable of withstanding.
- Locks: There might be a set of locks a vessel has to go through before it can dock. And especially here, there’s a high chance that congestion will occur. Because when vessels have to go through locks, others will be waiting for their turn.
- Customs Clearance: Customs is another reason for congestion. Sometimes the procedures are very strict and there are many reasons goods might not be cleared. When there are threats of terrorism in place or drug control measures, it might affect the flow of goods.
- Weather: Weather, which is also an unpredictable phenomenon can cause congestion. For instance, ice formations in winter.
What can you do against Port Congestion?
Congestion is a complicated phenomenon that shipping companies and Governments are trying to solve. Despite the complexity, some attempts have been made to try and ease it.
- One tested method in the Port of Los Angeles is the ‘free-flow’ container delivery system. Usually, truck drivers come to pick up specific containers they are assigned to. On average, at least 3 containers have to be moved, for the drivers to get the container, they’re transporting. But let’s imagine that the front container is assigned to the available driver. Distributed that way, it’s been proven the time for the driver to get their container can be cut in half.
- Ports in the US have also been facing heavy congestion. In 2018 Ports in Oakland introduced night shifts. This compensates for the delay and expedites the clearing of ships from the ports.
- Port Expansion and developing the infrastructure. It can be done in a way to deal with increasing demand. This, so it will ease the time burden for many elements that use the port. For instance, chassis availability, building the skills of the port workers, retaining the workers with proper remuneration.
- Many ports in the world haven’t taken advantage of digitalization. The digitalization of port operations can help in crunching port data and can help anticipate any shortcomings.
- An alternative solution would be to use SOC Containers instead of COC Containers because they don’t need to be returned to the port but instead to the depot of the owner of the container. This might not eliminate the problem of port congestion; it helps avoid demurrage and detention charges for the cargo owner.