An increasingly dangerous threat that Maritime Logistics is facing right now is Port Congestion. It is when ships arriving at the port 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. The average waiting time at the ports have gone up, for instance at the German Port of Bremerhaven it has increased from 45 to 55 hours. There is a chain of problems that lead up to Port Congestion, which is then followed by its own set of bad consequences.
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.
How are shipping companies affected because of 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 congestion. And this means shipping companies are losing time and consequentially money. Some major costs apart from time would be, fuel consumption, and at times accidents. Every other cost that could arise from this is directly proportional to the time that 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.
Demurrage is deeply intertwined with Port Congestion. Demurrage is charged to the owner of the cargo on the failure to release the ship back to the shipping line within the agreed time. Usually, a period of 3-5 free days is given to unload and return the ship. Any extra time beyond the agreed time is called ‘Laytime’ and a penalty is charged. Our blog on Demurrage and Detention explains in detail on how these charges are levied.
While demurrage is a penalty for holding the ships longer, the cargo owner also needs to pay 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, Philippines lost 2.5 billion (42 million euros) Philippine pesos a day in the year 2014 due to Port Congestion. The Chittagong Port Authority (CPA) in India, reports that shipping businesses could lose 80 crore Rupees (10 million euros) a month because of congestion.
What are the main drivers for congested ports?
Globalization has been a major contributor to the increase in World Logistics. The development in technology, increase in global production has multiplied immensely, leading to the distribution of these goods across the globe. The competition in the markets makes sellers increase their competitive ability and they try and send their products to customers in markets far beyond their reach which is enabled by Technology and carried out by Logistics. 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 biggest shipping line Maersk has been constantly increasing its fleet size. As of July 2019, Maersk has the capacity for 4 million TEUs, out of which 2.3 million is owned capacity and 1.8 million is chartered capacity. 31 of Maersk’s ships has a capacity of 18000 TEUs each. Maersk owns 18.5% of the total world merchant container fleet.
While businesses around the world have expanded business capabilities and the shipping lines have expanded their fleets, the ports haven’t gone through any transition to manage the incoming demand. The infrastructure and workforce haven’t seen significant growth.
Apart from the root cause identified here, we have major port-related blockades that cause Congestion,
- Uncertainty in the income of goods: Even though port management do their best to assess the level of goods that arrive at port, the calculation could differ when the ships arrive at the port. 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: The port might not enough workers to help with towing, pilotage, and clearing the ships of the port. Low wages and mistreatment are some of the reasons workers are known to leave the industry. Workers also go on strikes demanding better pay, which is work not done on the ships.
- Loading and Unloading Equipment: Due to the overwhelming ships at the port, there might not be enough loading/unloading equipment to help all the ships.
- Locks: There might be a set of locks a vessel has to go through before it can dock, and chances are congestion happens here as many are vessels waiting to go through the locks.
- Customs Clearance: Customs is another reason for congestion, as sometimes the procedures are very strict, goods might not be cleared for many reasons. 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 it?
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 assigned to them and on an average, a minimum of 3 containers need to be moved to get the assigned container. But instead, if the first container is assigned to the next available driver and so on then it has proved to cut the time into half.
- Ports in the US have also been facing heavy congestion. Ports in Oakland have introduced night shifts since 2018 to compensate for the delay and to expedite the clearing of ships from the ports.
- Port Expansion and developing the infrastructure in a way to deal with increasing demand will ease things 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.