Charlie Elrod, Ph.D.
President & CEO, Natural Biologics, Inc.
Board Member, NEAFA
As we focus on transportation in this issue of the NEAFA Newsletter, we should realize that many of our members are affected by ocean freight and the ongoing bottlenecks at U.S. ports. As both an importer of raw materials and an exporter of finished goods, we know all too well what that situation has looked like for the last year-and-a-half: containers of ingredients we bring in from Brazil getting bumped from one ship to the next, to the next, before finally leaving port one to two months later than expected; the freight cost of a container coming from Malaysia going from $2,300 in May 2020 to over $20,000 by late summer of 2021 (see this article from The Economist); or, sitting on a container of finished product for three months waiting for a booking to get it out to Australia. Is there any end in sight in 2022?
The short answer is no. We all remember the Ever Given, the container ship that blocked the Suez Canal for seven days. That catastrophe really only highlighted the fragility of the global supply chain. Add to that things like Covid-19-related port closures, power shortages in China, truck driver shortages at ports, surging consumer demand for imported goods and huge imbalances of containers around the world, and you begin to see the global log jam which will take some time to unwind. Unfortunately, the trade lanes most impacted by all these factors were those between Asia and North America. While the Los Angeles/Long Beach port hub has gotten the most attention for backlogs, all U.S. ports have been affected by longer than usual wait times for ships to dock and unload. Container arrivals at the major east coast ports are up by 40% year-over-year. At the same time, the U.S. is reporting a current deficit of ~80,000 truck drivers, making it even more difficult to move those containers out of ports in a timely fashion. Most projections are that these issues will take most of 2022 to clear out despite presidential edicts or maritime law reforms. Passage this month of the Ocean Shipping Reform Act, which AFIA, AFBF and others strongly supported, will bring welcome relief from usurious ocean freight fees, but will do little to clear the current backlogs in our ports. What this means for many of our businesses is the need for higher inventories to buffer against these disruptions, leading to higher inventory carrying cost, slower turnover and squeezed margins. But as we heard at the annual meeting, we all need to work on our resilience in these tougher times.