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China Trade, Pandemic Increases Transportation Costs For Traders

Alongside the COVID-19 coronavirus pandemic and increased tensions with China, U.S. importers built up their inventories to hedge against future supply chain conflicts. As a result, peak shipping season came earlier this year, pressuring logistical capacity wh

Benzinga · 08/24/2020 22:40

Alongside the COVID-19 coronavirus pandemic and increased tensions with China, U.S. importers built up their inventories to hedge against future supply chain conflicts.

As a result, peak shipping season came earlier this year, pressuring logistical capacity which drove transportation prices to historic highs.

Higher Rates Visualized

Per the Maritime Import Shipments by Port graphic below, the Port of Los Angeles, California saw a modest uptick in U.S. imports coming from China.

With air transportation down, U.S. importers relied heavily on trade by water. Due to the increased demand for ships, pricing on 40-foot containers from China to North America's Pacific Coast hit all-time highs.

Volumes Complicate Labor, Efficiency

Additionally, increased freight volumes may lead to volatility in the labor market.

In 2014 and 2015, increased volumes led to port strikes and strains on major rail companies such as Berkshire Hathaway Inc-owned (NYSE: BRK-A) (NYSE: BRK-B) BNSF and Union Pacific Corporation (NYSE:UP). The longer load times led to significant delays in rail movement to and from the area.

With rail congested, many companies are looking to move imports by truck. Due to this, according to the Outbound Tender Volume Index, truckload volumes from California also hit record highs.

Current Climate Justifies Rates

With volumes surging, trucking companies can justify higher rates.

However, higher rates often lead to contracted shipments. As a result, Kevin Hill, Director of Editorial and Research at Freightwaves, believes it will be sometime before companies demand higher prices.

“It does flow through eventually. It usually takes 6 months to a year before companies really try to ask for price increases from their customers though,” Hill said.

“It is a bit uneven depending on the industry.”