BRi USA NEWS - Shanghai Pudong Airport Continues to Struggle with COVID Cargo
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Two years before the expiration of the current West Coast longshore labour agreement, the risk of major port disruption akin to what was last experienced five years ago has not abated, despite the pandemic that has sent the US economy into a steep decline.
Several JOC sources believe that labour and management remain on a collision course over the issue of labour-saving automation at West Coast marine terminals, particularly at Los Angeles and Long Beach ports, by far the largest West Coast container gateway.
For a number of reasons, some believe that employers will be unwilling to concede to any rollback of their rights to automate when the current agreement expires on July 1, 2022. The primary reason is that cargo handling costs on the West Coast are going up owing to regulation and as the port range continues to lose market share to Canada and the US East and Gulf coasts. Automation, though expensive to implement, is an option terminals need in order to address rising costs. On top of that, there is the estimated $4 billion marine terminal operators will have to spend to install zero carbon cargo handling equipment at LA–Long Beach terminals in compliance with the 2030 Clean Air Action Plan.
The existential threat of automation
From the union’s perspective, automation is threat, given that the technology needed to eliminate many dockworker jobs exists today and is in use in various forms at many terminals. The International Longshore and Warehouse Union (ILWU) sees itself as the last defines against port automation.
Depending on how the economy recovers in two years’ time, the public may not welcome another economically devastating strike such as in 2014 and 2015 during the last ILWU–PMA contract negotiation. Knowledgeable sources say there is little doubt that automation will be a major issue for the union when negotiations begin, likely in early 2022.
Shanghai Pudong Airport Continues to Struggle with COVID Cargo
Cargo terminals at Shanghai’s Pudong International Airport remain extremely congested with freight trapped in warehouses.
The factors behind the choking levels of congestion remain the same: a dramatic influx of export orders for personal protective equipment and other medical supplies bound for countries combating the coronavirus outbreak; China Customs offices that are overwhelmed trying to manually inspect medical supplies after the government mandated checks for quality and fraud; and shortages of warehouse labour to process all the shipments.
One reason ground handlers face backlogs is that goods, particularly face masks, are mainly packed in loose cartons and building large shipments in pallets and containers is taking three to six times longer than usual. Before the crisis, cargo warehouses might have to load one or two containers for the hold of an international passenger plane also filled with baggage. Now, with many passenger planes operating as “ad hoc” freighters they have to build as many as 14 containers, in addition to preparing shipments for pure freighters. In addition, to adhere to China export Customs rules, shippers still need to deliver freight to the airport at least five days before the estimated time of departure to get on a flight.
Demand was further impacted by the increasingly strained political climate between China and the U.S., as well as further crack down on hospital-garment quality testing and other medical goods. The Wall Street Journal reported that shipments from Chinese automaker BYD, which has converted plants to make N95 respirator masks are being delayed by China’s National Institute for Occupational Safety and Health for allegedly failing to meet manufacturing standards.
Many suppliers and buyers are more reluctant now to export medical gear to the U.S. for fear of failing customs or safety standards. After reports that some hospitals received face masks made for other uses but labelled as medical grade, the U.S. Food and Drug Administration has created a “white list “approval system for medical goods manufacturing companies as a way to ensure protective gear meets safety standards.
Airfreight rates that were pushing close to $22.50 per kilo – quintuple the price several weeks ago – fell by 15 to 20% in recent days as freighters were unable to fill aircraft began offering last-minute discounts to entice clients to load their cargo on planes that would otherwise not be filled. Airports have begun requiring airlines to meter inbound cargo by notifying customers when they can make deliveries. The earliest any shipment can reach the airport is 28 hours prior to flight departure. If shipments require customs inspection, which takes a minimum of 12 hours, they will miss their flight and freighters will not have enough time to replace the shipments with new cargo, increasing the likelihood of flights departing with empty pallet spaces.
BRI USA has developed guidance for importers of PPE equipment and medical gear to provide the necessary steps to minimize disruptions in importing these goods from China. Our team can also assist with compliance reviews to ensure your supplier and shipment adhere to China’s regulatory standards.
In addition, BRi USA has secured information on several ocean carriers offering fast-boat service that may be an option in lieu of airfreight.
Please reach out to your BRi USA Representative for more information on both your ocean and airfreight options, as well as how we can assist with your PPE/medical shipments.
Fixed-Payment Leases Help Ports Weather COVID-19 Crisis
Most US ports have sufficient liquidity and cash on hand to weather what is expected to be a 20 percent decline in cargo volumes during the COVID-19 pandemic, according to analysts. However, the ports’ financial resilience — derived from fixed payment requirements from terminal operators, stevedores, shipping and cruise lines — could pressure the investors to ramp up their support if the trade disruptions from COVID-19 are prolonged.
Whether terminals and carriers are able to make their multi-million-dollar annual lease payments will depend upon the financial support they receive from the investors that back them. “Tenants associated with global shipping lines, cruise lines and major industrial or energy companies, or tenants owned by institutional investors, usually have the financial capacity and operational incentive to sustain the tenant’s operations in periods of economic stress,” analysts said. “Investors have generally supported their clients during times of stress, such as the 2008-09 financial crisis.”
Also, landlord ports benefit from high levels of guaranteed annual payments from tenants known as minimum annual guarantees (MAGs). Under those arrangements, terminal operators guarantee the port authority an annual amount of revenue. At container ports, the MAG is quantified in annual TEU volume; the terminal operator is responsible for paying the MAG whether or not it generates the stipulated volume.
Operating ports more exposed to cargo declines
Operating ports, by contrast, retain operating responsibilities and receive most of their revenue from cargo throughput or customer use, leaving them more directly exposed to declining volumes. However, operating ports, in times of economic stress, can address their largest cost factor — labour — by adjusting staffing levels and work hours in line with lower activity.
However, most US ports have entered the current period of instability with enough cash on hand to cover 12 months of debt service and operating expenses during the anticipated period of declining cargo volumes. “All US ports we rated have at least 12 months of liquidity coverage under a severe stress scenario, and most ports are even stronger, with the median ports having over 25 months of coverage,” the analyst said.
US ports and their tenants, on top of weathering the decline in cargo volumes, face additional expenses during the COVID-19 crisis tied to cleaning their facilities and procuring personal protective equipment.
Organizations representing both landlord and operating ports, as well as marine terminal operators and stevedores, are seeking federal help to assist in meeting those unanticipated costs. In a May 4 letter to Congress, Federal Maritime Commission members asked legislators to consider “a means to help alleviate and bridge the financial gaps that could jeopardize continued healthy operation of our domestic marine terminal industry and of our maritime transportation systems.”
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BRi Customer Solutions Team
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