US West Coast Port Congestion Continues to Intensify, Full Truckload Spot Rates Remain High

After months of supply chain congestion, trucking routes out of the Los Angeles area appear to be slowly returning to normal—at least the normal of 2020 and 2021. The number of ships waiting to dock outside the ports of Los Angeles and Long Beach in California fell in late March from its February peak.

According to DAT Chief Analyst Dean Croke, as drayage companies and dockworkers unloaded containers from ships and moved them by truck or rail to warehouses, spot rates for full truckload (TL) had been steadily declining. Croke said that in the week ending March 21, average spot rates for full truckloads departing Los Angeles or Ontario, California, fell 7 cents to $2.84 per mile.

"It looks like they've started to catch up," Croke said.

But the latest data shows no long-term decline in imports, which means spot rates for full truckloads will remain high and capacity in the trucking market will stay tight.

In the week ending March 28, Los Angeles and Ontario re-entered DAT's top ten markets for freight demand, "with imports continuing to hit record levels," Croke said. "After declining for most of March, outbound freight volumes from Los Angeles jumped 18% week-over-week, while Ontario rose 7%."

Croke noted that overall weekly capacity at the ports was tight, with the degree of tightness depending on which outbound routes trucks used more frequently. In the week ending March 28, capacity in Los Angeles loosened, with rates falling 1 cent to $2.81 per mile, while capacity in Ontario tightened, with rates rising 2 cents to $2.90 per mile.

Complicating the port congestion situation was the Ever Given incident. The giant container ship ran aground on March 23 in theSuez Canal, and after being stranded for several days, was successfully refloated on Monday. Croke said that before the Ever Given was freed, it was too early to determine whether the ripple effects of the Suez Canal blockage would reach U.S. spot rates for full truckloads.

Croke believes that port congestion in California, combined with a surge in e-commerce demand, means U.S. retailers' efforts to replenish inventory could extend again into the summer and beyond. And the only way to replenish inventory is for shippers to transact in the spot market for full truckloads, which could mean rates will remain strong for weeks to come.

A far cry from the toilet paper crisis

A year ago, the trucking industry was racing to deliver toilet paper and other household goods to consumers. Panic buying in the early days of the U.S. pandemic caused spot rates for full truckloads to spike within weeks, only to fall sharply afterward.

But by mid-2020, U.S. inventory levels were already low. The pandemic, once seen as an economic killer, kept millions of people at home for most of 2020. People felt the need to renovate their houses or apartments and change their lifestyles, which drove more online shopping and further eroded inventory levels.

As shippers and retailers realized their warehouses were empty, spot rates began to climb slowly starting in May. E-commerce surged, and full truckload rates rose with it.

Now, with port congestion in California, it's no longer toilet paper or personal protective equipment driving the restocking gap. Cargo stranded off the Golden State's coast includesPeloton fitness equipment, sneakers,semiconductors, and petrochemical products—a mix of consumer and industrial demand that is likely to keep spot rates high and truckers busy.

Retailers and shippers restocking will have to book trucks in the spot market for full truckloads to handle the wave of imports hitting California ports, amid already tight capacity and a persistent driver shortage.

"This will keep capacity tight and spot rates high," Croke said. "I think this is a big deal for the trucking industry."

Croke said most of the cargo leaving the ports is drayage or short-haul, with only a small portion being long-haul. The top outbound lane is north to Stockton, California, accounting for 9% of DAT's national freight volume. He noted that Stockton is an important warehousing market due to its proximity to the ports. From Stockton, goods are then distributed north, west, and east.

Rates from Los Angeles to Stockton are currently at $3.31 per mile. In February, that rate was $3.09, and a year ago it was $2.18.

Another major destination for port cargo is Dallas. Croke said spot rates from Los Angeles are $2.85 per mile, compared to just $1.24 a year ago.

But demand is largely one-way. Croke said rates from Stockton back to Los Angeles are $1.36 per mile, down from $1.47 in February. The volume of cargo returning to the ports is lower, partly due to declining U.S. exports and partly due to a globalcontainer shortage。

Even so, Croke said high outbound spot rates will persist for a while because congestion continues to put upward pressure on rates.

"We'll probably continue to see this for the next three to four months," Croke said.

Big ports, big problems

Gene Seroka, executive director of the Port of Los Angeles, said at a public briefing on March 16 that the port had just experienced its busiest February in its 114-year history, with throughput up 47% year-over-year, marking the seventh consecutive month of year-over-year growth.

"Consumer purchasing power has not weakened," Seroka said at the briefing. "The National Retail Federation forecasts that its members' sales in 2021 will grow 6.5% to 8.2% compared to 2020."

According to Ken Duncan, managing director of commercial operations at the Port of Long Beach, the ports of Long Beach and Los Angeles handle the largest share of imports from Asia, and Southern California has 2 billion square feet of transloading space. The Port of Long Beach has six container terminals, and the Port of Los Angeles has seven.

The strong demand for port services also means that port-related parties—including trucking companies—will face bigger problems than those at smaller ports.

Duncan said that once container ships arrive at the port, unloading takes five to six days. East Coast ports do not experience such long unloading times because ships typically call at multiple ports.

Duncan said another common pain point—chassis management—was a problem early in the freight surge but has since eased.

Port terminals can accommodate a limited number of drayage trucks. Additionally, according to Josh Brazil, vice president of ocean analytics at project44, ports have been enforcing social distancing measures, which has slowed terminal operations.

"This has never happened before," Brazil said. "They don't have enough equipment to handle all of this."

When these two major ports "catch a cold," the entire supply chain can "get the flu." Delays accumulate. Croke said that when ships anchor outside the port and are delayed up to 21 days, intermodal agents miss their windows to move cargo, prompting shippers to turn to the spot market for full truckloads.

However, it's not the day-to-day operational issues at the ports causing congestion and high spot rates, but rather the surge in imports, economic recovery, and a nationwide old problem—driver shortage—that together are driving congestion and rate spikes.

Speaking of the driver shortage, Croke said capacity has not caught up with demand, especially in port areas.

Multiple problems converging at the two major ports have stunned analysts.

"We've almost never seen a bottleneck like this," said Tim Denoyer, senior analyst and vice president of trucking at ACT Research.