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Logistics in America in the post-Covid era and imports to China

The situation with shipments by sea from China to the United States is an opportunity to completely rethink policies and strategies that have been untouchable until now. And this is an opportunity for European companies that want to get into the American market

Offshoring production by American manufacturers has gutted entire manufacturing sectors in America. Just one statistic can provide a feeling for the United States' dependence on Chinese manufacturing: in January 1985, the United States imported 293 million dollars worth of goods from China (with a positive trade balance). Flash forward to today: in August 2021, China's imports to America totaled almost 43 billion dollars. This is an increase of 14,600% in 36 years. This is an enormous flow of shipments (mainly) by sea from Chinese ports to American ports on the West Coast in Long Beach and Los Angeles, California. With a situation like this, shipments, customs clearance, storage and destination forwarding must, of course, function without skipping a beat.

Covid, consumption changes, and changes in purchasing models for the American market

Covid has exposed critical shortcomings in the international shipping system, the supply chain, transport infrastructure, offshoring, and "just in time" practices. One aspect of consumer preferences changed massively: no more clothing and cars, yes to computers and furnishings. To follow: upon the first reports of critical issues in shipments from China, manufacturers and retail chains all placed advance purchase orders to avoid the risk of running out of goods during the Christmas shopping season. Since Chinese ports were functioning sporadically due to the pandemic, shipment and procurement delays started adding up, with the domino effect that everyone can see.

An external factor in play for years exacerbated the logistics and shipping situation in America: lack of investments in infrastructure renewal, along with lower private sector investments in transportation and logistics. For example, railways Union Pacific, CSX and Norfolk Southern that specialize in the transport of goods have eliminated more than 22% of jobs since 2017, when CSX implemented a cost reduction system called Precision Scheduled Railroading that other US railways then copied.

This was the perfect recipe for the perfect disaster, and when Covid hit, the bubble popped. The situation with shipments from China to the United States is so dire that one of the largest American retail sales chains just rented a cargo ship for $80,000 per day for one year. A year ago, this would have cost $10,000 to $15,000 per day. One of the major Japanese manufacturing conglomerates is similarly trying to rent a ship for $130,000 per day for three years (which would have cost $20,000 per day a year ago). That contract stipulates that the company must pay 35 million dollars in cash for the first nine months on the first day. Companies and distribution chains also cannot dream of stalling because, in bowing to the "just in time" deity, for years nobody has held onto inventories of finished products or raw materials "just in case". Naturally, the exorbitant rise in prices will be reflected in consumer prices sooner or later.

Costs of shipments by sea from China to the United States and congestion at ports and customs on the West Coast of the United States

The freight cost for a 40-foot shipping container from China to the United States now averages $20,586. This is almost double the freight in July 2021, which had already doubled from the cost in January 2021. Maritime shipping companies' profits have soared as never before: COSCO and Hapag-Lloyd recorded profits of more than 23 billion dollars in the first half of 2021, compared to just 1 billion dollars in the same period of the previous year.

Instead of decreasing, cargo delays at Chinese ports and delays in offloading at ports in California are increasing. There are more than 200 cargo ships off China waiting for a pier to become available for loading goods. Off the California coast, there are now about 80 cargo ships waiting to unload goods. The problems continue after goods are unloaded at the port, because according to current reports there are now about 16 containers waiting for each truck available at the Port of Los Angeles. Then the crisis is aggravated because maritime companies are unloading goods from the containers and immediately sending the empty container back to China to earn the sea rentals mentioned above, with a consequent dearth of empty containers for American exporters.

To put this in perspective, on average a cargo ship transports 12,000 FEUs (forty-foot equivalent units) and on average each FEU carries about 29 tons of goods. This means that the 80 cargo ships waiting to dock in Los Angeles and Long Beach, California, are carrying 80 x 12,000 x 29 = almost 28 million tons of merchandise.

A business opportunity for European companies

Clearly, an intricate situation like this will not be resolved in a few months, and indeed experts are saying that this will continue throughout all of 2022. It is equally certain that this situation will lead to second thoughts in the logistics chain itself and in the practice of externalizing production to manufacturers as distant as China. If we add to this the Biden administration's economic policy inputs to protect America's procurement of strategic materials and products, we can clearly see the opportunity that is being presented to Italian and European manufacturers. Our recommendation is to take action immediately to get into the American market so as to be ready to seize the opportunities offered by the changes we can see on the horizon.

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Logistics Services for the United States

ExportUSA offers all logistics services for the United States. We have a warehouse in Ohio that we make available to our clients