Supply chain issues may linger for extended time

FORT ATKINSON, Wis. — Shipping dairy products from the United States to other countries continues to be a struggle.

“Shipping has become a major challenge unlike anything we’ve seen in the past 20 years,” said Gabriel Sevilla, Proliant Inc. vice president of sales and marketing.

“Today we have a minimum four-week lead time to get any bookings,” said Sevilla during a Dairy Livestream hosted by Hoard’s Dairyman. “This means contract negotiations have to be done at least six weeks in advance to be ready to ship product in time to customers.”

Once it gets close to booking time, Sevilla said, the next challenge is to find a truck and chassis to pick up the container.

“Finding containers in the Midwest today is very challenging,” he said. “So, in some cases the product has to be trucked to a nearby city or port to find a container.”

Proliant ships about 500 containers of product per month.

“Once the product gets on the rail, we have to track the shipment and deal with delays because if there are delays with the rail, we will not make the cutoff at the port,” Sevilla said. “After it leaves the port, congestion at destination ports extends the time to get product to our customers.”

Feeling Congested

“The main issue we’re facing today is infrastructure, which is expensive and it takes a long time,” said Andrew Hwang, manager of business development and international marketing at the Port of Oakland. “The East Coast ports have been funded at a 10-to-1 ratio versus West Coast ports.”

Issues occurred prior to the COVID pandemic, Hwang said, but they were quickly remedied because there were no surges or delays.

“A delay of one or two days is acceptable compared to two to three months that we’re seeing today,” he said.

Congestion at shipping ports is a global phenomenon, Hwang said.

“It is not limited to the East or West Coast, so getting cargo on a vessel doesn’t mean it won’t have problems when it arrives at its destination,” he said.

To help with the situation, the port opened a pop-up yard.

“We took 22 acres at the port and leased it to a terminal operator who has container-handling equipment,” Hwang said. “They take containers off the chassis and stack the containers.”

The benefit of the pop-up yard is the ability for the chassis to be used multiple times.

“My estimate is we have freed up 1,000 to 1,200 chassis in the market during the last 30 days which is contributing to the fluidity in the market,” Hwang said.

Another benefit of the lot is the ability to serve as an overflow lot for empty containers.

“We want exporters to pull containers from this location to load and then take to the ocean terminals to be staged to load on the vessels,” Hwang said.

Smooth It Out

Although shipping problems continue, demand for U.S. dairy products is strong.

“I’m not sure that we’ve ever had a better opportunity to increase export sales because international demand has held up surprisingly well given the circumstances over the past couple of years,” said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.

“Our export competitors have been facing some milk production problems that I think will probably outlast COVID and the current supply chain disruptions,” Stephenson said.

“Countries like the Netherlands, Ireland and Germany are constraining production due to environmental issues and New Zealand has experienced drought this year so they expect production to be down,” the dairy policy director stated.

“But for the longer term, New Zealand feels there are too many animals on too small of footprint, so production growth is going to be difficult for them.”

The root cause of a lot of the port issues is the labor shortage, Stephenson said.

“COVID exposed the labor problem to us, but it probably had more to do with demographics than COVID,” he said. “A big portion of the population is getting older, so it’s a supply chain issue that’s going to take some time to work itself out.”

The average age of truck drivers is high so retirements are happening frequently, Stephenson said.

“Salaries are increasing rapidly to try to attract more drivers and some drivers are choosing to work less at the higher wage,” he said.

Workers at ports are also in the process of negotiating salaries.

“Talks are currently underway with about 22,000 workers at 29 of the West Coast ports through which about half of our dairy products are sent overseas,” Stephenson said. “Workers are looking for better wages and other things like limiting the automation of cargo handling facilities.”

Supply chain disruptions, Stephenson said, will take some time to be fixed.

“Even if our labor shortage and inflation problems were magically resolved overnight, it would still take time for supply chain disruptions to smooth themselves out,” Stephenson said.

“It may take a couple of years, once the underlying problems are addressed,” he said. “I’m not sure this is a short-term issue, I think it’s a longer term problem.”