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Canceled Sailings: Last Resort Solution to Port Congestion

U.S. port congestion has not eased. It has simply shifted.

When the pandemic eased, manufacturers and retailers ordered more than needed to offset goods shortages and delivery uncertainty. As a result, ports became congested, which slowed the flow of goods in and out of the country. Today, bottlenecks shift from one port to the other, and labor disputes continue to exacerbate the situation. In this chaotic environment, canceling sailings seem to be a viable, albeit temporary, solution.

Video Spotlight: How Supply-Chain Bottlenecks Shifted to East and Gulf Coast Ports | WSJ (August 23, 2022, Wall Street Journal) 

This post is based on the CNBC article, Canceled Sailings, Stuck Vessels, Warehouse Prices Show U.S. Ports Are Still Struggling, by L.A. LaRocco, August 25, 2022, and the YouTube video in the Spotlight. Image source: (c) EvrenKalinbacak / Getty Images.

Discussion Questions:

1. What are the reasons for canceled sailings?

Guidance: Sailings are canceled for multiple reasons. There is not enough capacity at departure ports (e.g., Felixstowe) and not enough capacity at destination ports (e.g., congested ports such as Oakland and Savannah).  Accordingly, vessels cannot be turned around in a timely fashion. Furthermore, manufacturing orders to China have decreased, and to soften the bullwhip effect, carriers have postponed or canceled sailings. Finally, as capacity is constrained, it makes sense to decrease the demand on the system to ease the bottlenecks and regain “schedule reliability.”

2. What is the impact of canceled sailings on US consumers?

Guidance:  For US consumers, fewer imports and high warehouse prices at congested ports may result in several item shortages, delayed deliveries, and higher prices. The higher prices will likely offset the lower freight rates on Trans-Pacific shipping routes. In a nutshell, the global supply chain problems will continue to hurt consumers as they “navigate” from one port to another.

3. From a queuing theory perspective, what is the impact of canceled sailings?

Guidance: According to queuing theory, the arrival rate (demand) must be strictly less than the service rate (capacity). Therefore, canceled sailings do make sense to bring back the system to a steady state. This is what Alan Baer, CEO of OL USA, refers to as “schedule reliability.”

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