Welcome to the global supply chain is navigating a massive geopolitical American consumers are keeping the freight moving.
The port of LA just experienced a massive surge in a cargo with volumes jumping 17% and the summer is also looking historically strong.
Forecasts show that the port will handle over 900,000 containers in June and July and the.
Retailers secure inventory well ahead of schedule.
Meanwhile the back backdrop is shifting rapidly as well.
The US and Iran have agreed to a framework to reopen the tram and oil tanker traffic is suddenly rising at its fastest pace since late February.
Well joining us now to break down the flow of global trade is Jean, executive director of the port of LA.
Well, good morning.
Thank you so much for joining us.
We are finally seeing a record rebound of oil traffic through the Strait of Hormuz after the US and Iran interim agreement.
So it may take shipping lines months to restore normalcy.
So how long do you think until commercial scheduling truly recovers and what does this actually mean for inventory delays here in the US?
Good morning, Remy.
Nice to see you.
This is unprecedented.
We're looking at trying to reschedule supply chains and energy products across a war-torn region that needs repair to infrastructure and futureproofing.
In our business, if a port is shut down for a day, it usually takes about 3 days to get schedules back online.
Now, as we near the 4th month of this war in Iran, even with the. memorandum of understanding signed last week in Switzerland.
It will take months to get these schedules back in place and to extract the oil both on land and in water, the LNG facilities in locations like Qatar, all of this will take time.
And while we've seen some passage of ships through the Strait of Hormuz, it's still a very small percentage compared to what we were accustomed to, with more than 100 ships per day crossing that area.
And Jean, you and I have had conversations where there have been actual strikes, and the past few years, given the strikes as well as the COVID pandemic, have been a reminder of how fragile the system actually is.
And I understand you've also warned that many importers.
Fully felt the sting of recent high energy prices on the land side yet.
So when those higher bunkers as well as diesel costs to hit the trucking as well as rail sectors, will consumers be facing renewed retail price hikes?
What are your expectations as we head into the second half?
Well, Remy, during these past 4 months, the supply chain in the Trans-Pacific trade and cargo moving to and from Los Angeles has gone on unimpeded, although we have seen some pretty strong shocks and spikes to the price of that vessel fuel.
It doubled at one point during this war.
Right now, vessel fuel and refined diesel are both 30% above where they were at the end of February, and petrol or gasoline at the pump here in Southern California remains up 20%.
Some will say that prices for energy rise very fast and they kind of float down into a sense of equilibrium when these shocks are removed from the system.
Nonetheless, most of the formulaic approach in the shipping industry for fuel adjustment.
Factors lags by several months.
You've got to prove that you really see a price hike first before you can pass that on to the customer, and I don't believe that that is done just yet.
There probably will be months of higher prices on the fuel side ahead for the supply chain.
And Jean, while I have you here, I do want to expand on this.
I understand that your terminals, as well as longshore labor are delivering a smooth performance right now, but with an unprecedented wave of containers rolling in, do you think the rail as well as trucking infrastructure can handle the expected summer volume?
Remy, yes, I do, and here's why.
All of the statistics I look at every morning on our dashboard show cargo moving through the system here in Los Angeles at paces better.
Or even exceeding those that we saw in the pre-COVID days.
Right now truck turn times are below 1 hour at 52 minutes.
That's the best I can recall in my years here at the port.
Every ship that comes in is exchanging 12,000 container units.
That's the best in the business, and those vessels are staying here less than 4 days. fast by our standards.
We also have a little bit of room with respect to latent capacity.
So as cargo volume picks up in June and July, as you stated at your opening, I feel very confident we'll be able to not only process that cargo but keep it moving fluidly through the multi-modal system here in Southern California.
And Jean, it's hard to believe, but we are almost at the halfway point of the year, and I'm going to ask you about year-end as well as the holidays.
So I understand you expect another pop of inbound freight near the end of the year for toys as well as for the holidays, indicating that companies are operating with much shorter planning horizons.
So are we actually looking at a shift in how retailers balance just in time inventory versus supply chain safety?
So much of the conversation is around that short planning horizon, Remy, and what we're seeing is when people in the supply chain, especially on the import side of the business, see a window of opportunity, they speed cargo through that supply chain and knowing basically what the landed costs are, that the ports and other nodes of this system are fluid, that's what we're seeing.
Now also, the temporary tariffs under the United States Trade Act of 1974 and its Section 122 application will expire on July 24th.
We know from reports that Section 301 tariff investigations are ongoing and some announcements have already been made by the administration in Washington to implement tariffs based on forced.
Labor observations across a host of countries amounting to maybe 60 at this point in time.
So trying to go back to that drawing board and figure out what costs are, how supply will look for finished goods on the retail side, as well as parts and components for manufacturers what are taking place right now in offices across the nation as we head into the middle summer months.
Well, Jean, I appreciate your time and for joining us from the other side of the country this morning.
Thank you so much for joining us and thank you so much for sharing your perspective.
Great to see you, Remy.
Thank you.
