Global supply chains have yet to recover from the onset of the COVID pandemic, which caused massive delays and backlogs at ports as vital workers were stuck in lockdowns, quarantine, or hospitals. U.S. docks were among the worst hit, as the work-from-home trend fueled demand for imports, causing unprecedented logjams at West Coast ports.
According to the World Bank, ports on the U.S. West Coast remain the world’s least efficient. In the first week of 2022, a worker shortage coupled with increased shipments from China has pushed berth times at major ports on the West Coast to an average 10.9 days—twice the length of time ships spent waiting in dock during 2021.
Now two new policies implemented by the Biden administration within the past week will likely introduce more strain on domestic supply chains, as the White House moves to rewrite its trade relationship with China.
Forced labor
The Uyghur Forced Labor Prevention Act will go into effect this Tuesday, compelling U.S. importers to prove their China-sourced goods are free of forced labor tied to China’s Xinjiang province. Widespread accusations that Beijing has persecuted members of Xinjiang’s Uyghur minority population, forcing them to work in factories and fields, prompted Congress to pass the law near-unanimously in 2021. Beijing has denied the allegations.
The new law “requires companies to know where their goods are made down to the raw materials and verify it.” Laura Murphy, professor of human rights at Sheffield Hallam University, told Fortune. But being able to prove that a particular import contains no products from Xinjiang may be difficult for some companies, owing to the complexity of their supply chains and the difficulty of conducting independent audits in China.
Experts expect the new law to disrupt shipping between China and the U.S., at least in the short term, as customs officials look to seize shipments that violate the new law.
“If you’re wearing a shirt that’s made in China, or have a computer [with parts] made in China…you may see these goods inspected and seized in the near future,” Brandon Daniels, CEO of supply-chain platform Exiger, told Fortune.
Empty containers
Last Thursday, President Biden signed the Ocean Shipping Reform Act into law, days after Congress passed the bill with bipartisan support. Both Congress and the White House framed the law, which increases regulator oversight on shipping fees and cargo manifests, as an effort to relieve inflation and the supply-chain crisis.
But the Reform Act also targets one particular bugbear for the U.S.—container ships returning to China carrying empty containers instead of loaded up with American goods.
Shipping rates surged during the pandemic, in part as a result of the U.S. work-from-home drive ramped up demand for personal electronics. Shippers realized that returning from the U.S. to China empty-handed and quickly loading up on U.S.-bound imports for a second journey was more profitable than taking time to onboard American exports to China.
A May analysis from maritime research firm Sea-Intelligence found that so-called backhaul shipping—carrying goods from the U.S. to Asia—only made up 12% of the overall roundtrip rate charged by freighters, meaning shippers generated much less revenue carrying American exports.
A MarketWatch investigation in December 2021 found that 59% of outbound containers from the U.S.’s nine largest ports were empty in the first 10 months of the year. U.S. agricultural exports, like soybean, suffered. A 2021 survey of agricultural exporters estimated that 22% of U.S. agriculture exports were lost owing to a lack of export capacity.
The Reform Act would bar ocean carriers from “unreasonably refus[ing] cargo space accommodations when available, or resort[ing] to other unfair or unjustly discriminatory methods” (though it is still unclear what that would mean in practice), and would require shippers to tell the Federal Maritime Commission, which governs shipping into and out of the U.S., how many empty containers they carry on their vessels.
But pushing ships to carry more U.S. exports could have knock-on effects on the rest of the supply chain.
“Forcing the shipping lines to take cargo that they wouldn’t in a free market is not going to make the system move more smoothly,” says Alan Murphy, chief executive of industry analysts Sea-Intelligence. Under the law, ships might have to load up with exports before exiting U.S. ports, which will increase the workload at what are already the world’s least efficient ports.
Normally having the difference between a full or empty shipping container wouldn’t affect transit or delivery times, Murphy says. “Except right now, the system is stressed to the very edge.”