Q&A: Sri Laxmana, Vice President of Global Transportation at C.H. Robinson

The ocean shipping sector is as active as it gets these days, for a whole host of reasons, too, including ongoing COVID-19-driven demand, port congestion issues, equipment imbalances (larglely containers), and rate pressure, among others. Logistics Management Group News Editor Jeff Berman recently spoke with Sri Laxmana, Vice President of Global Transportation at Minneapolis-based global logistics services provider and freight forwarder C.H. Robinson, about these topics and others. C.H. Robinson is also the top NVOCC from China to the U.S. Their conversation follows below. 

Logistics Management (LM): What are the biggest things, trends, or themes impacting the ocean shipping sector on a year-to-date basis and how are things compared to a year ago, relative to the ongoing pandemic?

Sri Laxmana: Compared to a year ago, one of the main things that clearly sticks out is port congestion. We see it being a major issue in all U.S. gateways, which began on the West Coast and has since spread out to all major U.S. gateways, with them being clogged and carriers trying to circumnavigate around the challenges, especially in the Southwest and the West Coast. Another issue is equipment constraints, which are showing some improvements in recent weeks in China and Southeast Asia, but is still where we hear rumblings, as demand has not tapered down necessarily. And there is also ocean schedule integrity. The overall schedule reliability, I think, now is down 20%-to-30% globally. This will need time to correct itself, especially, like I said, because demand has not slowed down.

LM: What about ocean rates?    

Laxmana: Global rates are at an all-time high, with the drivers being supply and demand, and, like the housing market, there is a sellers market and a buyers market. And, today, for a while, it has been a sellers market, and we don’t necessarily see that changing anytime soon. Another thing is the lack of chassis certainly across the U.S., but we are observing more visibility issues in the inland IPI (Inland Point Intermodal). Part of this has to do with incremental demand, the challenges with the UP and the BN we have seen, and the free time that large importers suddenly have is not helping because they dwell on this equipment…and that certainly impacts the fluidity. Compared to last year, the supply chain is extremely fragile and remains very resilient. We are providing strategic guidance for things like ocean, Customs, surface transportation, and have a unique view of what is happening.    

LM: While the Ever Given is now dislodged, what needs to happen to clear out the backlog and get things moving smoothly on the water?

Laxmana: That Suez Canal blockage added congestion to a situation in which things were already tight for all the different trade lanes. Given that we have not seen any slack, it will take a while for things to come back to some level of equilibrium…and to effectively clear the backlog and to have some fluidity in the Suez Canal. The ships that have cleared the canal will be asked to burn more bunkers [fuel] and consequently manage downstream congestion in Europe’s East Coast, with all the vessels bunched up, not unlike the situation we have in Los Angeles as an example. The vessels coming behind will be asked to slow steam so they are not all arriving at the same time. Carriers will also have blank sailings and skip ports to improve that schedule integrity that we all know is at an all-time low right now. One option is if demand tapers down, there is an opportunity to skip, which would not mean much of an impact. When you add this into a situation that is already bad, this is a way that can cause some issues for fluidity and schedule integrity. This is a situation in which importers tend to order a lot more to avoid inventory shortages and could fuel the lack of containers generally speaking in Asia and Southeast Asia.  

LM: In the U.S., port congestion remains a major issue, especially for West Coast ports. That said, what is the outlook for restoring equilibrium, at ports, as it relates to things like backlog and congestion, container availability and throughput?

Laxmana: Port congestion is really not a new issue. It is safe to say that there have been systematic issues through the years, especially when we see an uptick in volumes. In 2020, with COVID-19, production took a big hit, coupled with lack of labor, due to the isolation protocols. The vessels have systematically been upgraded and are bigger with better slot costs for the carriers. And right, wrong, or indifferent, we are a retail-heavy importing nation, and that adds a lot of complexity.

LM: In what ways?

Laxmana: For example, if you are focused on addressing a chassis issue, and you need more to address the retail peak, they will sit and gather rust in the non-peak periods. That can pretty much said for the different nodes of the supply chain, and I really don’t think there is a silver bullet here. I think 2021 will continue to be volatile, and there is some hope that 2022 will be better. But we also know the labor contacts for the ILWU and the ILA are expiring in 2022. If we have learned anything at all, as history has told us, is that conditions could be ripe for disruption, and that is a big concern as well.  

LM: How do you view the current state of a consolidated ocean carrier network, in terms of its pros and cons? 

Laxmana: We talk about this topic a lot, and it is something often raised in our recent customer-facing webinars. At Robinson, we literally have tens of thousands of downstream carrier options for drayage. But on the ocean side there are nine global carriers and three or four mid-strength carriers and that number has been dwindling down. Some of the pros we expected were better operational excellence and making it easier for terminals and rails to work with fewer providers, but we have yet to see that. Integration of technologies is something that we feel is accelerating as of late, and I do feel it will continue in the years to come, as there are fewer carriers to be integrated into that space. And the days when carriers go on to get more containers on vessels and get into an all out price war is something we will not see happening, as there will be more stability once we get out of this state of current volatility. Like all industries, when there is a lack of aggressive competition, it can always lead to bad things. Time will tell how the ocean industry evolves here. 

LM: What are some of the key things shippers need to be focusing on pertaining to the U.S. inland network? 

Laxmana: We don’t talk enough about that portion. It is really important to understand that each U.S. inland market is different and has its own challenges, and shippers should not treat all of them the same. The forecasting, planning and just the general understanding of these markets and how they operate can be a very complicated process, as it relates to find capacity, align the costs, track shipments on the water and get ETAs, track the rail movement, confirm a container is available, and schedule a chassis. The inland process, in the U.S. specifically, continues to see more change. From where we stand, this is not going to resolve itself, so shippers should really focus on trying to get ahead of the curve as much as possible by really diversifying gateways, utilizing different routes, being a shipper of choice for carriers, and working with providers that manage lane routing that suits drivers. We know there will be challenges ahead for all of us here this year, but this is something we are putting a lot of emphasis on, as it will be a choke point here in the U.S.

LM: Looking back at 2020, things started to pick up around mid-year, especially for import volumes. When looking at Peak Season, what were some of the lessons learned?

Laxmana: There really has been no slack going back to the middle of last year, with things really having whiplashed up since the Lunar New Year, whereas we usually see things crawling and slowly walking back [at this time of year]. Importers and import activity is not going to slow down. The housing market will remain robust and will fuel demand for different commodities. We also see the charter market being high in demand and serving as quarter end drivers on the ocean side. We don’t see things slowing down, and the second quarter looks very robust. And we think the third and fourth quarters will also be robust. There are so many moving parts, though, so it can be hard to ascertain beyond the current quarter sometimes.