The U.S. recycling industry, like most other export-involved industries across the country, faces challenges with port congestion, shipping bottlenecks, and related direct and indirect costs. Already exacerbated since COVID-19, experts believe these issues may only worsen over the summer of 2022.
One concern is that the port of Shanghai is reopening after China’s recent COVID-19 shutdown at the same time as the start of the shipping industry’s traditional peak season. Experts anticipate a considerable backlog of shipments and containers that have been sitting at the ports for months. Filling these backlogs will likely collide with the peak season when retailers build inventories for the end of summer and then holiday season sales in the U.S. and Europe.
“It’s a big unknown,” says Bret Biggers, ISRI senior economist. “There’s also a capacity issue at the ports and a lot of ships waiting outside of these ports. Shippers, including recyclers, are waiting to get their materials on those ships.”
Closer to home, the U.S. is experiencing a slew of container ships on the East Coast’s busiest ports as retailers, manufacturers, and other shippers try to avoid having most of their inventories stuck at one port.
Another pressure point is rising inflation. Recently, the National Association for Business Economics (NABE) presented its consensus macroeconomic forecast of a panel of 52 professional forecasters covering the outlook for 2022 and 2023. The panelists lowered their estimates for economic growth in each year. “High inflation will lead to lower demand,” Biggers says. “Lower demand may help negate some of these concerns at the ports, but the effects won’t be felt for several months, it’s not an immediate relief.”
There’s a risk for further disruptions from the ongoing labor contract negotiations with the West Coast dockworkers. Every five years, the Pacific Maritime Association (PMA) and the International Longshore and Warehouse Union (ILWU) negotiate a new contract for the dockworkers on the West Coast. The master contract, which officially expires July 1, covers approximately 22,000 works at 29 ports on the West Coast. Those decisions matter to all U.S. ports because they follow the same terms laid out in the West Coast contract. Negotiations began on May 10 but were suspended until June 1 without a specific reason given.
Stakeholders are concerned that these negotiations may further complicate supply chains. In March, several U.S. senators submitted a letter to President Biden expressing concern that poor negotiations could lead to supply chain constraints, freight congestion, and harm U.S. manufacturing. On May 19, Sen. Diane Feinstein (D-Calif.) sent a letter urging the ILWU and PMA to keep the ports operating by negotiating a fair, long-term labor agreement.
During the last set of negotiations in 2015, the U.S. Federal Mediation and Conciliation Service had to step in to help each side come to an agreement. Rising tensions from both parties led to a slow down at the ports and contributed to congestion on the West Coast prior to the 2016 holiday season, according to Logistics Management.
“With the current congestion and supply constraints there’s not the same luxury as five years ago to slow down the system to get results,” says Billy Johnson, ISRI’s chief lobbyist. “These negotiations involve more groups than just ILWU and PMA. There are the ports, the terminals, and the carriers as well. These different groups make negotiations harder to manage.”
One of the contentious items on the table is automation. On May 2, PMA released a study from the University of California at Berkeley analyzing automated terminals at the ports of Los Angeles and Long Beach. The study found that automated terminals can help relieve congestion and generate longshore work faster than conventional terminals. However, ILWU opposes automation, concerned that it will negatively impact jobs and harm the workforce.
U.S. ports have largely not invested in automation or capacity. So, over the years as the amount of cargo arriving at the ports has increased, the ports haven’t adjusted to handle it. “Capacity hasn’t kept pace with the increase in cargo,” Johnson says. “There’s no more room for containers [at the ports].”
Rising fuel costs are another problem. “Fuel isn’t cheap anymore,” Biggers says. “And that adds to costs, which increase the export prices our members and other shippers must pay.” Increased fuel prices will cause a ripple effect across the supply chain. “Trucks will need to raise prices significantly to pay for diesel, and diesel is up more than twice what it was a year ago,” Johnson says. “And diesel impacts trucking, railroads, and shipping.”
In addition to rising fuel costs, the shipping industry will be impacted by emissions-related regulatory changes in 2023 from the International Maritime Organization (IMO). According to amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL), adopted in June by the 76th Marine Environmental Protection Committee (MEPC) meeting, starting Jan. 1, 2023, vessels registered in MARPOL signatory countries will have their exhaust emissions tested at their next annual ship survey. Ships that don’t meet the required standards will be deemed unusable for international trade.
All the elements in the supply chain are interconnected. Improving one area can cause a positive effect on the other links in terms of productivity or reliability. But a problem in one sector can cause severe negative impacts across the board.
“We’re facing problems at each point of the system and they all compound on each other,” Johnson says. “The transportation system is like a muscle. All these interconnected pressure points make the muscle tighter and tighter. It needs something to alleviate the pain.”
That relief might come from the Infrastructure Investment and Jobs Act (IIJA) that was signed into law Nov. 15, 2021. The $1.2 trillion infrastructure bill focuses on improving U.S. roads and bridges, freight and passenger rail, and communications systems. “The IIJA represents a rare opportunity to greatly improve our nation’s physical infrastructure that will lead to lasting improvements as well as help ease the supply chain shortages,” Johnson says.
In the meantime, Biggers recommends recyclers continue to fill their orders. “Recyclers are dealing with increases in wages and labor shortages,” he says. “As long as you have orders to fill, keep filling them. Be aware of your costs entering long-term contracts for major purchases. Things may still be good, but it’ll be on a case-by-case basis.”
