Lower import volumes are forcing Los Angeles and Long Beach area drayage carriers to lower their rates in order to keep their fleets moving.
LONG BEACH, CALIFORNIA -How low is too low? This question is constantly being asked among members of the local Southern California drayage community.
Record profits due to the rush of imports beginning in 2020 allowed carriers to expand their operations, including purchasing and leasing more equipment, such as trucks and chassis, to hiring more drivers and office staff to keep up with demand. Some were able to sign leases for local truck and storage yards, mostly long-term five-to-seven-year agreements at high per square foot cost with the expectation that business would stay strong for the length of their leases.
After roughly two years of record imports from China to the Ports of Los Angeles and Long Beach in response to the Covid-19 pandemic shortages, commerce has slowed down, and no longer are the streets and local storage yards of the Wilmington, Long Beach, San Pedro neighborhoods of Southern California filled with containers. In fact, many are filled with bare chassis instead of laden containers, a sign that the import boom from China has stalled.
The chassis shortage of 2020 has been replaced with the chassis surplus of 2023.
Carrier owners are now faced with the reality of having to keep their trucks parked and paying their drivers to stay home due to reduced imports from overseas. Many independent contractors who own their own trucks find themselves out of work due to carriers as carriers prefer keeping their company-owned trucks moving, not outsourcing any extra work.
This fall in imports from China has caused transportation costs from goods headed to Los Angeles and Long Beach to spiral downward to the benefit of cargo owners. No longer true are five-figure shipping costs to bring in laden containers.
In fact, rates from China to the West Coast have fallen to record lows of $1,100 per container as of March 3, 2023, per Freightos Data. January-February of 2023 alone saw a drop of 21.8% in imports compared to those same dates last year per China’s customs office.
Carriers, however, have not been so lucky.
While many carriers do have substantial financial reserves to weather this new storm, smaller “mom and pop” carriers do not, worst among them the hundreds if not thousands of independent contractors that are dependent on receiving work from larger trucking companies.
Contracts for equipment and facilities near the ports that were executed during the import boom of 2020 are now constraining this critical industry’s growth and long-term sustainability.
The asking rate per square foot for industrial real estate in Q4 2022 for facilities located in the harbor area reached a record high of $1.95 per square foot compared to $0.85 per square foot in Q4 2019 according to CBRE. To put this in perspective, a lease for a one-acre facility in Q4 2019 would have cost a carrier $37,026 per month. The same facility in Q4 2022 would lease for $84,942, a difference of $47,916.
Cargo owners pressuring for "all-in" rates
During the import boom, carriers were able to charge $950 plus $50 chassis fees to deliver containers to certain Inland Empire cities such as Perris, CA.
With supply and demand economics on the side of the carriers during this time, cargo owners were left having to pay these rates without much room to negotiate.
With conditions now in the benefit of cargo owners, rates have declined 33%, with some paying carriers $650 including the chassis fee (known as the “all-in” rate) to Perris, CA. In some cases, refusing to pay carriers for waiting time at the ports and delivery locations, and other accessorial charges such as storage and prepull fees for containers needing to be pulled the night before for next-day delivery.
The drastic decline in rates for carriers and independent contractors alike is an indicator that further leaner months await and has caused them to reconsider their stay in the drayage industry entirely.
Down the line, this could spell trouble for future supply chain issues due to a foreseeable absence of drivers and carriers to meet pull and delivery demands.
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