Chicago has been transformed into a new supply-chain chokepoint.
When the first story about the city’s growing backlog in construction permits broke a week ago, it wasn’t the first time the city’s been criticized for its slow-moving bureaucracy. But the tone of the story was different. It was told by an outsider, Chicago Tribune columnist John Kass, who disliked the city’s slow-moving bureaucracy. Now, he’s saying the city’s supply-chain problems are creating a new chokepoint.
Chicago is becoming a new bottleneck in the global supply chain, as rail, trucking, and logistics companies struggle to deal with an influx of Asian goods arriving at the Midwestern freight center.
Container shipments into Union Pacific Corp. and BNSF Railway Co.’s overcrowded freight-switching terminals in the Chicago area have been limited, and some cargo owners and logistics companies have sought to divert shipments by truck or rail to other Midwestern transfer points, raising costs and complicating already-congested distribution networks.
The backlog is being exacerbated by a rush by US merchants and manufacturers to replenish inventory as the economy emerges from Covid-19 lockdowns and customers return in increasing numbers to shops and eateries.
Container imports into Southern California’s adjacent ports of Los Angeles and Long Beach have hit new highs this year, causing delays in logistics from the seaports to nearby warehouses and farther inland to Chicago, where tens of thousands of containers are swapped each month.
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“The epidemic and its recovery are like a rock in a pond,” said Anthony Hatch, owner of ABH Consulting and a rail transportation expert.
The two California ports handle about one-third of all container imports into the United States, mostly from Asia. According to trade experts Panjiva, seaborne imports to the ports for onward transport to Chicago and the surrounding region increased 32 percent year over year in the second quarter and 18 percent compared to the same time in 2019.
Container shortages, restricted capacity, and occurrences such as the grounding of the Ever Given container ship in the Suez Canal in March, backlog at the Yantian port in Shenzhen, China, and other accidents have all thrown supply chains off balance this year, resulting in continuing delivery delays.
Containers arrive quicker than they can be transferred for further transit, forcing freight railroads in Chicago to attempt to keep up, resulting in ever-higher piles of boxes in the region’s yards. Labor and equipment shortages in the shipping, transportation, and rail sectors are exacerbating the problems.
Union Pacific, which, together with BNSF, transports containers to and from Southern California ports, said earlier this month that service from the West Coast to Chicago will be suspended for up to seven days starting July 18th.
Dupo, Illinois, Union Pacific freight trains The railroad recently announced that it will halt service from the West Coast to Chicago for up to seven days to relieve congestion.
Bloomberg News/Bloomberg News/Luke Sharrett
Union Pacific executives stated on a Thursday earnings conference that it has temporarily reactivated a former intermodal facility in the Chicago region to relieve traffic congestion. Shippers are having trouble getting goods from the railroad’s ramps to warehouses and distribution facilities fast enough, according to Chief Executive Lance Fritz.
BNSF said this week that it has started metering cargo flows from the ports for two weeks. BNSF, a subsidiary of Berkshire Hathaway Inc., often meters freight after delays caused by incidents such as severe weather, according to a spokesperson for the railroad.
In a statement, she added, “This specific scenario is rather unusual in that the volume we are receiving for a continuous period of time exceeds what consumers are picking up from our gates for delivery.”
Norfolk Southern Corp., which transports freight between Chicago and locations in the eastern United States, said this week that it was increasing capacity at its Chicago intermodal terminal by rearranging different yard activities to keep boxes flowing.
All seven of North America’s main freight railways intersect in Chicago, producing a complex web of operations in which incoming and outgoing goods are swapped off between trains and trucks. According to shipping experts, it is also within a 500-mile truck trip of about one-third of the US population, making it an ideal distribution center.
Maciek Nowak, a supply chain management professor at Loyola University Chicago’s Quinlan School of Business, stated, “If you’re transporting anything by train from coast to coast, you nearly always have to come through Chicago.”
Mr. Nowak pointed out that Chicago is always a bottleneck. Freight trains, which travel hundreds of kilometers to reach the city, may spend an extra day or two crossing it because they must cross busy highways, he said.
Mr. Nowak said, “There isn’t a lot of space for mistake.” “When you have anything like a pandemic, a single blunder may rapidly turn into a major problem.”
The present suspension and metering, according to Darin Cooprider, senior vice president of supply chain solutions at Ryder System Inc., are the most significant limitations on westbound commodities he has seen in a long time, and shippers have few options.
He pointed out that air freight is prohibitively expensive, while transporting products by truck from the West Coast is more expensive than rail and necessitates the use of drivers and equipment that are presently in limited supply.
“Changing everything from rail to truck makes things worse, not better, and it ties up that truck for many days, adding insult to injury,” he added.
Customers are shifting rail orders to St. Louis and Kansas City, Mo., or Memphis, Tenn., according to several third-party logistics companies. Demand is driving up last-minute prices from those cities, according to Mark Ori, senior vice president of enterprise development for Redwood Multimodal.
The cost of paying a carrier to transport a truckload from Los Angeles to Columbus, Ohio, has risen by approximately $300 in the last week, according to Andrew Lynch, president of Zipline Logistics.
Trucking commodities may be more costly, according to Craig Grossgart, senior vice president of worldwide ocean for Seko Logistics, an Itasca, Illinois-based freight forwarder. “However, in today’s world, you’re probably saving close to a week in transportation time,” he said.
A daily average of 30 container ships have been stranded outside the ports of Los Angeles and Long Beach, waiting for their cargo to arrive. The backlog is part of a worldwide supply-chain problem caused by the epidemic, which means that customers may face weeks of delivery delays. Adam Falk/The Wall Street Journal composite photo
Paul Berger can be reached at [email protected]
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