S. Aaron Hegde, PhD, Chair and Professor, Department of Economics, CSUB
The pandemic has severely disrupted the world economy, especially the agriculture sector. It exacerbated an already tenuous situation within the supply-chain—the part of the distribution from farm to fork. A recent UC Davis study estimated that supply-chain logjams, especially at California ports, led to a loss of approximately $2.1 in export sales just in the five months from May to September of 2021. The study also found that the three California ports – Long Beach, Los Angeles, and Oakland – are among the least efficient in the world. Finally, the study estimated that 8 out of 10 containers return empty to Asia, rather than carry agricultural exports.
How did we get here? To put it in simple terms, it is a matter of supply and demand – too much demand, not enough supply in the right location. The nation’s crumbling infrastructure contributed to this imbalance, which was exacerbated by the pandemic. Prior to the pandemic, the trucking industry, an integral part of the supply-chain, had increasingly aging drivers. As the pandemic spread, many drivers had to be out sick, reducing the number of trucks available to transfer commodities from ports to points within the country. Rather than wait for trucks to fill their empty containers with agricultural commodities, the shipping lines chose to return to Asia with empty containers. Given the shortage of shipping containers and the increase demand for them from Asia, due to the increased consumption by home-bound U.S. consumers, the ocean-liners found the speed of returning to Asia more profitable. Average costs of shipping a twenty-foot equivalent container (TEU) from Asia to North America increased from approximately $4,000 per TEU, to almost $20,000 per TEU. So, every day a ship was delayed returning to Asia, would cost them a lot of money. It also did not help that for the first time in years, a ship had to wait to dock at California ports. At one point in October of 2021, there were 73 cargo ships waiting to dock at the ports of Long Beach and Los Angeles. Under normal operations container ships are docked within the hour of arrival, rather than staying adrift for days. Pre-pandemic, it took on average of 71 days for a container to leave a factory in China, arrive in the US, and return to China. However, since the pandemic, this now takes more than 149 days, according to an analysis by the New York Times. Having waited so many days, the container ships would probably rather not stay longer to load agricultural commodities. If they did, however, they would charge higher rates than normal.
With challenges exporting, California farmers would need to turn to domestic exports. From the demand perspective, over the last two decades, Americans have slightly decreased their per capita consumption of fruit. However, with more households being home-bound, food made and consumed at home increased, including fruit consumption. What about the supply side? The same issues with the trucking industry kept much of the fruit from California ending up on shelves across the country.
So, what’s the solution? The USDA is working on the challenge with California ports. It recently announced a partnership with the Port of Oakland to increase capacity for agricultural commodities. A proposed 25-acre ‘pop-up’ site will be devoted to filling empty shipping containers with agricultural commodities. This is being patterned after a similar effort at the Port of Savannah. If the commodities can get to port, they should have an easier time making their way to Asia and other markets, assuming the supply-chain disruptions do not get any worse.