The Impact of the COVID-19 Pandemic on Freight Transportation Services and U.S. Merchandise Imports

COVID-19 Disruptions in Maritime Shipping and Air Freight

Maritime and air freight transport provide the essential transportation services that enable global merchandise trade, including U.S. imports.^[1] Beginning in early 2020, the COVID-19 pandemic disrupted maritime shipping and air freight services, leading to canceled sailings and flights, port delays, and container shortages. These disruptions were particularly profound for U.S. imports originating from Northeast Asia. Combined with COVID-19 related changes in demand, the disruptions increased volatility in maritime and air freight rates across regions and caused significant delays in the delivery of U.S. merchandise imports. This chapter is divided into two parts: the first part discusses the nature of shipping disruptions during the pandemic, while the second part examines the above-mentioned effects on freight rates, shipping modes, and arrival times of U.S. merchandise imports.

The disruptions in maritime shipping related to the COVID-19 pandemic and their effects on merchandise imports can be divided into two distinct halves.^[2] In the first half of 2020, U.S. maritime container imports declined 7.0 percent, by volume, compared to the same period in 2019, while in the second half of 2020 there was a large increase in container imports.^[3] Compared to the same period in 2019, containerized imports rose 9.5 percent, by volume, in the second half of 2020, and year-over-year grew 16.4 percent in the fourth quarter.^[4]

The notable increase in the volume of U.S. merchandise imports in the second half of 2020 stimulated a rise in imports of associated maritime shipping and port services. U.S. merchandise trade data indicate that the increase in U.S. imports of maritime freight services in the third and fourth quarters of 2020 largely was due to a sharp rise in trade with Asia, especially China.^[5] In the second half of 2020, the value of U.S. imports of maritime freight transport services (which relate to the transport of U.S. goods imports by foreign maritime vessels) increased by 16.5 percent compared to the same period in 2019.^[6] Similarly, U.S. exports of port services (which relate to the purchase of goods and services by foreign vessels arriving at U.S. ports) rose 3.5 percent year-over-year in the second half of 2020.

Reduced Capacity for Container Shipping

The contraction of U.S. merchandise trade in the first half of 2020, coupled with a slowdown in manufacturing in China, led container shipping firms to cancel scheduled sailings (called “blank sailings”) and consolidate shipping routes to focus service on major ports in the first half of 2020.^[7] This, in turn, permitted shipping lines to lower costs and mitigate a downward pressure on freight rates due to overcapacity.^[8] For example, in June 2020, the three largest container shipping alliances (THE Alliance, 2M Alliance, and Ocean Alliance) announced their intent to cancel 126 scheduled sailings between Asia and North America through August 2020, and another 94 sailings between Asia and Europe.^[9] Container shipping firms canceled more than 1,000 voyages in the first six months of 2020 (figure ST.1).^[10] These reductions stabilized spot rates for maritime freight in mid-2020 slightly above their 2019 levels, as firms at the time anticipated reduced international trade and a slower economic recovery from the COVID-19 pandemic.^[11] As discussed in more detail below, maritime freight rates rose substantially in the second half of 2020 as trade recovered and outstripped shipping capacity.

In mid-2020, increased economic activity and sharply rising consumer demand led to a recovery in merchandise trade which in turn caused capacity shortages in the maritime freight sector. During that time, container shipping firms struggled to restore capacity to previous levels.^[12] For example, U.S. imports from Asia were nearly 30 percent higher in December 2020 than in December 2019, precipitated by the surge in online purchases.^[13] The number of shipping containers in circulation during the second half of 2020 was insufficient to meet customer storage demands and higher than anticipated consumer demand for imports.^[14] The unexpected recovery in demand shocked the distribution system and firms had trouble getting products to customers.^[15] Maersk, a major global shipping firm, had forecast a sustained period of low demand in early 2020.^[16] However, by the fourth quarter, container shipping firms were operating at nearly full capacity. Blank sailings declined from 21 percent of all voyages in May 2020 to 1 percent by October 2020.^[17] The recovery in demand for international maritime freight transportation caused container vessels to operate at near maximum capacity, which resulted in a depletion of shipping container inventory at major ports.^[18]

This container shortfall was exacerbated by the misallocation of containers across the distribution system. During the early months of the COVID-19 pandemic, demand for containers dropped along with orders for new container production, and some containers were used as long-term storage.^[19] U.S. demand for containerized imports that increased to a greater degree than expected in the second half of 2020, exceeded the demand for U.S. eastbound exports as well as outpaced shipping container manufacturing.^[20] This, in turn, caused the repositioning of containers to transport imported goods from Asia (especially China) to become a priority for shippers.^[21] The container shortage was further exacerbated by an increase in the turnaround times for containers (the time it takes a container to complete a trip and be ready for reloading) due to rising ship bottlenecks at ports, particularly in the high-volume trade lanes between northern Asia and the U.S. West Coast.^[22]

According to one estimate, 30 to 35 percent of all containers exported from the United States remained empty and were needed to meet container demand in Asia for exports to the United States.^[23] In addition, ocean carriers received greater financial incentive for returning empty containers to Asia than for transporting U.S. containerized exports to Asian markets.^[24] The container shortage increased costs for U.S. importers (as leasing rates rose) and has been cited as an impediment to U.S. exports, particularly of agricultural goods.^[25]

Effects of COVID-19 on Transportation Personnel

High COVID-19 infection rates among port workers negatively impacted port operations, which decreased the amount of cargo that could move to and from ships.^[26] Consequently, ports became bottlenecks with shipping container backlogs that delayed loading and offloading merchandise. Updated health policies and working conditions also may have decreased port productivity. Moreover, labor shortages impacted global supply chains.^[27] For example, onshore transportation systems (including rail and trucks) faced labor shortages that delayed the availability of goods and increased costs.^[28]

The COVID-19 pandemic further disrupted the flow of goods by halting international travel for maritime workers and increasing maritime personnel costs. As the COVID-19 outbreak became a global pandemic, many governments imposed travel restrictions and certain quarantine procedures that reduced labor mobility in the maritime sector.^[29] The International Labour Organization estimated that 800,000 seafarers were unable to embark on or disembark from their vessels in 2020.^[30] Starting in May 2020, this problem abated as several countries allowed firms to charter flights in pre-approved “safe transit corridors” to allow seafarers to travel from their home countries to select ports in order to relieve other seafarers.^[31] These and other factors increased labor expenses, particularly hardship pay to compensate workers stranded on vessels, higher travel costs to reposition workers, and COVID-19 testing and quarantine expenses.^[32] One source estimated that the higher labor-related expenses caused maritime personnel costs to rise 6.2 percent in 2020.^[33]

In 2020, air freight experienced two different, but related impacts associated with the COVID-19 pandemic. The first, and most significant, impact was a sharp decrease in capacity to transport freight in the cargo holds of passenger aircraft (“belly cargo”) due to cancelled flights. The second impact was a pandemic-related increase in air freight demand for certain merchandise imports, primarily for products like personal protective equipment (PPE).^[34] These resulted in a steep increase in air freight rates compared to 2019, as well as increased volatility in these rates compared to previous years. These impacts varied by region, however, with Asia-North America routes the most affected (as explained below).

Global air freight volumes experienced a substantial decline beginning in early 2020 as measured by air cargo tonne-kilometers (CTK).^[35] For 2020 as a whole, global CTKs fell 10.6 percent, the largest decline since at least 1990, compared to a 6 percent decline in global merchandise trade in 2020.^[36] Total CTKs reached their lowest point in April 2020, early in the pandemic, before rising again through December 2020 and recovering to their pre-pandemic monthly levels (figure ST.2).^[37] This pattern also varied by region. While all routes experienced a decline in CTKs beginning in early 2020, cargo shipments on routes to and from North America rose above 2019 monthly levels as early as May 2020, while shipments on routes to and from Latin America remained below 2019 levels at the end of 2020. By the end of 2020, shipments on major routes including North America, Asia, the Middle East, and Europe all rose above their January 2020 levels, while smaller routes to Latin America were still below their previous levels.^[38]

Source: ICAO, “Air Transport Monthly Monitor,” February 2021.

These trends in air cargo shipments were largely driven by changes in the availability of belly cargo capacity on passenger planes. Beginning in February 2020, many countries announced travel restrictions to mitigate transmission of COVID-19, and passenger air travel was severely curtailed. This reduced the volume of U.S. air travelers (both domestic and international), which had been growing steadily since at least 2017. The volume fell precipitously in early 2020—from 78.7 million in February to 3.0 million in April 2020—before beginning a slow recovery starting in May 2020.^[39] Belly cargo accounted for about 60 percent of total international CTKs before the pandemic (with dedicated freighters supplying the balance), though by December of 2020 it only accounted for one third. Air carriers increased the number of dedicated freighters they used in 2020 compared to 2019 to partially offset the decline in belly cargo, but not by enough to maintain previous levels of total air cargo supply (figure ST.3).^[40] Several reports noted that some airlines converted passenger aircraft into fully cargo aircraft, with some conversions removing interiors to create more space or retrofitting older airplanes, and other (quicker) conversions simply strapping packages into existing seats.^[41] Increases in air freight rates (discussed in more detail below) also induced airlines to move towards cargo in the face of reduced revenue from passenger fares to shore up their balance sheets.^[42]

Source: IATA, “Air Cargo Market Analysis,” December 2020.

Domestic U.S. air travel recovered more strongly in 2020 than international travel. Domestic air passengers increased 2,264.3 percent from its lowest point in April 2020 to December 2020, while the number of international passengers increased 872.0 percent over the same period.^[43] This points to a weaker recovery in belly cargo capacity on international routes than for domestic routes. This was compounded by the slower rate that wide-body jets returned to the air. These airplanes carry more passengers and predominate on international routes but are also better suited to carrying freight.^[44]

A sudden and sharp increase in demand during early 2020 for international shipments of PPE resulted in a surge in demand for international air cargo delivery services. Demand for PPE spiked in the first half of 2020, with orders requiring fast fulfillment times, leading shippers to move these products via air cargo.^[45] As PPE stockpiles were built, which coincided with the end of the first wave of COVID-19 infections in the United States, the volume of PPE shipped via air cargo fell. Lower shipments in turn put downward pressure on the temporarily high freight rates.^[46] The surge in PPE trade can be seen in the trade statistics described in more detail below. The percentage of goods moved via air cargo in the textile and apparel sector (which includes masks, gowns, and other PPE) surged in 2020 compared to prior years.^[47]

In the second half of 2020, by contrast, there was a rise in the share and level of electronic products shipped via air cargo, as consumers shifted their spending away from services and towards durable goods. During that time, many consumers were looking to outfit home offices during pandemic-related workplace closures and increased their use of e-commerce channels.^[48]

Impacts of Shipping Disruptions and Merchandise Imports from Northeast Asia

The remainder of this chapter examines the impacts of shipping disruptions described above on shipping costs, the cost of goods, and the main transportation modes and shipping routes used by shippers. It also discusses the types of products most affected by delays and the impact of these shipping disruptions on small importers. This section examines the overall impact as well as the effects by sector. However, individual firms and industries have had widely varying experiences, with some experiencing only minor effects and others much more significant impacts than the aggregate data show.

The main purpose of this section is to provide information on trends in 2020, which as appropriate is placed within a five-year context to show the extent to which these trends deviated from historical norms. This chapter does not quantitatively assess the extent to which shipping disruptions decreased the volume of imports from levels that would have otherwise occurred. Given the unique circumstances of 2020, such an assessment would need to take into account a range of factors. For example, it would need to consider not only the price of freight services, but also the availability of freight and the inelasticity of demand—such as for PPE—during the COVID-19 pandemic.

The COVID-19 pandemic resulted in a significant increase in maritime freight costs from Northeast Asia starting in the second half of 2020.^[49] In the first half of 2020, shipping prices remained relatively unchanged by COVID-19 because shipping companies canceled planned shipments (leading to blank sailings) due to the decline in global demand.^[50] In June 2020, however, shipping costs began to increase due to recovering consumer demand for goods as well as container shortages and other factors described above.^[51] According to the online international freight marketplace, Freightos, the weekly index price to ship a container from China to the North American West Coast increased 178 percent or $2,676 per container from January to December 2020 (figure ST.4).^[52] Increased transportation costs affected firms by forcing some firms out of the market and altering inventory management decisions.^[53]

Air freight rates also increased sharply due to the contraction in air freight capacity during the pandemic. According to data from the U.S. Bureau of Labor Statistics (BLS), the U.S. inbound air freight price index from Asia rose 28 percent from March to April 2020 and another 31 percent from April to May 2020 (figure ST.5).^[54] Though prices in the following months declined somewhat by September, a second spike occurred later in the year.^[55] The Baltic Air Freight Index, which measures spot prices, reported that the cost to ship 1 kilogram of air freight rose 102 percent from Hong Kong to North America between January 2020 and December 2020.^[56] Indices which measure spot prices (such as the aforementioned Baltic Air Freight Index) tend to be more volatile than prices in the long-term contracts used by dedicated air cargo firms like FedEx and UPS.^[57] Prices for air cargo charters also increased in 2020 compared to 2019, but not as much as spot prices for air freight.^[58]

Source: USDOL, BLS, “Import/Export Price Indexes (MXP),” accessed June 14, 2021. Notes: Data are not seasonally adjusted.

In addition to data from Freightos and BLS, changes in transportation costs can also be examined using insurance and freight costs as reported by the U.S. Census Bureau. Insurance and freight costs per kilogram (kg) of U.S. imports from Northeast Asia as reported by the U.S. Census Bureau regardless of transportation mode briefly fell in February 2020, then increased over the year (figure ST.6).^[59] Insurance and freight costs per kg in December 2020 were 26 percent above December 2019 costs. Increases in transportation costs as measured by per kilogram international insurance and freight costs were more modest than the maritime and airfreight price increases as reported by Freightos and BLS.  Many goods are shipped at previously arranged contract prices and a significant portion of maritime imports use bulk shipping (contract prices and bulk shipping are not captured in the above Freightos data, and air transportation, which is shown in the BLS data, represents only a small share of freight). Goods sold pursuant to previously arranged contracts may be less impacted by changes in transportation costs, and transportation costs for bulk shipments do not appear to have significantly increased until 2021.^[60] This likely explains the more modest increase in transportation costs seen in the insurance and freight data than seen in the data reported by Freightos and BLS. However, some firms that needed to pay the spot prices may have incurred much larger cost increases than shown in figure ST.6.

Source: IHS Markit, “Global Trade Atlas Database,” accessed May 20, 2021; USITC DataWeb/Census, accessed August 19, 2021.

Notes: The data in this chart are based on import charges for all transport modes from Northeast Asia from DataWeb and the volume of imports in kilograms by air and vessel from official statistics in Global Trade Atlas. As import charges are not available by transport mode for these data and therefore report import charges for modes of transport other than air and vessel, these data may slightly overstate the costs of imports. However, only 6 percent of annual imports (by value) from Northeast Asia during 2016–20 did not enter via air or vessel.

The three sectors that experienced the largest increase in insurance and freight costs from Northeast Asia, in dollars per kg, were textiles and apparel (up 25 percent from 2019), minerals and metals (up 16 percent), and chemicals and related products (up 13 percent).^[61] One of the main drivers of the increase in textile and apparel shipping costs was the demand for PPE due to the COVID-19 pandemic.^[62] In the spring of 2020, the United States started to import large volumes of PPE, while the rapid increase in demand for air cargo for PPE and a steep drop in passenger flights led to a significant increase in shipping costs. As a result, the increase in shipping costs for textiles and apparel was largest in the first half of the year, though increased shipping costs also continued in the second half of the year (figure ST.7). For other products, however, the increase in shipping costs was concentrated in the second half of the year,^[63] with chemicals and related products (23 percent) and minerals and metals (22 percent) experiencing the largest second half cost increases.^[64]

Sources: IHS Markit, “Global Trade Atlas Database,” accessed May 20, 2021; USITC DataWeb/Census, accessed August 19, 2021.

Notes: The data in this chart are based on import charges for all transport modes from Northeast Asia from DataWeb and the volume of imports in kg by air and vessel from official statistics in Global Trade Atlas. As import charges are not available by transport mode for these data and therefore report import charges for modes of transport other than air and vessel, these data may slightly overstate the costs of imports. However, only 6 percent of annual imports (by value) during 2016–20 did not enter via air or vessel.

Shipping costs represent only a small share of the value of imports, and the increase in the share of import value accounted for by shipping costs was relatively small. The largest increase in insurance and freight costs, as a share of the landed duty-paid value of imports, was in energy-related products. Insurance and freight costs for energy-related products from Northeast Asia increased from 4.4 percent of the value of imports to 5.7 percent, though this was driven by significant price declines in energy products rather than freight cost increases.^[65] The second-largest increase was in forest products, where insurance and freight costs rose from 6.9 percent of the value of imports to 7.8 percent.^[66] However, these costs increased over the course of the year, with the largest increases for imports from Northeast Asia in the fourth quarter of 2020 (compared to the fourth quarter of 2019) in forest products (up from 7.0 percent of the landed duty-paid value to 8.5 percent), minerals and metals (up from 5.4 to 6.6 percent), textiles and apparel (up from 4.3 to 5.3 percent), and machinery (up from 3.5 to 4.5 percent).^[67]

The shipping challenges and increased costs resulting from the COVID-19 pandemic did not result in a major change in the shipping mode used for imports from Northeast Asia in 2020, except in the textile and apparel sector. In textiles and apparel, the share of goods shipped by air freight increased from 9 percent in 2019 to 22 percent in 2020, reflecting the large volume of PPE shipped via air freight (figure ST.8).^[68] While there were smaller increases in the share of goods shipped via air freight in other sectors, such as chemicals and electronic products—and certain COVID-19 related trends that encouraged more use of air freight for certain goods in these sectors—these shifts are a continuation of trends over the five-year period so the extent of the impact of COVID-19 related shipping disruptions is unclear.^[69]

There were no significant changes in shipping routes corresponding to the major ports of entry for container cargo from Northeast Asia in 2020 despite the shipping congestion that occurred that year. Los Angeles continued to be the major port of entry in 2020, receiving 36 percent of the volume (by kg) of container imports in 2020 (up from 35 percent in 2019), followed by Newark (part of the Port of New York and New Jersey) (11 percent, the same as in 2019), Long Beach (11 percent, up from 9 percent in 2019), and Savannah (10 percent, the same as in 2019). When congestion intensified during the course of the year, importers increased their reliance on Southern California ports. The combined share of container imports received by Los Angeles and Long Beach—two of the most congested ports—in December 2020 was higher than in December 2019.^[70]

 

The COVID-19 pandemic’s impact on U.S. ports contributed to the corresponding disruptions in merchandise trade described here. While total volume of goods handled at ports in 2020 was similar to the volume in 2019, the year-on-year comparison obscures the V-shaped pattern (a sharp decrease followed by a sharp increase) in monthly changes in 2020. During the year, monthly volumes declined during the first half of the year and increased during the second half.^[71] The number of 20-foot equivalent units (TEUs) handled per month declined 17.5 percent, from 3.7 million TEUs in January to 3.1 million in March 2020.^[72] Monthly volumes remained at similar levels until June, when they began to rise. The number of containers handled increased 34 percent over the next four months, from 3.3 million TEUs in June to 4.4 million TEUs in October, and remained high through the end of the year.^[73] The largest monthly volume increases occurred at the three largest ports—those of Los Angeles, Long Beach, and New York and New Jersey.^[74]

The disruptions to the maritime shipping sector resulted in delayed merchandise shipments.^[75] Furthermore, these delayed freight deliveries were more frequent and lasted longer in 2020 than in 2019.^[76] The delays were a widespread problem, affecting not only the global supply chains of leading U.S. retailers and small businesses that import finished goods and intermediary parts, but also maritime freight, cargo handling facilities, and onshore transportation networks.^[77] The more frequent and longer delays resulted in smaller inventories available to firms and slower deliveries to consumers.^[78]

The shipping disruptions significantly affected the ability of firms to supply the U.S. market in a timely way. In the first half of the year, disruptions in air freight contributed to challenges in sourcing PPE and other COVID-19 related goods.^[79] Many other sectors experienced significant challenges in the second half of the year due to the congestion at U.S. ports, particularly in Southern California (as discussed above). For example, the footwear and textiles and apparel sectors are heavily dependent on container imports through the ports of Los Angeles and Long Beach.^[80] Nike reported that “starting in late December container shortages and West Coast port congestion began to increase the transit times of inventory supply by more than three weeks. The result was a lack of available supply, delayed shipments to wholesale partners and lower-than-expected quarterly revenue growth.”^[81] Similarly, Gap reported in its discussion of fourth quarter 2020 earnings that port congestion led to an increase in the volume of inventory in transit.^[82] Impacts were not limited to these sectors, however, as many other sectors also import a significant volume in containers through these ports.^[83]

The shipping disruptions and cost increases in the second half of 2020 likely had a disproportionate impact on small importers, according to industry representatives, although firms of all sizes were affected, as discussed in the Nike and Gap examples above.^[84] Small firms were likely to be more severely impacted for several reasons. First, industry representatives indicate that shipping companies may prioritize freight for large customers that do a lot of business with their firms.^[85] Second, smaller companies are less likely to have long-term contracts, and therefore may need to pay higher spot rates for shipping. Finally, large companies may be able to negotiate discounts due to the large volumes that they ship.^[86]

By mid-2020, most maritime shipping capacity returned to 2019 levels. But port capacity, including container availability, continues to be strained and international air freight capacity has not yet returned to its pre-pandemic levels. Global merchandise trade continued to grow through the first quarter of 2021, as did U.S. merchandise trade.^[87] As such, demand for transportation services still outstripped supply as of mid-2021.

For instance, the amount of time container ships spent waiting to be unloaded in mid-2021, particularly on the U.S. West Coast, was well above the pre-pandemic average.^[88] To ease this trend, ocean carriers are ordering more ships and containers, however these will take several years to enter service.^[89] Port backlogs are also predicted to last through at least 2022.^[90] Early in the pandemic, some firms began to question their reliance on just-in-time delivery.^[91] However, more recently, many leading firms largely have chosen to continue using the just-in-time model and prefer to make modifications to it, such as incorporating delays into supply-chain planning or near-shoring the production of certain inputs like key pharmaceutical ingredients.^[92] The extent to which COVID-19 related transportation disruptions continue to ease and individuals and firms return to their former spending patterns and ways of doing business, will also affect future demand for merchandise trade and transportation services.

 

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