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Since late last year, BNSF Railway and Union Pacific have been busy handling a surge of containers from West Coast ports as U.S. companies pulled forward imports to beat potential tariffs.
But now with a trade war underway — and tariffs as high as 145% on goods made in China — the number of containers bound to the U.S. from China has dropped precipitously. Container shipping line Hapag-Lloyd, for example, has seen its China-U.S. bookings drop by a third since tariffs were imposed on April 2. And so shipping lines are canceling sailings from Chinese ports.
“It’s my prediction that in two weeks’ time, arrivals will drop by 35% as essentially all shipments out of China for major retailers and manufacturers have ceased, and cargo coming out of Southeast Asia locations is much softer than normal,” Port of Los Angeles Executive Director Gene Seroka said Thursday.
The trade disruption is setting up the potential for kinks in the supply chain that could lead to congestion in the U.S. and a shortage of containers in Asia, intermodal analyst Larry Gross says.
The containers that came to the U.S. during the import surge need to make their way back to West Coast ports. But with far fewer ships now scheduled to call at U.S. ports, there won’t be as much capacity available for the containers to hitch a ride back to Asia.
So the fear is that the glut of empty containers will begin to stack up. “There’s a storm brewing,” Gross said.
UP (NYSE: UNP) and BNSF say they’re ready and able to handle any disruption that may arise.
Both railroads experienced congestion that accompanied strong demand for consumer goods after the pandemic hit in 2020. As inland warehouses filled up, customers were slow to remove their containers from terminals in Chicago and Texas. That created a logjam at BNSF and UP terminals, which spread across their networks and all the way back to the ports of Los Angeles and Long Beach.
The supply and demand dynamic is much different now, but huge volume swings can still create trouble. “The flow of empties westbound continues, and the ports will soon be clogged with empties and no ships to load them on to,” Gross said.
Union Pacific CEO Jim Vena says his railroad is closely monitoring terminal capacity and container flows and is nowhere near capacity. “Overall in our network, we’re very, very cognizant of what we have and what we can hold on to in our terminals,” he said in an interview Wednesday.
Meanwhile, West Coast ports now can handle more volume. “LA and Long Beach have done a good job of working on their capacity, so I think that they’re in better shape,” Vena said. It’s the same story in the Pacific Northwest, where Seattle and Tacoma have handled a surge in container traffic partly driven by regaining share from Vancouver and Prince Rupert, British Columbia, following labor unrest in Canada.