Chicago is becoming a new bottleneck in the global supply chain as rail, trucking and logistics operators struggle with a glut of imports from Asia arriving at the Midwest freight hub.
Union Pacific Corp. and BNSF Railway Co. have limited container shipments to their saturated Chicago-area freight interchange terminals, and some cargo owners and logistics firms have sought to divert shipments by truck or rail to other Midwest transfer points, driving up costs and adding new complications to already clogged distribution networks.
The logjam is due to a rush by U.S. retailers and manufacturers to replenish inventories as the economy reopens after the Covid-19 closures and consumers return to stores and restaurants in greater numbers.
Container imports at the neighboring Southern California ports of Los Angeles and Long Beach have soared at a record pace this year, and the delays have impacted logistics operations, from the seaports to nearby warehouses and further inland to Chicago, where many thousands of containers are shifted each month.
The two California ports handle about one-third of U.S. container imports, mostly from Asia. Ocean imports to the ports for shipment to Chicago and the surrounding area rose 32% year-on-year in the second quarter and 18% compared with the same period in 2019, according to trade analyst Panjiva.
Congestion is the latest bottleneck in supply chains that have been unbalanced this year by container shortages, tight capacity and events such as the grounding of container ship Ever Given in the Suez Canal in March, backups at Yantian Port in Shenzhen, China, and other incidents that led to continued delivery delays.
In Chicago, freight railroads are trying to catch up as containers arrive faster than they can be shifted for onward transport, leading to ever-higher piles of boxes in the region’s shipyards. The strains are compounded by labor and equipment shortages in the shipping, trucking and rail sectors.
Union Pacific, which along with BNSF carries containers to and from Southern California ports, said earlier this month it would suspend service from the West Coast to Chicago beginning the night of July 18 for up to seven days to alleviate the backlog of containers.
In an earnings call Thursday, Union Pacific officials said it also temporarily reopened a former intermodal facility in the Chicago area to relieve congestion. CEO Lance Fritz said shippers are struggling to get boxes fast enough from rail ramps to warehouses and distribution centers.
This week, BNSF said it had begun measuring container flows from the ports for two weeks. Typically, the railroad measures cargo after disruptions caused by events such as extreme weather, said a spokeswoman for BNSF, a unit of Berkshire Hathaway Inc.
“This particular situation is unprecedented in that for a sustained time the volume we are receiving is outpacing what customers are picking up from our doors for deliveries,” she said in a statement.
Norfolk Southern Corp. which carries shipments between Chicago and points in the eastern United States, said this week it was expanding capacity at its intermodal terminal in Chicago by reorganizing several yard operations to keep boxes moving.
Chicago is strained because seven major North American freight railroads converge there, creating a complicated network of operations in which inbound and outbound shipments are interchanged between trains and trucks. It is also within 500 miles by truck of one-third of the U.S. population, making it a major distribution hub, transportation experts say.
“If you move something by rail from coast to coast, it’s almost guaranteed to have to go through Chicago,” said Maciek Nowak, professor of supply chain management at Loyola University Chicago’s Quinlan School of Business.
Chicago is a permanent choke point, Nowak noted. Freight trains, which take several days to reach the city from thousands of miles away, can take an extra day or two to get through because they have to cross busy highways, he added.
“There’s not a lot of margin for error,” Nowak said. “When you have something like a pandemic, that error quickly creates major problems.”
Darin Cooprider, senior vice president of supply chain solutions at Ryder System Inc. said the current suspension and metering are the most significant restrictions on eastbound freight he has seen in some time, and shippers have few alternatives.
Air freight is prohibitively expensive, he noted, while moving goods by truck from the West Coast is more expensive than rail and requires drivers and equipment that are currently in short supply.
“If you switch everything from rail to truck, things get worse, not better, and the truck is tied up for several days, which adds insult to injury,” he said.
Some third-party logistics companies say customers are diverting orders by rail to St. Louis and Kansas City (Mo), or to Memphis (Tenn.). Mark Ori, senior vice president of business development for Redwood Multimodal, said demand is driving up last-minute rates from those cities.
Andrew Lynch, president of Zipline Logistics, said his company’s costs to pay a carrier to deliver a truckload to Columbus, Ohio, from Los Angeles have increased by about $300 in the last week to about $6,000.
Craig Grossgart, senior vice president of Global Ocean for Seko Logistics, a freight forwarder based in Itasca, Illinois, said trucking freight can be more expensive. “But in today’s times, you’ll probably save about a week in transit time,” he said.