(The following story by Eric Johnson appeared on the Long Beach Press Telegram website on March 6.)
LONG BEACH, Calif. — At least one firm foresaw the cargo congestion that all but paralyzed the ports of Long Beach and Los Angeles from June to December 2004.
Anticipating the bottleneck, Toys ‘R’ Us built in an extra seven days into expected cargo transit times in 2004, Michael Jacobs, senior vice president of logistics, said last week during a two-day conference on trans-Pacific maritime trade at the Long Beach Convention Center.
“There’s a 120-day lead time from order to manufacture to transit to shelf, so we just built that extra week in,” he said. “I’m anticipating, based on history, for there to be delays again this year, so we’re planning on delays.”
The crush of newer, larger container ships that arrived from China and other parts of Asia, left shipments stranded for as many as nine days outside the ports’ breakwater. It also showed alarming cracks in the landside transportation network, including shortages of longshore labor, rail service and physical space on the docks.
Speakers at the conference, held by maritime trade publication The Journal of Commerce, focused on congestion sources. “Rail and drayage are going to be a problem this year,” said Jim McKenna, president of the Pacific Maritime Association, which represents the ocean carriers in contract negotiations with union dockworkers. “Where are those extra draymen going to come from?”
Draying refers to the short haul, via trucks, that containers make from marine terminals to rail yards near downtown Los Angeles.
Rising costs to operate trucks have priced many of the estimated 10,000 port truckers out of the industry.
A lack of trains, and train crews, hampered the ability of terminals to shift cargo away from the docks. That, in turn, further strained the transportation network surrounding the ports, which is struggling to keep pace with wild growth in container volumes.
American imports from Asia grew 17 percent last year — 24 percent at the Port of Long Beach alone. Projections at the beginning of the year had cargo volumes growing only 9 or so percent in Long Beach and L.A.
Crystal ball
“There was a lot of emphasis put on forecasting this year,” McKenna said. “Previously we took the forecasts by economists, and we lived with it.”
Jim Spinosa, McKenna’s counterpart at the International Longshore and Warehouse Union, said that while the union predicted sizable growth, those along the logistics network were left unprepared.
“Nobody could expect last year’s surge of cargo,” Spinosa said. “A wave has crested over this industry.”
Analysts said the import-heavy policy of the United States could heap significant consequences on already-clogged Southern California ports.
“The future could be really horrendous as far as the trade imbalance on the trans-Pacific goes,” said Mark Page, director of research at Drewry Shipping Consultants. “We’re projecting that in 2015, there will be four TEUs worth of imports for every one TEU of exports.”
TEUs refer to 20-foot equivalent units, a measurement for cargo containers.
That ratio was even in 1995 and is currently 2.3 TEUs of imports for every one of exports.
“Congestion is a global problem, not just a Southern California one,” Page said. “Congestion is bound to fuel cost rises, which will translate into higher freight rates. It’s even possible that manufacturers could start looking to local production or regional sourcing in order to get around relying on the ports.”
There are signs the growth could slow this year, said analyst Richard Martin of International Market Assessment Asia, an Australia-based trade consultant.
There are pressures in China that could slow Chinese export growth through higher-priced goods. In 2004, power rates there rose 20 percent, steel rates, 50 percent and management salaries, 10 to 15 percent. Also, the Chinese government is likely to impose stricter regulations on borrowing money, since 40 percent of loans are not paid back.
Martin is forecasting import growth of 9 percent in 2005, while Drewry Shipping Consultants are predicting 12 percent growth.
Rail problems
The maritime industry apportioned much of the blame for the slowdown last year to deep problems in rail service. Officials at Burlington Northern Santa Fe and Union Pacific, which operate the major rail lines in the western United States, said shortages took their toll.
Overall velocity on the Union Pacific railroad, for instance, has dropped 3 mph over the last two years, said UP intermodal vice president John Kaiser. But he expects velocity to rebound by 2 percent this year.
In 2004, the company hired 5,000 new train workers, with another 1,400 due to be hired. They also added 1,000 new locomotives and have dedicated $2.5 billion in capital projects.
“We recognize we got a little behind, but we think we’ve turned a corner,” he said.
A BNSF intermodal container yard north of the ports — where container would be drayed a short distance and shifted to trains — is about three years away from coming online.
But railroad officials also said the rest of the goods-movement network needs to schedule shipments more evenly throughout the day and the week to better utilize rail capacity.
“The different elements of the supply chain don’t operate on the same schedule,” said Steve Branscum, a vice president at BNSF. “Railroads operate 24 hours a day while the marine terminals and the distribution centers don’t. There are 10 on-dock facilities in Long Beach and L.A., but they only operate five days a week during daylight hours.”
Logistics consultant Mike Uremovich, vice chairman of Pacer International, also said the terminals and distribution centers need to expand to 24-hour operations.
“You can’t have a narrow window of operations and expect the transportation system to respond to that,” he said.
Nighttime operations
Ocean carriers and terminal operators are trying to encourage cargo owners to shift deliveries to nighttime hours, which could redirect container moves to times when freeways are less crowded.
The plan, to be operated by an independent company called PierPass, would assess a $40 fee for each container that moves during daytime, weekday hours. It was to begin in November, and then March, but has been delayed until June because of concerns over how to administer the program and a lack of interested cargo owners.
Freeway congestion is one indication that the maritime industry should take note of the effect its increased operations are having on local communities, said Tom Ward, a principal in marine terminal planning and analysis at the JWD Group.
“The rapid utilization of these ports has awakened the community, especially to the fact that not all of the cargo that comes here stays here,” he said. “One year’s growth in the local ports, if shifted to any other port on the West Coast, would result in an increase of 50 percent or more in container volumes.”
He said that outside of San Pedro Bay, it’s difficult to find anywhere else in Southern California with deep water next to flat land and good land connections. And the local ports remain attractive, despite the congestion, because the unit cost per container shipped from Asia still remains low to cargo owners.
“We’re running out of tricks,” said Robert Sappio, senior vice president of trans-Pacific trade for ocean carrier APL. “There’s only so much we can divert (to other ports). At the end of the day, L.A. has to work.”
Other options?
For the 50 percent of cargo that comes through the local ports and heads out of Southern California, there are options, such as the Panama Canal and ports in Seattle, Tacoma and Oakland.
But the canal is nearing capacity and can’t accommodate the newest generation of large container ships. And all the other West Coast ports are expecting to deal with double-digit percentage increases in cargo traffic.
An eight-year, $8 billion project to construct a larger lane capable of accommodating the world’s largest container ships in the canal will likely get under way in 2006, assuming Panama approves it, said Richard Wainio, consultant to the Port of Palm Beach and a former official on the Panama Canal Commission.
Since 60 percent of the Panamanian economy is derived from the canal, that appears likely, he said.
In either case, business on the canal is booming. It took in $257 million in net revenue in 2003 and more than $300 million in 2004 and remains a key option for shippers wanting to deliver Asian-made goods to the U.S. East Coast more quickly and efficiently. Some 2 million TEUs bound for the East Coast passed through the canal in 2004.
“We use the all-water route (through the canal) as a risk diversion plan if congestion is too severe in Los Angeles,” said John Isbell, director of delivery logistics for Nike.
As far as Mexico, Ward said any widespread use of the small, underdeveloped ports there is unrealistic in the short term, because of added costs in sea and rail miles traveled, as well as security needs. But in the future?
“We’ll find out this year how bad it has to be make people seriously look at Mexico,” Ward said.