Congestion Continues on the East Coast

While there is still Teamster action on the US West Coast, congestion in the East Coast ports continues to plague importers and exporters. The lines to get into the NJ ports were so long last week that a New Jersey Turnpike exit was sporadically closed to prevent further back up on the highway. With more services coming into the East Coast, and larger ships coming in from Asia, the East Coast ports may continue to suffer congestion, especially with some importers continuing to divert their cargo.
According to the Journal of Commerce, the trend of diverting cargo is likely to continue. Many importers have lost faith in the West Coast, preferring to plan for an additional week to re-route their goods to the East Coast. Unfortunately, this also means that the East Coast is likely to experience congestion issues for some time to come.

A DNA change for West Coast shippers

Peter Tirschwell, Chief Content Officer | May 07, 2015 11:27AM EDT

Data such as West Coast-East Coast market share, volumes and growth rates will ultimately tell the story of how damaging the months-long longshore labor standoff was for West Coast ports. Was the nearly year-long stretch of disruption and uncertainty a one-time episode in the minds of shippers that has now faded into the past? Did it permanently affect the attitude of shippers toward Los Angeles-Long Beach or other West Coast ports? Or is it something in between?

An interview last week with a leading retail industry consultant, who regularly speaks with a range of retailers about broader supply chain strategies, suggests that it was not a minor event in the minds of these companies. After past negotiations between West Coast employers and dockworkers were resolved, even after many months of disruptions, many retailers largely resumed their normal routing of cargo with West Coast ports being core gateways.

But this time is different, Keith Jelinek, senior managing director for retail and consumer products at FTI consulting, says, because the perception of risk and uncertainty in the minds of retailers is no longer limited to just longshore negotiations; it’s become commingled with other challenges such as port capacity and delays that, in the minds of retailers, were mounting in general, irrespective of what was happening at the negotiating table. The conclusion is not one that West Coast ports want to hear, which is that they have become inherently associated with risk whether or not longshore negotiations are underway.

“I would tell you that when it comes to the West Coast ports, primarily through LA and Long Beach, many of the retailers really lost faith,” Jelinek said. “Strategically, retailers are going all the way back to their flow plans, which they typically start a year out, and are saying, ‘We want to de-risk; let’s just bypass (the West Coast) as much as we can and try to eliminate that risk.’ ”

The implications of a de-risking strategy for retail operations, he said, go well beyond which ports to route cargo through. It affects planning throughout the broader supply chain, including order lead times that influence working capital requirements and can alter financials — orders placed earlier can impact financial statements, depending on the quarter. And decisions with that broad of an organizational impact are not taken at a supply chain level, but rather in the C-suite and board level. That is part of the reason some retailers are no longer making a distinction between whether or not there are labor talks underway in their risk assessments.

Many retailers — especially department store and mass retailers that were most affected by the disruption — operate on low-inventory, just-in-time models that are vulnerable to any form of disruption. As that strategy is not going to change, Jelinek said, “the way they are adjusting for it is they are adding leading time, and having product manufactured earlier. The pressure on the supply chain to reduce safety stocks and have more product just in time means there is no longer a bubble or safety net if that product arrives 30 or 60 days late. So they are saying, ‘We need to de-risk and have a different method for how we flow goods.’ ”

Getting goods to the East or Gulf coasts from Asia means well over a week of additional time on the water, not counting inland transport time from the port to distribution centers. Retailers are placing orders earlier to take that time into account. “Most of them are looking at an increase of two to three weeks,” Jelinek said.

He sees the West Coast, at least for retailers, becoming more of a regional versus national import gateway. “Folks know that coming through the West Coast is still a necessity, especially if you have a dispersement of stores and distribution points west of the Mississippi,” he said. “But when you look at retail stories and the dollars generated from retail, most of them are in the Southeast and Northeast. The West Coast doesn’t have a high percentage of their sales, so they are looking at smaller amounts of product coming in through the West Coast.

“It is a massive change in strategic thinking about a distribution strategy and a flow strategy for imports from Asia,” he said.

Diversions from the West Coast were widespread during the labor standoff, with ports in Canada, Mexico and on the East and Gulf coasts all benefiting to one degree or another. The possibility now is that some or all of those gains may become permanent.

Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell

Congestion to cost West Coast ports peak-season cargo share

Bill Mongelluzzo, Senior Editor | Apr 29, 2015 6:54PM EDT

West Coast ports will miss some of the gains in what is expected to be a relatively strong peak shipping season in 2015, but the ports should recoup much of their lost market share next year and beyond if they address their congestion and labor problems, speakers at the Port of Long Beach Pulse of the Ports breakfast said Wednesday.

“I believe a lot of the cargo is coming back,” said Allen Clifford, executive vice president of Mediterranean Shipping Co. He noted that this past year’s port congestion on the West Coast is a problem that other large ports must also contend with. The word from New York-New Jersey Wednesday morning was that a New Jersey Turnpike exit was shut down because trucks waiting to get into the port had backed up to highway, he said.

Economists are projecting relatively strong U.S. imports during the summer-fall peak season. Walter Kemmsies, chief economist at Moffatt & Nichol, said that U.S. gross domestic product growth should be about 2.9 percent in 2015, and peak-season imports will be about 6 to 8 percent greater than during peak season 2014.

West Coast ports will be challenged, however, to achieve that level of import growth in 2015. The ports took a big hit in the first two months of the year as cargo was diverted to the East Coast and Canada due to congestion that was magnified by labor disputes involved in the coastwide contract negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association.

To make matters worse, Alphaliner this week reported that trans-Pacific carriers this summer will introduce six new all-water services from Asia to the East Coast. Clifford said carriers are responding to issues that are present right now — lingering port congestion on the West Coast and strong shipper interest in East Coast services. “Carriers are going at the moment where the cargo is,” he said.

Strip away the labor problems of 2014-15, though, and West Coast ports face the same supply chain challenges that all U.S. ports must contend with. Those include inadequate transportation infrastructure, the inability of marine terminals to handle the cargo surges generated by today’s big ships and logistical complexities caused by vessel-sharing alliances. Other challenges are a shortage of truck capacity, intermodal equipment dislocations and a transportation community that is horribly siloed because the individual sectors do not communicate with each other.

Nobody feels this pain more so than exporters in the nation’s interior. “The interior is a nightmare,” said Donna Lemm, vice president of global sales at Mallory Alexander International Logistics. Exporters in the heartland experience a shortage of containers, chassis, intermodal rail equipment and truck capacity. Some ocean carriers limit their export bookings because of capacity issues, or they “roll” export shipments to subsequent voyages.

During the height of the port congestion problems from December through February, shipments that did make it to the West Coast faced as much as a 40-day delay. “We can’t run a business that way,” Lemm said, adding that some carriers do not even inform their customers when their shipments are being rolled.

Clifford agreed that carriers must improve their lines of communication. “We try not to roll you, and if we do, we will inform you. If we fail to do so, it’s very rude,” he said.

Transportation service providers agreed that their industries must and are adding rail and truck capacity from the interior to the ports, as well as truck drivers. At the end of the day, however, capital investments are constrained by inadequate freight rates, they said. “A $300 rate on a 40-foot shipment of hay to Japan won’t cut it for ocean carriers,” Clifford said.

The trucking industry faces an on-going loss of drivers because low freight rates are depressing wages and forcing drivers to look for better-paying jobs in other industries, said David Duncan, chief operating officer and owner of Duncan and Son Lines.

Duncan said his company has increased wages, and rewards drivers with a $1,200 “loyalty bonus” at the end of the year, but it can only maintain these programs if freight rates go up. Duncan said he is getting a positive response from customers on the need for higher freight rates.

Port of Long Beach Chief Executive Jon Slangerup said the San Pedro Bay ports are doing their part to improve cargo velocity and reduce congestion by promoting innovative solutions such as dray-offs of imported containers to free up space at the marine terminals and a free-flow initiative in which containers for pre-certified truckers and cargo interests are block-stowed at the terminals. Containers are peeled off from the top of the pile when the truckers arrive at the facility.

These initiatives require near-dock land for the temporary storage and processing of containers, and Long Beach has identified about 200 acres within its harbor area so dray-offs and free-flow initiatives can be expanded, he said.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com and follow him on Twitter: @billmongelluzzo.