Shippers Weighing Options As Ports Jockey for Position

west coast ports, West Coast ports labor issues, east coast ports, gulf coast ports, ecommerce, shipping and delivery, logistics managementWhile cargo traffic has returned to West coast ports since crippling labor issues were resolved earlier this year, volume continues to grow at a faster clip at East coast and Gulf coast ports as well as in Canada as shippers make changes in their supply chain strategies. This shift will likely continue as a widened Panama Canal comes online in 2016, making it easier to transit to eastern destinations.

According to the monthly Global Port Tracker from Hackett Associates, done in conjunction with the National Retail Federation, the volume of cargo imported through West coast ports in the first half of the year was up 0.9% from the same period in 2014 (unchanged from the previous month), while it increased 15.7% for East coast ports (up from 14.8% in the previous month).

At the port of Houston on the Gulf coast, volume was up 30.3% in the first half of the year, down from 33.8% in the prior month, according to the report, and up 8.9% at the port of Vancouver on Canada’s West coast.

“The West coast has pretty much cleared its backlog, but because it has lost business that’s been easier to do,” said Ken Moyer, vice president of supply chain strategies for LJM Consulting. “That’s because some shippers have switched (to other ports), and there’s not as much new stuff coming in there. A lot of shippers have switched to Gulf ports, particularly in Texas and Louisiana.”

Moyer said LJM’s ecommerce clients are responding differently to the port issues depending on their size. Larger customers, he said, are moving volume back to the West coast, but keeping a portion of it somewhere else so infrastructure is in place as a safety position. He said smaller companies importing from Asia, on the other hand, generally can’t afford to maintain two distribution channels and are putting all their eggs in the West coast basket.

“California is the cheapest route for importing from Japan or China, and the time in transit advantage is the greatest,” Moyer said. “But the cost of maintaining a few containers a month in a Gulf port is too high for smaller players. That equation changes if you’re importing from India, where you may lose only two days going to the Gulf instead of California, instead of three days if you’re coming in from China.”

Phillip Sanfield, a spokesman for the Port of Los Angeles, said the huge backlog of cargo ships on the West coast started going away within 30 to 60 days of a tentative agreement struck on February 20 between dockworkers and port owners. “By March or April we were back to normal,” Sanfield said. “But the new normal is, we need to optimize our supply chain, with larger ships coming in and the major shipping alliances in place, making sure we’re not in a position to have these congestion issues down the line.”

The large global shipping alliances, as they consolidate massive amounts of freight into fewer hands, are more often operating “slow steaming” runs, backing off speed and increasing transit times to save on fuel costs. This complicates shippers’ logistics and supply chains. At the same time, massive new vessels are coming online, with capacities as large as 15,000-18,000 twenty-foot equivalent units (TEU), the size of the standard cargo container, taking longer to unload.

To that end, the ports of Los Angeles and Long Beach in March began cooperating under the auspices of the Federal Maritime Commission, bringing together the various stakeholders (shippers, port owners, unions, terminal operators, carriers, etc.) in an effort to gain supply chain efficiencies.

Sanfield said two major rail lines are investing hundreds of millions of dollars on infrastructure to service the port of Los Angeles, and the port itself plans to spend billions over the next few years on infrastructure and technology to accommodate more traffic and larger vessels. Examples include an Uber-like app that can get truckers in and out quicker, and a “peel off” program that moves offloaded cargo from mega ships by truck to an off-dock location for sorting and hauling.

“At the end of the day, the ports here have unparalleled infrastructure, and the advantage of time with goods coming through from Asia here cheaper and faster,” he said. “But we have to make sure we’re 100% on our game, especially as we face competition not only from the East coast but Canada to the north as well as Mexico terminals.”

Jonathan Gold, vice president of supply chain and customs policy at the NRF, said while he is encouraged by effort being made at the West coast ports – including the supply chain working group, which NRF participates in – congestion issues remain.

“These issues aren’t specific to just LA and Long Beach; Oakland has its own issues to dig out of, as well as Seattle/Tacoma and other places,” Gold said. “The ports are working to repair the reputational harm done throughout that yearlong process. But a lot of companies are adopting a wait and see approach before shifting more cargo back there. I don’t think we’ll see a full shift for a little while still.”

Seeing these ongoing issues, the U.S. Maritime Alliance, representing East and Gulf coast port owners, and the International Longshoreman’s Union are in talks to extend a contract due to expire in 2018 through 2025, providing relative stability and attracting more business.

“I thought that was a genius move on their part,” Moyer said of the labor talks. “They’ve picked up business, and they know they’ll lose some of that, but it’s a preemptive move to keep more of it from shifting back west. I’ve heard anecdotally that some of those (East and Gulf ports) are giving good rates to retain that business, although I don’t know how long that will last.”

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