SHIPPING SURGE CREATES CONGESTION

The current logjam is the worst congestion at the ports since late 2002 when nearly 130 ships were lined up after a 10-day lockout of dockworkers by West Coast shipping lines. By the end of August, nearly 8.5m TEUs had moved through Los Angeles and Long Beach, which together are busier than the next five U.S. ports combined. In 2003, the ports combined for a record 11.9m TEUs.

Other ports have forged alliances to siphon business from Los Angeles and Long Beach, which trail only Hong Kong and Singapore as the world's busiest seaport. And there is talk that the local port complex has gotten big enough.

"While there may be diversions away from Southern California in the future, it may not be as substantial as proponents expect, " says Bob Hannus, a port business planning consultant. "Southern California has truly become the 800 pound gorilla."

Throughout the crunch only about two dozen ships have been diverted to other ports, including Oakland and Manzanillo, Mexico, according to the Marine Exchange of Southern California, which handles traffic control for the ports of Long Beach and Los Angeles.

While diverting to these and other ports including some on the US East Coast can save time, the added costs are significant.

Shipping lines are not required to notify the Marine Exchange or the ports when they decide to call on a different port, so the actual number of diverted vessels could be higher. The immediate effect of the diversions, which come despite efforts to bring on more dock and rail workers to clear the backlog, means a loss of revenue for the ports and added costs to merchants forced to foot higher bills to bring goods to regional stores and warehouses.

"It will mean some increased costs as retailers have to look for alternative ways to manage their supply chains, " says Erik Autor, international trade counsel for the National Retail Federation, the industry's largest trade group. "In some cases the retailer will have to absorb the cost and in other cases pass some or all of it onto the customers."

Hoping to capitalize on the congestion is a new alliance between the Panama Canal Authority and ports of New York and New Jersey;

Norfolk, Virginia; Savannah, Georgia; Charleston, South Carolina;

Miami; New Orleans and Houston.

Southern California's share of West Coast container volume was up 9% in the first six months of 2004, while combined volumes at the other three major US West Coast ports, Seattle, Tacoma and Oakland, increased only 4%.

September and October are crucial months for retailers and manufacturers as they move a bounty of holiday merchandise on ship, trucks and trains. "From a transportation point of view, Christmas is pretty much over by the end of October, " said Robin Lanier, a transportation consultant for the National Retail Federation. "Once you get behind early, it's very hard to catch up."

Southern California port and shipping officials are responding to the ports' congestion problems by extending terminal gate hours to nights and weekends and adding 3,000 dockworkers. But the new hours will not begin until November, about the same time that the new hires will be fully trained and working.

Until then, one problem seems to compound others. Truckers, for example, are paid by the load. Their profit is whatever is left after lease, insurance, fuel, registration and maintenance costs. But many truckers have had to wait in line for hours to pick up loads, destroying their ability to earn a living. An informal survey by the Marine Exchange, which tracks port movements, found that hundreds of truck drivers had thrown in the towel.

John Jelaco, chief executive of Golden Eagle Express, a local trucking company, said 10% of his 300 trucks were idle because he could not find enough drivers willing to put up with the delays. As trucking companies continue to shrink in drivers, import volumes are peaking.

"We can't compensate the drivers for all of this waiting time and it's been hard to recoup our own internal costs, " Jelaco says. "This is the worst I've ever seen it."

"The driver comes to the gate at 7am, can't get in until 9am, and then they can't find the container that they are supposed to pick up, " explains Patty Senecal, co-owner of Transport Express. Senecal found herself writing a letter to a Fortune 500 client, explaining why it would not receive its merchandise when it expected.

Senecal's company offered San Francisco Bay Area trucking companies $1,400 per truck, per day, $400 more than it normally charges importers, to haul containers for two of its biggest clients that diverted cargo to the Port of Oakland. There were no takers.

A REAL MESS "All of us are behind in orders one to five days already, " Senecal says.

"The companies I called said they didn't have capacity to bring trucks south (to Southern California). It's a real mess."

Blame abounds. Truckers fault the terminal operators for early gate closings and late fees they contend are unreasonable. The International Longshore and Warehouse Union blames the shipping lines and the railroad for waiting too long to hire more dockworkers, locomotive drivers and conductors.

John Bromley, director of public affairs for Union Pacific Corp, has a short answer when asked if the railroad had anticipated the current volume of cargo traffic. "No, " he says. Union Pacific plans to hire 5,000 employees, primarily in the Southwest, add 700 locomotives and 6,500 freight cars by the end of the year, and lay about $225m in new track, Bromley says. "We intend to keep the workforce up to a point where we can handle these kind of surges in the future."

In many cases, importers are telling customers they have little choice but to wait the delays and expect additional costs when the products do come in.

And the ports themselves are also losing money. Both Long Beach and Los Angeles charge between $35 and $50 in docking fees for each 40-ft container (depending on cargo value), plus additional dockage and demurrage charges.

"The revenue could stay over here and benefit the local economy instead of going over to Oakland, " said Tony Urrutia, assistant director of finance for the Long Beach port which generated $249.5m in gross revenues last year. "We don't want it to occur because every little bit helps. But if it occurs, we will deal with it. It's not going to stop us from continuing our operations."

Although that is just what some local community and environmental groups would like to see happen. The local ports' tie-up is causing angst among neighbours concerned about increasing air pollution and traffic problems, and some experts are even willing to consider the idea that the ports have reached their limits of growth.

The best solution to the increasing freight coming to Los Angeles and Long Beach might not be to simply accommodate it, but to divert it away, " says Jon Haveman, an economist for the San Franciscobased Public Policy Institute of California. "People will think that's heresy but the ports are now getting sufficiently large that these are issues that need to be investigated more fully."

Large importers such as Wal-Mart and Home Depot, Inc. seem to be hedging their bets for the future, investing heavily in distribution centers in the Southeast US, near several East Coast ports. That would give them the option of an all-water route from Asia to the East Coast, through the Panama Canal.

But some Southern California harbour officials believe that the current traffic jam at the ports is temporary. "We are training and hiring 3,000 non-union workers and have a list of nearly 15,000 more that we can call on, so we'll never be in that kind of labour shortage situation again, says Jim McKenna, executive director of the Pacific Maritime Association. "More growth is possible. We just have to become more efficient."