Getting rid of illusions
There's more to US problems than just the trade union-employer logjam, explains Martin Rushmere
Port authorities on the US West Coast must realise that their days of sitting back and collecting rents are over and one of the keys to keeping up with the rapid evolution in the liner trades is to manage and co-ordinate.
This is perhaps the biggest lesson that has come out of the ILWU labour-related imbroglio. And analysts are saying that the change can't come soon enough.
“Ports have to adopt new business models, and not just be landlords collecting rents,” says economist Jock O'Connell. “They have to act like head coaches, dealing with disparate parties, coming up with a strategy to handle more cargo and taking a more active role.”
Andy Lane, partner in CTI Consultancy, says: “Port authorities need to assume more responsibility, not necessarily only towards labour negotiations, but also in totality - they are more than just landlords and they need to step up.” He is one of the growing number of industry players calling for Los Angeles and Long Beach to merge to increase efficiency. “They are not really two different ports, just two different basins.”
Dan Smith, partner in Tioga Group, notes that there are a number of deep seated problems on the West Coast (and the US in general). “Simply adding raw (handling) capacity is not an answer, because it takes too long and costs too much even where it is possible.”
He sees a new problem as the inclusion in the new labour contract for the union to inspect outbound chassis which he says “may have the most obvious impact” on efficiency. “Depending on how this provision is implemented and whether it survives legal challenges, it could either negate or increase the advantages of the new ‘pool of pools’ chassis system in Southern California. Regardless of how it is interpreted, each inspection will add terminal and drayage time and cost.
“The ports will also have to make better use of the clock,” says Mr Smith. “PierPASS and the Offpeak program have worked well to establish and use night gates at Los Angeles and Long Beach. Stakeholders are talking about fine-tuning those programs, and equivalents will likely appear at other ports. The Vancouver appointment/gate hour system is being closely watched.”
Equally important is the carrier strategy of forming alliances and vessel sharing. “These are causing chaos at the ports,” says Mr Smith, an opinion shared by everyone contacted by Port Strategy.
“Containers are loaded haphazardly and have to be sorted at destination port,” adds Mr O'Connell. “Vessels arrive with a mix of carrier containers, and different voyages and services bring those containers to different terminals. With each carrier's calls and containers spread over multiple terminals, the costs and delays of equipment repositioning have soared.
“Drayage drivers are forced to make more inter-terminal trips to handle the same containers,” he says, “leading to higher costs, lower productivity, and increased gate congestion.” These problems are every bit as serious in NY/NJ and Virginia as at Long Beach and Los Angeles. “Previously they were mostly all sorted beforehand. Alliances have added virtually another step.”
“Ocean carriers have taken drastic steps to strengthen their own bottom lines,” says Mr Smith, “but those steps have been a major cause of congestion on both the West and East Coasts. Very large ships are overwhelming even the largest, deepest, and best-prepared terminals.
“The throughput rates that ocean carriers say they need to turn fully laden mega-ships on schedule cannot be consistently achieved with current crane and terminal configurations. Carriers have compounded the problem by failing to keep vessels on schedule. No one is prepared to invest billions in new terminals, and the increased terminal capital and operating costs would likely exceed the savings from those larger vessels.”
Chassis agreements also need to be improved. The ‘pooling system’ has been welcomed, but more needs to be done. “Pooling and other strategies are gradually filling the void, but the situation in Southern California and NY/NJ is still causing delays and congestion,” says Mr Smith.
Mr Lane is very critical. “Here there is a well-known and long existing best practice and this is adopted by 200 countries: the chassis belong to truckers/hauliers. The ‘Pool of Pools’ is an improvement versus individual pools, but there remain unnecessary/redundant entities in the overall chain and that will always breed some level of sub-optimisation and complexity leading to waste.
“The failure to assign relevant ownership on chassis means that almost all terminals are poorly utilised and inefficient - they have not adapted (dynamically) to a change process which was started more than 10 years ago - and voila we are where we are,” he says.
A trend that has largely gone unnoticed is the trend to relying more on stacking than using wheeled yard container movement. “By every measure except space utilisation, wheeled operations are more efficient,” says Mr Smith. “Stacked operations require more terminal equipment, more longshore labour, and more trucker time. One reason the labour shortage was so devastating is that the terminals required more labour than before while they were receiving less. One reason why drayage productivity has declined is that drivers are spending significantly longer in the stacked terminals.”
Mr Lane identifies what he calls ‘terminal fragmentation’: LA/LB has 15 independent terminals handling 14.5m teu per year. Seattle/Tacoma has seven handling 4m teu. By contrast, Singapore has four handling 33.5m teu, Shanghai seven handling 35m teu, Hong Kong eight handling 20m teu and Shenzhen five with 23m teu. A container terminal cannot be well utilised (or efficient) with less than 2m teu.”
He says asset utilisation at Los Angeles and Long Beach lags the global average of 11 of the 12 largest ports, with teu per hectare (footprint) per year at 35,000 versus 12,000 for LA/LB.
“Terminal fluidity is critical,” says Mr Smith. “A full terminal cannot handle the next ship, so boxes have to move in and out to keep pace. The ‘peel off’ and ‘dray off’ initiatives to move boxes faster and establish off-terminal staging are a step in the right direction, and will help many port customers.
Lack of alternatives
Some non-maritime interest groups and business groups are lobbying for smaller ports on the West Coast to take more container traffic. But Mr O' Connell is sceptical: “Smaller ports are not able to capitalise - they are niche ports and anyway, the cost of providing the infrastructure, which the Big Six (although Portland's in trouble) already have, is huge.”
He points out a political factor that is making politicians anxious to ensure the West Coast works efficiently. “All along the coast there are a large number of people with limited skills with jobs tied to the ports - they can't find work if port business goes away and politicians know this.”
Meanwhile, ports have to do more automation, observers agree. “The LA Trapac terminal survived the labour crisis better than some of the others in part due to its greater use of automation and its lower vulnerability to labour shortages,” says Mr Smith. “Some in the industry are beginning to look at automation as more of a productivity and reliability tool than a labour cost saver.”
But it is not a magical solution. “Ports in Europe are suffering from big ships, and even with more automation can't cope,” says Mr O'Connell.
He takes a measured view over the general perceptions of the problems facing the West Coast. “People have short memories. A year ago the East Coast and Gulf were negotiating labour contracts and there were fears of disruption, with calls for traffic to be moved to the West Coast.”
Labour headaches just the tip of the iceberg
US West Coast congestion problems started well before the labour contract negotiations reached a stalemate, as figures from SeaIntel show (based on data from SeaIntel Global Liner Performance).
On-time arrival for Long Beach and Los Angeles for all trade lanes serving the ports dropped from 65% and 72% respectively in September to 34% and 38% in December, reaching 10% and 6% in February.
The average number of days delay at the two ports in the same period went from 1.4/1.1 to 3.5/5.2 and 10.3/11.4.
Alan Murphy, SeaIntel chief executive, agrees that the congestion and container delivery delays go beyond just the contract dispute. “Not enough chassis, not enough drivers for the trucks, the need for better schedule reliability - they all played a part. But, the situation is still not acceptable for 21st Century ports. The result is that the transpacific lane, to both the west and east coasts, is the worst performing of the world's 33 trade lanes.”
Notes Tioga’s Dan Smith: “There has been a recent trend away from single-port transloading import strategies toward 'three corner’ or ‘four corner’ strategies using multiple ports on multiple coasts. Lingering concerns regarding West Coast reliability will lead some importers who were considering multi-port strategies to move that direction, or to relocate cargo flows.
“Reliability concerns may also lead some importers to establish distribution centres in other regions, or to do so earlier than planned,” says Mr Smith. “The amount of cargo that actually shifts and stays shifted is still anybody's guess.”
Panama a ‘short-lived phenomenon’
Any shift of cargo from the US West Coast will not be dramatic, and the region will continue to be the Big Brother of container traffic for the US, say observers. And, according to economist Jock O'Connell, Panama will be a short-lived phenomenon.
“When the new Panama locks open there will be an immediate rush to send cargo to the US East Coast, until people realise that the lines are not passing on the savings. The lines have to shore up their bottom lines and have to think of those.”
Says Andy Lane of CTI Consultancy: “There is, for sure, damage to port reputations arising out of all this (ILWU/PMA stalemate). There have been many shipper/BCO statements suggesting that they will abandon the West Coast, partially or in totality. That might well be a short term action, devised and implemented in the heat of the moment when emotions were running high.
“Medium to long term after the dust has settled and people focus on end-to-end supply chain costs it will be cost and not reputation which determines cargo routing,” he says. “For cargo to/from California, Oregon and Washington states (between Asia) this will always be served at lowest cost by direct ship calls on the West Coast.” Within the ‘last mile’ distance of the West Coast ports exist four of the 10 largest (by population) US cities - LA, Phoenix, San Diego and San Jose. For the mid-west, this could be served through Canada (Vancouver or Prince Rupert), where ships crossing the Pacific can reduce distances versus LA/LB and therefore also costs.
Tioga’s Dan Smith reckons that a major near-term shift from West to East or Gulf Coasts is “not sustainable” as Los Angeles, Long Beach, and Oakland together handle more containers than the entire East Coast.
“With NY/NJ and Virginia already congested,” he says, “the East Coast as a whole could not absorb a large share of the West Coast volume. It is more likely that the coming shipping seasons will see a gradual re-balancing of volumes between ports and coasts as each importer and exporter finds its own equilibrium."
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