Port Crisis is over, but Challenges Remain

The labor crisis at the western U.S. Ports is over - pending ratification of the agreement by both parties.  As the dust settles after six+ months of bitter negotiations, there are new issues on the horizon.

There is never a good time for a major component of international trade to come to a screeching halt, but disruption could not have come at a worse time - just as the container shipping industry is going through a profound transformation worldwide.

Mr. James MacLellan, Director of Trade Development for the Port of Los Angeles recently attended the San Gabriel Valley Board of Directors meeting to update us on trends in the industry and how they affect our local ports.  These issues are especially significant to the San Gabriel Valley economy because of the high concentration of jobs in international trade - 6.7 percent compared to 5.3 percent in Los Angeles County.

Stiff competition and projected growth of only three to five percent per year means shipping companies are taking dramatic steps to reduce costs.  The first change is in the size of ships.

Ship capacity is measured in twenty-foot equivalent shipping units or TEUs.  A TEU describes the number of 20 foot long containers - the standard length of a cargo container - a ship can carry.  Between 1988 and 2013 the size of container ships has quadrupled from 4,500 TEU to 18,000 TEU.  Even bigger ships are coming - 53 ships with capacity of 13,300 TEU to 19,000 TEU will be added to fleets this year. 

Each container occupies a “slot” onboard the vessel and the cost per slot can be as much as 60 percent less on a ship with a minimum of 14,000 TEU.  Clearly scale is the way to reduce the bottom line.

Mega alliances between shipping companies are also forming similar to those we’ve experienced with airlines.  A reservation to export cargo on OOCL might just end up in a NYK Line ship.  Deploying fewer but larger ships to fewer ports also reduces costs. 

These mega alliances can exert more control in their relationships with gateway ports.  In order to keep costs down shippers want ample warehouse, distribution and transloading options including both rail and roadways.  To keep their attracting business, ports need to meet these demands.

U.S. ports are spending billions of dollars to prepare for the new market realities.  There is much more to planning for accommodating these larger ships.   Sorting the increased cargo from each vessel and moving it off the ships quickly will require revamping customs procedures and extending operating hours.

Improving drayage, the first transport of containers off the dock, will require improved communications technology and real-time data about routes and road conditions. 

Resolving chassis shortages (the locking devices that secure a container during shipping) means more land for storage and increased maintenance crews.

The good news is that the LA and Long Beach Ports are well positioned to compete.  Southern California offers few weather delays.  The Alameda Corridor and the Alameda Corridor East Project through the SGV provide efficient rail options for distribution with Union Pacific and BNSF offering access to 14 major freight hubs including Chicago, Atlanta, Dallas and Memphis. 

Reliability is the real key and improved labor/management relations will remain a critical variable. That must be a focus as we move forward.