Ready For the Next Port Crisis?

The International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) reached a tentative new 5-year agreement late on Friday, so the West Coast ports resumed full operations this past weekend. But there’s little time to celebrate. It will take two to six months for supply chains to get back to normal, and some industries will suffer permanent losses, especially farmers. According to Reuters:

California farmers were especially hard hit by the port disruptions, with export losses estimated to be running at hundreds of millions of dollars a week.

The California Citrus Mutual trade group said the slowdown had cut members’ exports by half this season compared to recent years. It said that if it takes two months for the ports to become fully operational, the window for shipping this season’s crop will have closed.

“This dispute has left a damaging effect on our industry—causing extreme delays and millions in lost sales,” the American Apparel & Footwear Association said, as reported in the WSJ. “If our ports aren’t open, we can’t trade. The serious and negative impacts this dispute left on the economy demonstrates why we cannot let this happen again.”

We cannot let this happen again. Those same words were said when the ports were shut down for 10 days in 2002, and again in December 2012 when 600 clerks went on strike, shutting down the ports of Los Angeles and Long Beach for 8 days.

The ILWU and PMA have always taken a “What’s in it for Me?” approach to negotiation, so absent some transformative change in how the two parties work together moving forward, a labor disruption will happen again, whether we like it or not, so start planning now for the port slowdown or shutdown of 2020.

But labor disputes are a distraction from the larger challenge facing the ports, especially in the United States: the need to increase port productivity as larger ships replace smaller vessels (see, for example, the 19,000 TEU CSCS Globe).

This excerpt from the Journal of Commerce’s Berth Productivity: The Trends, Outlook and Market Forces Impacting Ship Turnaround Times report (July 2014) summarizes the challenge nicely:

If there’s an issue in the container shipping world that’s hotter than port productivity, I’m not aware of it. As mega-container ships replace smaller vessels in major east-west and north-south trades, terminals are struggling to turn the ships around and move containers through their facilities in a timely manner…Ships are growing at an accelerating, some would say alarming, rate as carriers become fixated on reducing operating costs as the key to profitability. That’s ratcheting up pressure on terminals to perform, because carriers can’t realize the potential cost savings of their mega-ships if they’re always playing catch-up to stay on schedule because of port delays, which raise fuel costs. The consequences of being late are growing because, as mega-ships take up more time at port, berth windows are harder to find, particularly if the ship arrives late, putting the already tardy vessel even further off its schedule.

Productivity at U.S. ports lags those in Asia and Europe. In 2013, the average moves per-vessel, per-hour for ports in Asia was about 90, while European ports averaged 67 and ports in the Americas averaged 62. Long Beach is the highest-ranked port in the United States (20th in the world) with a berth productivity of 88, compared to 130 for Tianjin (China), 104 for Shanghai, 86 for Rotterdam (Netherlands), 78 for New York-New Jersey, and 71 for Charleston (South Carolina).

“The bottom line for all U.S. ports, whether it be for the purchase of super-post Panamax cranes, rebuilding of berth understructure or expansion of gates and inland transportation connectors is that they must be prepared to spend money — lots of it,” states the JOC report.

However, President Obama’s proposed budget for fiscal 2016 allocates about $1 billion less than what is needed for dredging projects. Earlier this month, the American Association of Port Authorities (AAPA) criticized the budget plan:

“International trade now accounts for fully 30 percent of the U.S. economy,” said Kurt Nagle, AAPA’s president and CEO. “To compete in global markets, America needs an efficient and modern freight transportation infrastructure system, including seaports and the land and water connections into and out of port facilities.” He added, “We’re pleased to see and support the increased funding requested for surface transportation infrastructure, but deeply troubled by the proposed cuts to maintenance and modernization of federal navigation channels, the critical waterside infrastructure that connect our ports and nation to the world marketplace.”

The bottom line: the next port crisis is in the works, and it’s being caused not by labor disputes, but by capacity and productivity constraints. And we don’t have the money, nor the luxury of time, to adequately address it.

Any ideas on what to do? Post a comment and share your ideas on this topic.

Comments

  1. “Companies need to have strategic plans in place to mitigate supply chain risks caused by everything from natural disasters to socio-economic and political unrest that may cut off critical raw material suppliers, sources of manufactured goods, major transportation facilities, essential transportation modes, and so on, resulting in major disruptions in supply chains,” said Dr. Jeff Karrenbauer, president and co-founder, INSIGHT, Inc. INSIGHT helps companies take a holistic look at their supply chain, including determining optimal network designs, identifying vulnerabilities, developing mitigating strategies, including alternative raw material and manufacturing sourcing plans, determining appropriate inventory policies and levels and more to sustain companies affected by current events. INSIGHT also offers supply chain audit services to help companies uncover the vulnerabilities within their supply chains, and then create plans to mitigate these risks.

  2. Importers with port crisis problems could avoid this issue by sourcing domestically.

    Sourcing locally minimizes production disruptions and keeps production lines running smoothly and efficiently.

    We recommend importers use a total cost of ownership (TCO) analysis to see if domestic sourcing makes sense for them.

    The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S. http://www.reshorenow.org/TCO_Estimator.cfm

  3. You are quite right Adrian, the labour issues which commenced around November time merely compounded other pre-existing inefficiencies. So how do these ports move towards the premier league?

    I will base this on LA/LB (San Pedro Bay “SPB), but it would apply to all 29 WC ports and likely most on the EC and GC as well.

    Defragmentation – SPB has 14m TEU demand per year, through 15 individual terminals. By comparison, Shenzhen has 22m through 4 – with one (Yantian) handling 12m TEU. Same applies in Shanghai, Singapore, Rotterdam, and so on. Consolidation will allow for far better asset utilisation, and therefore through-put through the same footprint. If you take the largest 12 container ports in the world, and then compare SPB to the average in terms of through-put per Berth Meter, Quay Crane and Yard Space – SPB is 12th, with just 50% of the average. Consolidated, SPB would then theoretically have capacity for 28m TEU – or 10 years of projected growth without expansion of assets.

    Automation – It is safer, faster, more consistent and less prone to disruption. Automation of electrically powered units also reduces local emissions dramatically. I would prescribe ASC’s (automated stacking cranes) fed by Automated Shuttle Carriers (similar to Virginia).

    Gates – PierPass was good, truck appointment systems to reduce truck turn times are the next step. This works wonderfully in similar environments such as Australia – who have potentially the most advanced system which can be easily replicated.

    Chassis – global standard (and best practice) suggests that these are truckers tools. They are not storage cassettes.

    Focus on People & Process – train the best people, and continuously improve and lean processes.

    Such changes will take some time to implement. The best time to plant a tree was 20 years ago, the second best time is now.

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