Remember the shipping holiday seasons in 2004/2005? So many imported goods shipments from Asia descended on California Ports that one observer at the Port of Long Beach said “it looks like the invasion of Normandy”. How things have changed, according to a variety of industry reports it appears that port traffic, and also congestion, are way down at California Ports. The reasons include a slowing economy and sinking dollar, more productivity at the Ports and apparently a loss of business to East Coast Ports. As reported in Supply Chain Digest there seems to be serious cause for concern:
In 2005, severe capacity constraints caused many importers to shift volumes from Long Beach/LA and other West coast ports in favor of places like Houston and a variety of East coast ports to gain more consistency in transit times. Now, slowing import growth combined with productivity improvements means West coast congestion issues are long gone â€“ but by most reports, container volumes continue to move eastward for a new set of reasons.
Larry Gross, President of Gross Transportation Consulting, said recently that significant volumes of imports that previously came into the United States through West coast ports and then moved East through rail/intermodal are now coming into the U.S. via the East coast ports. “If you look at region-to-region intermodal flows, you will see that there are certain region-to-region flows that have dramatically dropped,â€ Gross recently said, as the containers come directly into East coast ports.
Similarly, according to a report last November by the American Association of Port Authorities, the West Coast’s share of Asian imports fell to 58 percent in 2005 from 86 percent in 1999, while the Panama Canal’s share climbed to 40 percent from 11 percent â€“ a stunning shift in volumes. Why? Two primary factors:
* Rising fees that impact total delivered cost comparisons versus east coast ports
* Continued capacity constraints on the rail side to move containers inland
Traditionally, it has been cheaper to bring containers into west coast ports, and move them via rail to distribution centers in the central and eastern regions of the US, where they are distributed to the majority of the US population that lives east of the Mississippi.
But seemingly never-ending proposals for new container fees in California to fund infrastructure improvements and environmental impact mitigation are causing real concern for importers. For example, carriers that deliver cargo to the ports of Long Beach and Los Angeles are facing a combination of new fees that could amount to as much as $100 per fully loaded TEU.
â€œThe cost of these fees is more than we pay to load or unload a container at the San Pedro (Los Angles) ports,â€ Edward DeNike, president of SSA Containers, recently said during a presentation at the Trans-Pacific Maritime Conference. â€œThis is Southern California and we know that Northern California will follow and the Pacific Northwest wonâ€™t be far behind.â€ He said that his company recently lost handling business of 100,000 containers a year from one customer that shifted import volumes from Seattle to the East Coast.
As an example of the mounting fees, beginning June 1, 2008, a new $35 charge will be placed on every loaded 20-foot equivalent cargo container entering or leaving the Long Beach or LA ports by truck. When the new fees where approved, Long Beach Mayor Bob Foster commented that the new tariffs were â€œan important milestone for our community. It puts the costs for cleaner air where it belongs — on the prices of goods sold.” Well, thatâ€™s the way to attract more port business. As a result of these new fees, which East coast ports havenâ€™t matched, West coast ports become increasing less cost competitive for containers that will ultimately move eastward.
Rail Capacity also an Issue. While West coast port capacity and throughput has definitely not been an issue of late, the rail lines leaving the West coast have not been able to expand their capacities at the same rates. As a result, port efficiency gains have not always results in total transit cycle time improvements. In Southern California, the challenge is getting long-haul freight out of a vast urban area. In the Northwest and Western Canada, the hurdle is dealing with the need to build more tracks and ensure reliable service through regions of heavy weather.
Planned improvements in the Panama Canal to increase throughput and the size of ships that can be handled may accelerate this trend. US West coast ports are being threatened by other change as well – the expansion of Canadaâ€™s West coast Prince Rupert port, and plans by Asian interests to invest in ports in Mexico that would move goods by rail to the rest of the U.S., bypassing West Coast urban traffic, are also getting increased attention from importers.