A Dark Outlook Gets Darker

I’ve been arguing since early this year that international transportation is headed for trouble because of a variety of transportation-specific problems exacerbated by an improving economy that’s driving faster volume growth and pushing capacity to the limit. With half the year over and the peak shipping season about to begin, those concerns are only deepening. This promises to be an especially challenging second half of the year for those managing cargo flows internationally.

As Senior Editor Mark Szakonyi has been reporting in great detail on JOC.com, North American railroads haven’t recovered from the historically rough winter and are struggling to keep pace with heavy intermodal and carload volumes, leading to delays in intermodal service.

Restocking of coal after the winter, robust grain exports and the domestic energy boom are placing heavy demands on a rail system that intermodal shippers must share with other customers.

Shippers accelerating shipments to avoid potential disruption around West Coast labor talks added to the post-winter heavy volumes in a growing U.S. economy. The result was a record number of intermodal moves for any month in history during June, according to the Association of American Railroads.

Rail analysts are openly alarmed at the potential for rail service disruption as the peak season gets underway. The problems on the rails are such that, as Szakonyi reported last week, J.B. Hunt, the largest U.S. intermodal provider, scaled back its expectations for 2014 intermodal growth because of the likelihood of continuing rail delays later this year.

The situation at North American ports is also precarious and, to the surprise of many, not because of disruption tied to negotiations for a new International Longshore and Warehouse Union contract, a prospect that led hundreds of shippers to divert or accelerate shipments ahead of the July 1 negotiating deadline. 

There have been minor longshore actions — one at TraPac at the Port of Los Angeles on July 2 and another at Portland, Oregon, on July 15 — but both were seen as unrelated to the coastwise negotiations that have proceeded smoothly and with assurances of no disruption from the union and management despite the lack of a contract (as of this writing) more than two weeks after the previous one expired.

Separately, the Teamsters set up pickets and disrupted some cargo flows at Los Angeles-Long Beach before withdrawing. But, as Senior Editor Bill Mongelluzzo has been reporting, the real story of disruption at the nation’s two largest container ports is systemic and troubling: Big ships challenging terminal capabilities, a still-undeveloped chassis system and accelerating growth in volumes all are creating problems that dwarf anything seen on the labor front.

“The Los Angeles-Long Beach port complex is struggling with marine terminal congestion and long trucker turn times caused by a number of factors, including chassis shortages, delays on the intermodal rail network, poor communication between terminals and truckers and a surge in cargo volume that caught the entire supply chain by surprise,” Mongelluzzo wrote last week.

Part of the problem is chassis, a huge issue for importers following carriers’ withdrawal from providing that equipment as part of their basic service to shippers. To find a chassis, a trucker must go to the location a chassis was dropped off, often a different terminal from where the trucker just called. This is reducing drayage truckers’ productivity, increasing costs and causing delays.

But chassis are only part of the problem. In part because of the ever-larger ships calling at Los Angeles-Long Beach, terminals are struggling to move the surge of containers coming off these ships through their facilities to make them available for pickup by truckers at the other end. As Mongelluzzo reported last week, an internal trucking report focused on Los Angeles-Long Beach terminals revealed that some drivers are experiencing turn times of 3.5 to 5 hours at seven of the terminals in the harbor, with the remaining terminals having turn times of 2.5 hours or less.

That’s evidence of terminals being incapable of effectively handling large numbers of containers, which isn’t their fault but rather is a symptom of larger issues: too many terminals at LA-Long Beach competing for carriers’ business, driving down terminal rates and inhibiting needed investment in automation already allowed under existing ILWU agreements.

Container lines, meanwhile, are investing in mega-ships, not to accommodate growing demand but rather to drive down their own costs, irrespective of the impact the giant ships have on terminals or service to the customer.

The result of all this is the most treacherous terrain shippers have had to deal with in a long time, and it likely won’t improve any time soon. The U.S. economy, after all, is improving, and the peak season has barely begun. 

Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.

 

 

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