Home Depot was ahead of the game. When the nation’s largest home improvement retailer early this year saw signs of vessel capacity and equipment shortages in trans-Pacific container trade lanes, the company quickly drew up plans to channel more freight through the Los Angeles and Long Beach ports, where capacity and equipment are normally available and transloading opportunities are the greatest.
It was supposed to be a soft launch in the spring, building up to the summer-fall peak shipping season. Then the trans-Pacific supply chain blew up. Cargo volume and congestion built so rapidly Home Depot is now “pumping steroids” in its transloading operations to move freight through Southern California to inland destinations, said Jeff Siewert, the company’s director of international logistics.
Home Depot is a signpost for today’s global supply chain, from Asia, to Europe, to the U.S., and nothing could have prepared logistics experts who have spent careers optimizing the transportation supply chain for the multiple delays they face to get their merchandise imports to market.
Late shipments from factories in China, shortages of equipment and vessel space, ships slow-steaming across the Pacific, congested marine terminals in the U.S. and a shortage of trucking capacity are slamming importers every step of the way.
In this uncertain environment, the burden is falling to logistics managers on the back end of the supply chain to make up for unexpected delays by slashing days out of the final leg of the journey from destination ports to the store shelves.
The measures they are taking — adding a shift at the distribution warehouse, diverting shipments from intermodal rail to long-haul truck or hiring team drivers — come at a cost for supply chain interests just recovering from the worst recession since the Great Depression. But paying those costs, even for ever-more-cost-conscious retailers, are preferable to missing delivery dates that would force deep discounting on their merchandise down the line.
The logistics manager’s job — on the front end and certainly on the back — has rarely, if ever, been more challenging. Supply chains are much longer than they were just five or six years ago, when consumer goods were produced start to finish in China. Components for manufactured goods and textiles for apparel now are manufactured in Southeast Asia and the Indian subcontinent, where suppliers sometimes miss their shipping dates because of infrastructure deficiencies. That’s delay No. 1.
The chain reaction begins: Chinese factories push back production schedules. That’s delay No. 2. When finished products finally roll off the assembly line, they must wait for an increasingly difficult-to-find container. That’s delay No. 3 — and perhaps the toughest problem to solve.
“Container availability is the biggest problem right now,” said Mike Epeneter, senior vice president of logistics services at Weber Distribution, a Santa Fe Springs, Calif.-based third-party logistics provider.
Container manufacturers in China normally produce about 3 million TEUs of new containers a year. During last year’s recession, production dropped to about 300,000 TEUs. While factories are scheduled to manufacture about 1.9 million TEUs this year, factories got off to a late start, and new containers are just starting to hit the market.
Once exporters secure the containers they need, they’re likely bound for a slow boat from China. Carriers last year began slow-steaming, a cost-cutting strategy that can add two days to the trans-Pacific voyage and a strategy that appears to be here to stay. That’s delay No. 4.
On the other side of the Pacific, terminal congestion has resurfaced at U.S. ports, especially Los Angeles and Long Beach, the nation’s two largest container ports. When container volumes plunged 15 percent last year, marine terminals at West Coast ports cut back on manning, stopped running early morning and late afternoon flex gates, shut down for the lunch hour and, in Southern California, eliminated one of the five extended gates under the ports’ PierPass program.
The result: the normal one-hour turnaround time for truckers at marine terminals has turned into a three- or four-hour saga, Epeneter said. That’s delay No. 5.
Weber used to plan for its trucks to get two round trips a day between Los Angeles-Long Beach and distribution facilities in the Inland Empire, about 40 miles to the east. Epeneter said he now plans for one round trip and is grateful if the trucks get two turns. This condition requires shippers to increase their truck capacity about 50 percent.
Delays at the warehouses is straining truck capacity, forcing some motor carriers to turn down new business because they barely have enough capacity to handle their steady customers.
These problems, which start deep in Asia and continue through the seaports, end up squarely on the shoulders of the logistics managers at distribution facilities who find themselves several days behind schedule by the time they take possession of the cargo.
Import distribution facilities build a window of about 15 to 17 days into their operations, from the time the vessel arrives at port until the merchandise is delivered to the store shelves. Because the warehouses today already are behind by the time they take possession of the shipments, logistics teams must be nimble and find alternative means of delivering merchandise to the destination.
From the West Coast, the preferred inland mode of transportation is intermodal rail. It is less costly than truckload and reliability has improved considerably.
In recent months, transloading has spiked in Southern California as customers look to cut transit times by transferring their freight to 53-foot trailers and trucking it to destination. Performance Team Freight Systems, a Southern California 3PL that provides deconsolidation services, has seen an increase of as much as 50 percent this year in its transloading activities, said Cliff Katab, president of business development.
Performance Team is increasing its use of expedited trucking such as driver relays and team drivers to move time-sensitive shipments to destination. “If it’s hot, we’ll do it,” Katab said. Sometimes the expedited shipment involves closing the doors of the trailer before it is fully loaded in order to deliver on time.
Menlo Worldwide Logistics is using every form of expedited trucking, as well as trailer-on-flatcar, to meet delivery schedules, said Tommy Barnes, director of transportation procurement. Trailer-on-flatcar is less costly than long-haul trucking, and where there is some flexibility, it offers about the same transit time to the Midwest as a truck with a single driver, he said.
Operations within the warehouse itself are normally efficient, so operators don’t have many wasted hours to cut from the schedule. Under tight conditions, however, they will add a second shift or use temporary employees to flex their hours. Really hot shipments are moved to the head of the queue.
But those measures, Epeneter warns, come with a cost. Customers think twice about requiring extra service that is usually not reflected in the price built into the product when it reaches the store shelf.
Despite these measures, warehouses are starting to fill up both within the facilities and outside where trailers are parked. “They’re running out of yard space,” said Vic LaRosa, president of Frisco, Texas-based 3PL Total Transportation Services.
Trucks are backing up at the warehouses, and some operators are looking for satellite locations to store equipment, he said.
LaRosa said marine terminal operators could help prevent further congestion in the supply chain by improving productivity at least 20 percent. The transportation community in Southern California, which handles almost 40 percent of U.S. imports from Asia, is demanding results.
Terminal operators have been responding, said Bruce Wargo, president of PierPass. Five of the 13 terminals in Los Angeles-Long Beach are offering early flex gates, 77 percent are keeping their gates open during the lunch hour and 77 percent are flexing their afternoon gates, opening at 5 p.m. Seven of the 13 terminals are now running five extended gates each week.
That’s doing little to satisfy frustrated truckers, who still complain about long waits, especially at the night gates, and they are responding by hauling more of their freight from 8 a.m. to 5 p.m. Their customers are paying the $50-per-TEU traffic-mitigation fee under PierPass designed to push more trucks to off-peak hours. Wargo confirmed that harbor hauling, which had been trending toward night moves to avoid the fee, turned in June. Today, day moves are slightly higher than at night.
Cargo interests, especially those agreeing to pay wait fees when their truckers sit outside terminal gates for hours, say it is less costly to pay the traffic-mitigation fee during the day than to pay for wait times at night.
And, as trucks sit in congestion, motor carrier executives worry about having enough trucks in the harbor for what they anticipate will be a busy peak shipping season. According to the Port of Long Beach, there are roughly 8,500 active trucks serving both Southern California ports, with some 7,000 of those being “clean” 2007 or newer diesel trucks, or trucks powered by alternative fuel. On any given day, about 5,500 trucks call at the ports.
Despite reports that U.S. economic growth is slowing and consumers are not buying as much as they did earlier this year, retailers are planning for strong growth in imports during the peak season. Epeneter said one large customer is talking about a
40 percent increase in volume.
In this environment, timely and accurate cargo forecasting is essential, Barnes said. This allows terminals, warehouse operators, truckers and logistics managers to plan their labor and equipment requirements to meet the volume coming their way.
Contact Bill Mongelluzzo at email@example.com.