Copyright 2002, Traffic World Magazine
Alternative transportation options became more and more a topic of discussion along the freight supply chain as a lockout by the Pacific Maritime Association against union dock workers remained in effect at 29 West Coast ports early last week. However, the possibility of at least a temporary end to the dispute between the PMA and the International Longshore and Warehouse Union remained, with signs that the ILWU may agree to mediation.
"If the dispute continues, importers will look at alternatives that will include starting to bring product in to the East Coast or to the Gulf of Mexico," said Dan Murphy, spokesman for rail carrier CSX Intermodal. CSXI, along with rail carriers Burlington Northern Santa Fe Railway, Union Pacific Railroad and Norfolk Southern, placed a temporary embargo on international intermodal shipments bound for the West Coast in order to stave off potential congestion problems caused by a buildup of containers at Western intermodal yards.
Because the Canadian arm of the ILWU is under a different contract than those covering U.S. ports, diverting cargo to the Port of Vancouver is a possibility. But the National Industrial Transportation League says it's too early to consider freight diversions as viable options.
"Alternatives for shippers aren't all that great," said Peter Gatti, vice president, international policy, at NITL. Gatti said that although feasible, using the Panama Canal is not cost-effective "and besides, a lot of Asian vessels are too large to use it." Freight also could be shipped the opposite way around the world, utilizing the Suez Canal and the Atlantic Ocean but, again, that adds considerable delay and costs to shipments, Gatti said. "Plus if you commit to something like that, it assumes a protracted disruption, and you don't want to commit to such major transportation changes if the dispute is short term."
The West Coast ports' action could not have come at a worse time for truckers, who are battling the effects of a lingering recession while coping with rising insurance costs and other effects of the stagnant economy. Truckers were hoping that President Bush would invoke the 80-day cooling-off period under the Taft-Hartley law, but that action had not occurred by press time.
Bear Stearns trucking analyst Ed Wolfe was warning investors to "look through this short-term diversion" in the hope the shutdown would not last past the first week. "In essence we believe to some degree fourth-quarter earnings will become somewhat insignificant once all transports start quantifying the impact from the West Coast ports, should a shutdown of the ports continue," Wolfe said in a note to investors.
Roadway Express, the nation's second-largest LTL carrier, does some business with the West Coast ports but a spokesman said it was "much too early to try and quantify" the losses from the closed ports. "Obviously the ports serve our Hawaiian markets and there is some Hawaiian freight that is backed up a bit," Roadway spokesman John Hyre said. "There's always an air option. It depends on how long this thing goes."
Some customers were interested in diverting some ships to the Port of Vancouver. However, the Port of Vancouver has indicated that it does not have the capacity long term to accept any large permanent shift in business.
Railroads largely said they were not in a position to handle large amounts of diverted freight. "Obviously we can't make major additions to capacity overnight," said Canadian National Illinois Central spokesman Jack Burke. "If there is a way we can assist existing customers, we'll try to do that."
The NITL's Gatti and others noted that diverting cargo to air cargo carriers is another option, albeit a costly one. "It's something that probably would make the most sense for the most time-sensitive freight such as automotive parts, which rely on extremely tight just-in-time inventory schedules," Gatti said. "It's an option of last resort, one that has to be weighed by each individual company against the cost of shutting down an assembly line."
In fact, one air freight forwarder reported that due to the lockout he's been getting many requests by shippers to move goods packed in sea containers by air. "For some high-tech industries, it makes sense," said a source who did not want to be identified. "But it's usually hard to justify moving a sea container by air - it's too expensive."
The PMA lockout, which began on Sept. 29, had been feared by shippers and carriers and thus contributed to an earlier-than-usual fall peak, as some importers began moving goods from Asia to the United States as early as May to avoid getting held up in a labor dispute. But a prolonged lockout or strike at West Coast ports still has the potential to disrupt holiday imports from Asia to U.S. retailers. The cost of the lockout to the U.S. economy is estimated at $1 billion per day.
Lawrence Yarberry, vice president and CFO of intermodal carrier Pacer International, said last Tuesday that the lockout "has certainly slowed down shipments in and out of Los Angeles." However, he said it depends on how long the lockout lasts as to whether there will be any serious impact on the company. "If it's for a short duration, all we're really talking about is a timing problem, and that would eventually get solved as shipments held up got delivered," Yarberry said. "And we'll have to work very closely with our railroad partners to unscramble this mess they're making out there." But if it's long term, he said, "it's very hard to speculate" on the type of impact it could have on Pacer from a financial perspective.
Steamship companies pay railroads as much as $300 per container or more to reposition cars between Chicago and Los Angeles. The railroads have to forego that revenue stream every day they choose to embargo container moves. "There's a revenue source there, sure," said UP spokesman John Bromley. During the week of Sept. 16-22, he said the railroad handled roughly 32,000 intermodal containers.
BNSF spokesman Dick Russack said his railroad handles between 4,000 and 7,000 international containers daily, depending on the day of the week. "We handled as much as we possibly could before the gates closed on Friday," Sept. 27, Russack said. "It does have an immediate impact, but long term, we don't know."
Drayage companies at West Coast ports are bracing for a shortage of truck chassis, many of which are stuck at the harbor as a result of the lockout. "About 40 to 50 percent of my inbound boxes are steamship controlled," said Ron Guss, transportation manager at Intermodal West Inc. "Obviously the (steamship companies) can't go in the harbor and get more."
Wal-Mart and Kohl's department stores are two of Intermodal West's biggest customers, Guss said. "The trucking companies that supply the distribution centers of these two companies can't get loads out of the harbor today. So my empty rail trailers on the other side of the dock (into which the container loads break down) aren't going to have enough freight, so they're going to sit, and my business is going to suffer," he said.
The ILWU agreement with the PMA expired July 1 and the two sides had been renewing with 24-hour contract extensions while the negotiations continued. Those extensions stopped over Labor Day, with the issue of how to implement new tracking technology at the ports a huge sticking point.
As of Oct. 1, however, the ILWU said it had "exhausted the technology question due to the inability or unwillingness of the PMA to put together a unified proposal. Therefore, we left technology and presented our pension proposal, to which PMA indicated that they need more time to study."
"Don't let the union mislead you," the PMA stated. "Moving away from the technology question - is like asking us to throw away our computer and go back to the electric typewriter. It's not going to happen."
Getting unions and management in the transportation industry to come to an acceptable agreement on technology issues can be accomplished. Over the last two years, the rail industry and the United Transportation Union, the largest railroad operating union, were able to do just that in the implementation of locomotive remote control technology. "We dealt with it head on," said UTU spokesman Frank Wilner. "The key to it is to realize that new technology cannot be stopped, and to find a way to make it our ally and not our enemy." This was done through "interest-based bargaining," Wilner said, where each side listened to the concerns and needs of the other. "We came up with a solution that allows the new technology to be introduced while protecting out members and their compensation."
Meanwhile, President Bush urged West Coast longshore workers on Tuesday to "get back to work," and told reporters that the administration is "closely monitoring" the situation but did not indicate whether or not he would intervene.
NITL's Gatti said the league is asking members to relate their particular experience with the lockout to the league anonymously "so that those experiences can be impressed upon government folks and at least make the White House aware of what the transportation industry is experiencing."
-- Associate Editor John D. Schulz contributed to this story.