Still stinging from the capacity crunch that hit them so hard in 2004, U.S. ports, terminals, trucking companies and railroads continue to invest heavily to build the infrastructure they need to handle the ever-swelling trade with China and other booming manufacturing areas of the Far East and South Asia.
Forewarned is forearmed, so the marine transportation sector was better prepared for the explosion of trade in 2005. It mobilized more longshore labor and squeezed additional throughput capacity out of existing marine and intermodal terminals. Liner companies continued to buy or charter more big vessels and eased the capacity crunch at the ports of Los Angeles and Long Beach by diverting some of their trans-Pacific services to other ports in the Pacific Northwest and to the East Coast through the Panama Canal. Shippers adjusted their supply chains to bring imports in through other ports and avoid the Southern California congestion they feared, even though it never developed. But the question remains: How long can these measures withstand the influx of cargo from the Far East?
China trade shows no signs of diminishing, though its growth has slowed by a percentage point or two. Even as it slows, trade with other suppliers, such as India and Vietnam, continues to strengthen. And the trend toward outsourcing of production, which some think is an old story, remains very much the coming thing, as more U.S. and European companies jump on the bandwagon.
While any lingering shortage of container shipping capacity is sure to be filled by the enormous number of new vessels that will be delivered this year, the question remains as to how quickly ports, terminal operators and railroads can invest in building enough container-handling capacity to meet the burgeoning demand.
It takes years for ports, terminals and railroads to build additional capacity, even where there is available land. Even then, environmental objections and restrictions on hours of service and times of service may erect further barriers to growth. Even with many marine transport infrastructure developments under way or on the drawing boards, industry analysts are asking: Will it be enough? Will it come soon enough?
The avalanche of new investment in capacity and expanded infrastructure is evident in every part of the marine transportation system. Here's a look, sector by sector:
In the race to expand capacity, one thing is certain: There will be no shortage of new container shipping capacity this year. Global liner companies will take possession of 123 new ships with capacities ranging from 6,000 TEUs to more than 9,500 TEUs during the year.
Although some liner executives maintain that volume growth and congestion will absorb the new capacity, it will certainly be enough to give shippers more bargaining power in negotiations for new contracts that take effect on May 1.
Shippers also may see softening of rates resulting from heightened competition between the two new super-carriers, created by the Maersk-P&O Nedlloyd and Hapag-Lloyd-CP Ships mergers. The remaining members of the three big carrier alliances are rolling out a plethora of new services, including at least one new all-water service that will be jointly operated by the Grand Alliance and the New World Alliance.
Members of the third alliance, CKYH, are forming partnerships to operate new services within their alliance and outside of it. The large independent carriers, including Mediterranean Shipping Co., CMA CGM, China Shipping and Evergreen - all flush with new ships - are sure to be waiting to pick up any shippers who fear the dominance of shipping routes by the mega-carriers.
Ports on the East, West and Gulf coasts squeaked through 2005 with enough capacity and technology-aided throughput to give them time to prepare for future growth. They are using that time to invest billions of dollars to dredge harbors and waterways and to build the capacity they'll need to handle the burgeoning global container fleet.
Constrained by a shortage of land, ports and terminals in Southern California and the Northeast are investing in equipment and technology - including cranes and straddle carriers that can speed container-handling and new gate hardware and software that can ease truck lines.
In the South Atlantic and the Gulf, where more land is available, ports are building or planning new container terminals and yards. They are racing against time as they try to keep pace with surging trade.
Even so, the investment needed to repair and rehabilitate the locks and dams that line U.S. inland waterways is badly lagging, putting the capacity of the whole system in jeopardy.
Shippers fear that the slow growth of intermodal capacity at U.S. ports and inland terminals will be the Achilles' heel in their carefully planned supply chains. Although railroads say intermodal capacity is a priority, shippers and carriers say they are not investing enough, fast enough to meet their burgeoning demand.
On the West Coast, Union Pacific Railroad and BNSF Railway are investing billions to lay more track, build more railcars and locomotives and expand their intermodal ramps.
At East Coast ports, projects are under way. The Port Authority of New York and New Jersey is investing hundreds of millions of dollars to expand its ExpressRail service onto or near the major terminals in the port. The Port of Virginia is lining up funding to get the long-anticipated Heartland Corridor project off the drawing board and cargo onto the stacktrains that will run from the port through Columbus, Ohio, and the rest of the Midwest on new rail lines that will cut 250 miles - and a day - off the current route.
It's a sign of the times we live in that investment priority must be given to transport and cargo security. With government spending already stretched beyond limits by the war in Iraq, the Department of Homeland Security is scraping the bottom of the budget barrel to find funds to hire Customs officers and buy the equipment and technology needed to provide the border and port security it has made a priority.
Customs also is investing millions in the development of its Automated Commercial Environment and its newest feature, the automated truck manifest system that will speed trucks through inland borders.
Look for companies to spend plenty of money this year on the specialized supply-chain execution field, which covers the movement of goods along global supply chains. ARC Advisory Group expects the field to grow at a compound annual rate of 9.2 percent over the next five years.
In this field, companies are increasing their budgets for spending on supply-chain visibility, demand forecasting and warehouse-analytics. In addition, companies are spending more on radio-frequency identification systems and sales and operation planning.
The booming Asian trade is leading airlines to buy or charter freighters as fast as they can get them, but the order books for new cargo planes and for conversion of passenger planes into freighters is fully booked through 2009. Even U.S. airlines operating in bankruptcy are trying to expand their air-cargo capacity.
Forwarders are investing in building their global capabilities and the IT interfaces that will tie them in more closely with their customers and provide greater visibility through RFID.
As supply chains grow ever more global, their complexity is presenting enormous challenges to the compliance officers who must guarantee that the networks meet the requirements of countless import and export regulations. Multinational companies are investing in staff and technology to beef up compliance systems.
Companies will spend an estimated $6 billion to meet the requirements of the Sarbanes-Oxley Act. So many companies were scrambling to meet last July's deadline for compliance that the Securities and Exchange Commission extended the deadline for small firms by a year.
Although other sectors of the marine transportation system can invest in infrastructure improvements and expanded capacity, one sector - harbor trucking - depends on a human element that is made volatile and unpredictable by highway congestion, soaring fuel and insurance costs and by a law that limits the number of hours truckers can stay behind the wheel. These factors have caused the pool of independent operator-drivers to shrink.
While some industry executives say that all it will take to solve the problems is money, the ever-present pressure to cut costs out of the supply chain has made it difficult for trucking companies to find the money to pay their drivers more. The drivers lack bargaining power to fight for better wages.
Some developments hold promise for easing the drivers' burden. The PierPass system that extends gate hours at the Southern California ports is working well. And driver pay is starting to improve in some areas. But 2006 promises another cliffhanger as to whether there will be enough driver capacity to meet the growing demand for harbor trucking.