Breaking Bad

For months, we’ve been asking how North American infrastructure at ports, rail heads and on the roads would hold up when imports grew at sustained levels beyond the low-single-digit levels seen through the first quarter of this year.

Well, the returns are starting to come in, and the news is anything but good for beneficial cargo owners.

When Canadian National Railway this month notified ocean carrier customers that it would issue equipment allocations at Port Metro Vancouver and Prince Rupert, British Columbia, it was all but admitting that the ports, their terminals and the railroad couldn’t keep up with the influx of U.S.-bound cargo shipped early to avoid potential disruption around the July 1 expiration of the U.S. West Coast longshore contract.

The story is much the same at other ports: Chassis shortages, the arrival of mega-ships, bunching of ship arrivals and new regulations are creating headaches and lengthening delivery times on the back end of the inbound supply chain at the nation’s largest ports, from Los Angeles-Long Beach on the West Coast to New York-New Jersey in the East.

What’s been missing in this potent mix, however, is the sort of sustained demand growth typical of a post-recession cycle. Notwithstanding 2010, when containerized U.S. imports jumped 14.4 percent in a post-recession buying frenzy, import growth has been reserved: up 2.7 percent in 2011, 2.7 percent in 2012 and 3.2 percent in 2013, according to PIERS, the data division of JOC Group — numbers that belie the sort of congestion we’re seeing at some of North America’s largest ports and terminals.

But the pain shippers are feeling pales in comparison to what’s coming, because for all the strength in many parts of the economy — automobile sales that are running at eight-year highs, manufacturing that’s been growing for the better part of a year, strong home sales and improving unemployment figures — non-auto retail sales and consumer confidence have been slower to recover.

PIERS, for example, already is seeing imports pick up the pace. In the first quarter, when the brutal winter sent the economy into retreat, imports grew 3.8 percent over the same period of 2013, and JOC Economist Mario Moreno expects full-year growth of 6.1 percent, followed by 7 percent growth in 2015.

The question now is at what growth point do the fractures showing at some North American ports become full-blown breaks. To be fair, the 14 percent increase in May volume at Vancouver, 23 percent at Prince Rupert (from a much lower base) and 10 percent at Los Angeles, according to PIERS data, would be enough to disrupt the most efficient of ports. One month does not a trend make.

But double-digit growth at those ports — indeed, at many of North America’s largest — was common through much of the early 2000s, and it won’t be until this year that containerized imports surpass pre-recession levels, according to Moreno.

Think about that: Ports and terminals are struggling to keep up with import volumes that have yet to match levels from six years ago. So it’s not growth in volumes that should worry importers needing to get their goods to store shelves on time. It’s how the supply chain operates that should.

Until the industry fixes its chassis problem, marine terminals figure out how to efficiently clear goods arriving on bigger ships making fewer calls, drayage carriers find more drivers, and railroads get more equipment where and when it’s needed, the fractures in today’s cargo networks will only widen — and the peak season of shipper discontent that Senior Editor Mark Szakonyi describes will last long beyond this fall. The question now is whether this is the new norm.  

Contact Chris Brooks at cbrooks@joc.com and follow him on Twitter: @cbrooks_joc.

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