Clear Tracks?

Clear Tracks?

Considering West Coast longshore-management relations appear to be operating in a sea of tranquility, judging from their recent Journal of Commerce Trans-Pacific Maritime panel, what, if any, supply chain risks are now associated with using West Coast ports?

It’s worth recalling that it wasn’t only disruption stemming from broken International Longshore and Warehouse Union-Pacific Maritime Association relations that led shippers to shift large volumes of cargo to the East Coast in a risk-mitigation effort beginning in 2002. Rail was another factor, especially after mergers in the late 1990s led to operational meltdowns and rail-related bottlenecks reappeared during the import surge of 2004.

Although West Coast container import volume last year was still 14 percent less than the 2006 peak, according to PIERS data, some believe another surge in import volumes would trigger a West Coast chokepoint at the railhead. It’s not that rails don’t have the mainline capacity connecting West Coast ports to Chicago and other inland locations. Instead, it appears the on-dock and near-dock facilities for loading containers and domestic equipment for the journey east will fill up quickly.

With 50 to 60 percent of West Coast containers moving inland by railcars out of these facilities, the pressure is on.

“Our belief, and my belief in particular, is that there is no doubt that the West Coast’s Achilles’ heel in the next couple of years will be the amount of volumes that the railroads can handle,” Ed DeNike, president of SSA Containers, which operates marine terminals at several West Coast ports, said at the TPM event. “The railroads are not doing enough to increase their intermodal handling capacity.”

The idea that there may be a time bomb quietly ticking away is especially relevant in light of the West Coast’s resurgence since the recession. Rising costs and longer transit times for all-water East Coast services due to slow-steaming, along with the absence of traditional West Coast worries such as ILWU problems and a calming of the waters — at least for the moment — in harbor trucking, have helped the West Coast recapture most of the market share on imports the ports lost to the East Coast following the 2002 ILWU lockout and later congestion-related disruption.

Now, as 10,000 TEU-plus ships start calling at West Coast ports more regularly, disgorging thousands of containers at a single port call, the pressure on rail terminals will only grow.

“I believe one has to look at the issue from at least two perspectives — line-haul rail capacity and port-rail interface capacity,” said Jim Brennan, a partner at management and strategy consulting firm Norbridge. “Once the trains are on the mainline and headed east out of the ports, I believe the line-haul capacity is likely to be adequate to handle expected growth. This is due to the fact the railroads have spent significant capital on double tracking rail lines, signaling, locomotives, railcars, etc., i.e. all those things that increase line-haul capacity.” Getting from the dock to those improved tracks and rail infrastructure is another question, however.

“The port-rail interface may be more of an issue, depending on the rate and speaking trends of future growth,” Brennan said. “The question becomes, do the marine terminals, in conjunction with the on-dock rail facilities and the near dock rail facilities, and the highways and roads that connect the terminals to the near-dock facilities, have the capacity to handle the number of unit trains that will be required to move the cargo? If there is a problem, I believe it is more likely to occur in the port-rail interface than it is on rail line-haul capacity.”

With volumes still recovering from the recession, the issue may not cause importers headaches at the moment. BNSF says it’s still a million units below its 2006 peak in Southern California, after all. But the seeds of problems may be sown in scenarios such as BNSF’s ongoing challenges in securing a near-dock intermodal container transfer facility near the Los Angeles-Long Beach port complex.

“There will clearly come a time when more physical capacity is needed, which is why BNSF has proposed a new near-dock intermodal facility for Southern California,” the railroad said in a statement. “As volumes continue to increase, BNSF is focused on efficiently utilizing the capacity we have.”

To accommodate growing import volumes, all parties must work closely together, including marine terminals operating 24-7, the railroad said.

The situation bears watching, if only because big uncertainties remain. Some argue the rate of overall container growth won’t reach the 7 percent annual growth rate of pre-recession days, and the Panama Canal’s scheduled expansion in 2014 will divert some shipments to the East Coast. That would solve any problems over rail interface. But with risk mitigation high on shippers’ radar screens, it’s hard to imagine anyone will be banking entirely on slow growth and clear track.

Peter Tirschwell is senior vice president for strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.