Considering the alternatives

Considering the alternatives

Congestion at the twin ports of Long Beach and Los Angeles is so pervasive that it has stimulated talk of diversion to other ports.

One ambitious alternative involves a possible joint venture between Hutchison Whampoa, the Hong Kong holding company, and Union Pacific Railroad to build an intermodal port at Ensenada in Baja Mexico, and a rail line between Ensenada and Yuma, Ariz., where it would join UP's east-west main line.

Other diversions aren't as capital-intensive but would involve landing containers at Oakland, Seattle or Tacoma, each of which has unused capacity. While we are speculating, let's not forget the huge new Wal-Mart distribution center under construction near Houston, which is fueling rumors (hopes?) that more Asia-originated cargo will transit the Panama Canal and land at Houston. And, there are the East Coast ports.

Actually, except for the Ensenada proposal, all of the above may see additional traffic. I tend to discount Ensenada because it would require major capital investment and would not be completed in time to help what is a current problem.

Los Angeles-Long Beach is effectively maxed out, with little prospect of putting much more traffic through the largest port complex in the U.S. Los Angeles-Long Beach has other problems, including highway congestion and pollution, particularly on the I-710 artery from the ports. Efficiency lags as dockworkers use every provision of their contract to delay introduction of technology that they agreed to accept. Failure to use technology that is standard in other ports results in lower throughput rates further contributing to congestion.

While there are valid reasons for ships to divert to other ports, not many will do so as to threaten the primacy of Los Angeles-Long Beach as the principal port complex. Enough will, though, that other ports will gain significantly.

Diversion will occur at the margin, and Los Angeles-Long Beach will remain the port complex of choice. The most obvious reason is the huge population in Southern California. It is so large that 50 percent of import cargo is destined for the Los Angeles Basin. That justifies the port call, and to the extent that Burlington Northern and Santa Fe and UP have facilities and routes in and out of the basin, the freight destined to the rest of the country gets handled pretty well at Los Angeles-Long Beach.

Ships can avoid congestion by making port calls at Seattle, Tacoma or Oakland. Each has available capacity that can't be found farther down the coast. Those ports, however, do not serve the population centers that make Los Angeles-Long Beach so attractive. They do have good rail service to handle the traffic that would go beyond the ports and their market areas.

There are benefits and flaws of trying to shift cargo to Gulf or East Coast ports. The most modern container vessels are too large to transit the Panama Canal. The east-west all-water route through the Suez Canal and the Mediterranean is considerably longer than the trans-Pacific route, which would raise shipper costs because they would have more inventory tied up in transit.

That said, there will be more containers entering the U.S. at Gulf and East Coast ports, because trade continues to increase, and Los Angeles-Long Beach is at or near capacity.

BNSF and UP would just as soon see Los Angeles-Long Beach retain its primacy. Both ports have facilities and route structures that favor Southern California, although both also serve Oakland, Seattle and Tacoma, and are assured the business of carrying containers to the East. Containers that come to the East Coast, however, could lead to a shift in winners and losers among the railroads. In today's intermodal routing, BNSF and UP originate the trains and Norfolk Southern and CSX Transportation are the connecting carriers for onward movement to the East.

The business would be different if the flows were east to west, and it would hurt BNSF and UP. Just as the LA Basin is a huge consuming area, so is the Port of New York and New Jersey and the surrounding megalopolis. Many containers entering the country at New York would never see a train and would be drayed to their final destination. To the extent that they were destined beyond New York, NS and CSX would become the originating carriers for westbound container trains. But there just isn't a lot of population density beyond the Midwest that would connect to western railroads. A lot of traffic that BNSF and UP now handle would simply disappear.

The infrastructure exists at Los Angeles-Long Beach, which is why it became the leading container-port complex. Much of the talk of diversion is venting of frustration by shippers and carriers who saw their vessels waiting for dock space and labor. Congestion will remain, and Los Angeles-Long Beach will remain the ports of choice.