Transloading on a Roll

Transloading on a Roll

Transportation consultant Ron Sucik has been tracking the transloading of Asian imports from marine containers into domestic containers in Southern California for a decade, and he has seen transload volume rise and fall in line with external developments such as an increase in intermodal rates or a spike in diesel fuel prices.

The principal at RSE Consulting in Naperville, Ill., knew there was a great deal of interest among shippers in transloading, but in many cases requests for quotes from transloaders didn’t result in contracts. That has changed since the end of the Great Recession. “Now they’re pulling the trigger,” Sucik said.

Indeed, the recession dramatically altered how retailers plan their supply chains. John Husing, a research economist who specializes in the vast warehousing and distribution economy of the Inland Empire east of Los Angeles, said the recession caused supply chain logisticians to rethink their distribution strategies.

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After focusing on efficiency and cost-cutting, retailers now are planning for growth, and this strategy is being reflected in an increase in transloading. “It’s not just going into inventory replenishment,” Husing said.

Determining which companies are transloading and quantifying the number of marine containers moving through transload facilities is an imprecise science, but raw numbers on the flow of 53-foot domestic containers signal a trend toward transloading.

Domestic container moves last year increased 13.3 percent over 2009, and even in the recession year of 2009, domestic container volume increased 7 percent compared to 2008, according to the Intermodal Association of North America.

“Transloading contributed to the increase,” said Tom Malloy, IANA’s vice president of member services and communications. One compelling case for the operating strategy, he said, is that retailers can perform consolidation and value-added work at the transload facilities and then bypass regional distribution warehouses and ship directly to stores.

The Alameda Corridor Transportation Authority has interviewed more than 100 warehouse operators in Southern California and developed what it believes is an accurate gauge for measuring the ups and downs of transloading. ACTA estimates 45 percent of the containerized imports in Los Angeles-Long Beach in 2009 were transloaded, up from 34 percent in 2006.

ACTA CEO John Doherty said 3.3 million TEUs moved intact by rail out of the Los Angeles Basin in 2006. That dropped to 2.1 million TEUs in 2009. Meanwhile, transloaded containers inched up to 1.7 million TEUs from 1.6 million TEUs in 2006. “As a percentage of total cargo, transloading is going up. That’s the trend,” Doherty said.

National retailers and larger importers for years have made transloading integral to their two-coasts or four-corners supply chain strategies because it cuts transportation costs significantly. “You can save up to 30 percent by transloading,” said Jon DeCesare, president of World Class Logistics Consulting in Long Beach.

The rule of thumb in transloading is that the contents of three 40-foot marine containers fit into two 53-foot domestic containers, so the retailer is shipping fewer containers inland by rail.

Supporting a robust transloading operation generally requires a shipper to move a large volume of containers over long distances, often to multiple regional distribution centers. Southern California is the transloading capital of the country because transload facilities are close to ports that accommodate large container ships, and the region normally has an adequate supply of domestic equipment.

National Retail Transportation is almost exclusively a transloader, said Gordon Reimer, director of transportation for the West Coast at the Compton, Calif.-based logistics operator, which specializes in service to retailers. Southern California has frequent vessel calls and intermodal train departures and normally there is adequate availability of 53-foot containers. Also, labor costs at transloading facilities are competitive, he said.

Shippers normally make the move to transloading when they grow from having a single distribution center in the U.S. to multiple DCs, said Scott Weiss, director of business development at Saddle Creek, a Lakeland, Fla.-based third-party logistics provider.

These shippers usually have an import distribution center in Southern California and one or more regional DCs in the eastern half of the country. Volume also is important, because most shippers that transload handle at least 500 containers a year, he said. As retailers grow from their regional base, they also encourage their vendors to transload, Weiss said.

Ocean carriers likewise encourage transloading near seaports, although in more subtle ways. Moving marine containers to inland destinations is costly, especially if the containers are returned to ports empty. Carriers that offer competitive port-to-port rates still may offer intermodal through rates to inland destinations, but the intact rates can be so high it makes more sense for the customer to ship port-to-port and handle its own inland transportation. Transloading can make sense to those shippers.

Port-to-port shipping also offers shippers more rate flexibility because it results in a larger pool of carriers. In Los Angeles-Long Beach, five smaller niche carriers last year initiated services from Asia, helping to keep freight rates attractive for port-to-port shippers.

The increasing sophistication of information technology systems “is accelerating the trend,” DeCesare said.

The IT is crucial to retailers that postpone the designation of the inland destination until the cargo arrives at the West Coast port, DeCesare said. Those retailers use point-of-sale data to determine which products are selling well and adjust cargo flows accordingly. For example, lawn chairs arriving in Los Angeles-Long Beach during Super Bowl week were selling better in balmy Southern California than in icy Dallas.

Not all cargo, however, is suited for transloading. Large, expensive items such as motorcycles, very low-priced merchandise or goods with high rates of pilferage usually aren’t transloaded.

An unexpected surge in cargo volume accompanied by a large shift to transloading can lead to marine terminal congestion, lengthy truck turn times and shortages of domestic equipment, which happened last summer in Los Angeles-Long Beach. Shippers with a history of transloading in Southern California adjusted quickly, but some newcomers without business relationships in place saw the congestion erode their transportation savings.

Contact Bill Mongelluzzo at bmongelluzzo@joc.com.