Playing catch-up

Playing catch-up

Every year since 1997, shipping industry forecasters have projected that containerized imports from Asia would increase about 5 percent. And almost invariably, the experts have been dead wrong. Expect for the recession year of 2001, annual growth has exceeded 10 percent, and has been as high as 14 percent.

This year is turning out to be another year in which import volume is exceeding expectations, despite efforts by shipping executives such as Ron Widdows, chief executive of APL Ltd., to prepare the trade for another year of double-digit growth. Widdows said as far back as March that 2004 would be another strong year in the eastbound Pacific market, and that marine terminals and intermodal railroads on the West Coast were not preparing adequately for the growth.

APL predicted 10 to 12 percent growth in Asian imports through West Coast ports. The actual increase has been even higher. Double-digit growth at West Coast ports so far this year, including a 14 percent increase in imports in Los Angeles-Long Beach, has far exceeded the 3 to 8 percent increase projected by many industry analysts.

Where the increase is coming from is no surprise - China. The Port Import-Export Reporting Service, a sister company of The Journal of Commerce, compiled statistics on the trade between Asia and U.S. West Coast ports for the 12-month period ended May 30. The study shows that imports from China increased 18.3 percent.

The PIERS study further breaks down the import figures by the port of origination in China. Over the past year, imports from the South China port of Yantian increased 20.8 percent. Imports from Shanghai increased 26.2 percent; from Xiamen, 22 percent; Ningbo, 62.7 percent; Shekou, 342.3 percent; Qingdao, 32.9 percent; Xingang, 119.8 percent; Chiwan, 411.6 percent; Tianjin, 625.3 percent; and Dalian, 73.6 percent.

By comparison, containerized imports from ports in most other Asian countries increased less than 10 percent.

While the intermodal transportation industry is well aware of the shift in manufacturing from North America, Europe and other Asian nations to China, many industry analysts continue to underestimate the speed at which this shift is taking place. As a result, ports, terminal operators, railroads and state planning agencies in charge of infrastructure development are not adding capacity fast enough to accommodate the growing cargo volumes.

North American railroads have struggled this year to cope with a growth of about 10 percent in intermodal cargo. Delays have occurred on the Canadian railroads as well as the Union Pacific Railroad. The Burlington Northern Santa Fe has escaped serious delays this year, although higher-than-expected volumes forced BNSF in June to put its international customers on an allocation system at two of its intermodal yards in Southern California.

Marine terminal operators in Southern California have been struggling all summer to accommodate the 14 percent jump in inbound cargo. Employers each day hire all available longshoremen, and continue to fall several hundred dockworkers short of what they need to fill out their work gangs each shift.

In July, the International Longshore and Warehouse Union and the Pacific Maritime Association added about 1,200 temporary workers in Los Angeles-Long Beach and agreed upon a plan to promote 1,000 part-time, or casual workers, to registered status this year. They also agreed to open the employment rolls and hire an additional 3,000 casual workers. The goal is to train the workers at a rate of at least 200 per week through the end of the year.

While the western railroads and waterfront employers are responding as quickly as they can to the shortage of capacity in their industries, the federal government and state planning agencies appear to have only a limited awareness of the tremendous growth in the China trade. As a result, the transportation infrastructure is woefully inadequate to handle the projected doubling of trade volume over the next 10 years.

Jon Monroe, a San Francisco logistics consultant who brings investors to China several times a year, contrasts the U.S. response to infrastructure development to that of the Chinese government. As manufacturers invest in new plants and logistics hubs in the interior of China, the government is right there developing seaports, river ports, rail lines and highways, Monroe said. "What are we as a country doing to develop our infrastructure?" he asked.

If government agencies are to invest the billions of dollars necessary to expand the intermodal network, they must be pushed to do so by the importers and exporters who are directly affected by the inadequacies of existing infrastructure.

The Waterfront Coalition, which represents some of the largest U.S. importers and retailers on transportation issues, has focused the past three years on port and harbor trucking issues, but it has not looked beyond the coasts to the infrastructure problems in the nation's interior. That policy is about to change.

The Waterfront Coalition in June determined that it must take a more active role in infrastructure development. "As shippers, we believe this country needs a goods movement infrastructure plan in place," said Robin Lanier, the coalition's executive director. The coalition has already left its mark on the maritime transportation industry by working with shipping lines and terminal operators to address the need to keep marine terminal gates open longer. It plans a similar effort in the area of inland infrastructure.

Because the coalition's members include many of the nation's largest retailers, elected officials in statehouses and in Washington are expected to listen closely to the coalition's plan. However, the organization is still months away from developing its position and identifying key corridors of national concern, Lanier said.

Developing rail and highway infrastructure takes years, however, and the congestion problems that importers and exporters are experiencing are expected to intensify without immediate action. One strategy that the coalition is promoting is to encourage shippers and carriers to diversify the routing of their cargo.

Los Angeles-Long Beach handles about 70 percent of the container volume on the West Coast and about 40 percent of all U.S. imports from Asia. The rail congestion in Southern California and the shortage of longshore labor in Los Angeles-Long Beach is occurring while ports such as Oakland, Seattle-Tacoma and the large East Coast gateways have excess capacity, Lanier noted.

Shipping lines this year added a half-dozen new services from Asia to Los Angeles-Long Beach, but only one to the Pacific Northwest and one all-water service through the Panama Canal to the East Coast.

The emphasis of carriers, however, is on the new generation of 8,000-TEU ships that are too large to transit the Panama Canal. The capacity of these post-Panamax ships can be efficiently used only at the high-volume import gateway of Los Angeles-Long Beach.

Four shipping services with 8,000-TEU ships are being introduced this year, and carriers have placed orders for more than 170 post-Panamax vessels to be delivered in 2005 through 2007. Some of those ships will be placed directly into services to Los Angeles-Long Beach, while others will enter the Asia-Europe trade, displacing vessels of 5,500-TEU to 6,500-TEU capacity that likewise are too large to transit the canal and probably will shift to the trans-Pacific trade.

It is obvious from these orders for new vessels that carriers expect continued rapid growth in cargo volumes in the Asia to Southern California trade. That challenges the intermodal transportation industry as well as government planners to expand the region's infrastructure. If they don't, importers could be in for still more delays.