Playing with fire

Playing with fire

By all preliminary indications, 2004 should have been a relatively trouble-free year for West Coast ports. Total container volume increased 10 percent in 2003, and the ports handled the growth with few glitches. Cargo volumes are projected to increase by a similar amount this year, and the ports are wrapping up major expansion projects that will produce even more terminal capacity.

Also, employers have been implementing the watershed 2002 labor contract with the cooperation of dockworkers. Terminals are implementing productivity-enhancing technology such as optical-character-recognition devices at the gates and computerized terminal-management systems in the container yards. Throughput per acre is rising.

That's the good news. The bad news for West Coast ports is that they are be-ing hit this year with unexpected equipment shortages, intermodal rail congestion and job actions by harbor truckers.

The Union Pacific and the Canadian Pacific railroad lines from the West Coast are badly congested, with ocean carriers openly expressing concern about the ability of the east-west network to handle peak-season intermodal volumes.

A steel shortage in China this year has compromised the ability of container manufacturers to fill orders for new containers from shipping lines. Most of the world's marine containers are manufactured in China, and some factories reportedly were unable to fill 50 percent of their orders. Shipping lines rely on a steady influx of new containers to accommodate growing cargo volumes.

In late April, harbor truckers in Los Angeles-Long Beach and Oakland launched a walkout to protest the rising cost of diesel fuel. The owner-operators demanded that shipping lines pay higher fuel surcharges to compensate truckers for their increased costs.

Meanwhile, longshoremen in Southern California initiated a protest of their own on April 29 when a propane tank exploded in a container at the TraPac terminal in Los Angeles. No injuries were reported, but David Arian, president of International Longshore and Warehouse Union Local 13, charged that the incident could have been prevented if terminal operators inspected more containers. Arian urged terminal operators to inspect all containers at the receiving gates.

West Coast ports may therefore face an anomaly. They'll have plenty of cargo-handling capacity this year, but congestion could still develop based largely on events that occur outside the terminal gates.

West Coast ports last year handled 17 million TEUs. The volume this year will exceed 18.5 million TEUs if the ports maintain the growth rate recorded in the first three months of 2004.

Los Angeles-Long Beach, which handles about 70 percent of the container volume on the U.S. West Coast, will complete two major expansion projects later this year. The Maersk Sealand container terminal in Los Angeles will be built out to its full 484 acres this summer, making it the nation's largest proprietary container terminal. Expansion of Hanjin Shipping Co.'s terminal in Long Beach is scheduled for completion in October, increasing it to 375 acres.

Also, Long Beach merged its Pier J facility with the Pier G terminal formerly occupied by Maersk Inc., providing the primary tenant, "K" Line, with a 246-acre complex. Pacific Container Terminal merged with the adjacent facility formerly occupied by Sea-Land Service Inc., giving China Ocean Shipping Co. a 245-acre terminal.

The terminal projects are being completed just in time to accommodate the arrival of the new-generation 8,000-TEU vessels in Southern California. Carriers this year are phasing into their services to Long Beach four strings of 8,000-TEU ships. The services will be operated by Orient Overseas Container Line, Cosco, China Shipping Container Line and a joint service operated by Mediterranean Shipping Co. and CMA CGM.

The northern ports are likewise well-situated in terms of terminal capacity. Oakland has two new terminals of about 150 acres each. Seattle two years ago completed major expansion projects for SSA Marine and APL Ltd., and an expansion project for Hanjin is scheduled for completion in October.

Mick Shultz, a spokesman for the Port of Seattle, said the terminals can probably handle another 40 to 50 percent more cargo. Container terminals in Tacoma and Portland, Ore., likewise have additional capacity.

But West Coast ports rely on intermodal rail operators to move more than 50 percent of their cargo to the eastern half of the country. Therefore, problems on the rail networks are a growing concern for shipping lines. Ron Widdows, chief executive of APL Ltd., told the Propeller Club of Los Angeles-Long Beach in March that about half of the intermodal trains leaving the West Coast were running more than 24 hours late - and March is considered the slack season in the eastbound Pacific trades.

Union Pacific is considered the most stressed of the western railroads. Thousands of UP operating personnel retired in 2003 when the age for receiving full retirement benefits was lowered. UP said it was caught by surprise and has been scrambling to hire and train new conductors and engineers. UP hired 2,400 new workers last year and will hire at least 3,000 this year.

Canadian Pacific Railway, one of the two Canadian rail carriers serving the Port of Vancouver, British Columbia, has experienced an equipment shortage for much of the year, and all rail operations were affected by a tugboat operators strike at the West Coast gateway. By the end of April, the rail carriers in Canada were still attempting to relieve the backlog of containers that quickly piled up at the port.

In the U.S., Burlington Northern Santa Fe Railway has invested in recent years in railcars, locomotives and personnel. BNSF's network remained fluid all winter, although the rail carrier is concerned that if congestion continues to mount on the UP and CP systems, all intermodal rail carriers on the West Coast could eventually be affected.

The North American intermodal rail system seems to always be operating close to capacity as containerized imports from China continue to exceed expectations. All it takes is a problem at one railroad and equipment shortages develop throughout the network. Empty containers are stuck in the eastern half of the country, and railroads experience a shortage of double-stack railcars and locomotives. Widdows said a reduction of one mile per hour in the average train speed on a rail network creates a need for 300 more locomotives and 250 more railcars to handle the same volume.

East Coast ports probably won't be in a position to pick up the slack if intermodal rail operations remain bogged down on the West Coast. Trans-Pacific carriers in April reported that their all-water services from Asia to the East Coast were full, and shippers were making bookings six weeks in advance of the sailing date.

Also, the lines informed East Coast port authorities that three new all-water services scheduled for this year are on hold because the carriers can't secure enough ships or the charter rates for Panamax-size vessels are too high for the current level of Pacific freight rates.

It is too early to determine what im-pact the box shortage will have during the summer-fall peak shipping season. Carriers have been moving as many empty boxes back to Asia as they can. Also, it is too early to determine if the trucker protests in California will spread.

The ports could be in a tenuous position if cargo volumes in the eastbound Pacific trade increase more than anticipated. Railroads based their equipment purchases this year on projected cargo growth of 10 percent. If imports from Asia greatly exceed that projection, and the railroads are slow to dig out of the congestion that currently exists, intermodal service from West Coast ports could be compromised.