Wednesday, October 22, 2014

LOS ANGELES-LONG BEACH PORTS MESS

Fixing the LA-LB mess

For a while, it was looking like 2014 was going well for Los Angeles-Long Beach. But as is often the case, things can change quickly in this industry, and the situation at the largest port complex in the Americas definitely looks different now.
Earlier this year, the adjacent ports were attracting big ships, gaining market share, and remaining largely trouble free — no small feat in a longshore contract year. The recently announced cooperation between former Pacific Northwest rivals Seattle and Tacoma was due in no small part to market share loss they are suffering largely at the hands of LA-Long Beach. Now all of the sudden the Southern California juggernaut finds itself engulfed in a meltdown of historic proportions, and that’s no exaggeration.
What is happening is on par with the most severe disruption the ports have seen in the past 20 years, including the 10-day 2002 lockout of the International Longshore and Warehouse Union. “The port/terminal situation is as bad as I’ve ever seen it,” said a veteran senior ocean carrier executive not prone to hyperbole.
How quickly the ports can recover will determine their viability going forward. Already, shippers that diverted goods to the East Coast to avoid possible longshore trouble — with no idea of the impending storm from chassis and truckers — are thanking the stars for having done so, and these shippers may be hard to win back. One large importer told me during this month’s TPM Asia Conference in Shenzhen that Savannah in recent weeks has performed “flawlessly;” some compliment in a year when delays struck major North American ports including New York-New Jersey, Virginia, Oakland, Port Metro Vancouver and Prince Rupert.
The Southern California ports will not recover overnight. “The short-term outlook for Southern California ports is not positive, and we recommend to our customers to allow for longer delivery times,” Hamburg Sud said in an Oct. 21 notice to its customers in the Australia-New Zealand trade. Port truckers unable to make a living are exiting the market for more lucrative opportunities elsewhere, and the broken chassis system, a factor in the departure of drivers, is a ways from being fixed. While a positive gesture, the Port of Long Beach’s temporary extension of free time for containers on the docks is a band-aid, not a solution.
The situation arose out of larger industry forces that blended into a toxic mix: carriers withdrawing from providing chassis, bigger ships in the trans-Pacific trade, and faster growing volumes this year because of the improving U.S. economy.
But what makes it worse is that on top off all of that, those who have the most to lose — the dockworkers and employers — have yet to agree on a collective bargaining agreement over three months after the prior one expired on July 1. Worse yet, the peaceful, trouble-free environment in which the two sides bargained over the summer has suddenly morphed into an ominous new phase where longshoremen at LA-Long Beach are engaging slowdowns while unsubstantiated rumors of a lockout were flying around the industry as of last week.
This is not healthy, not for the ports, for shippers, for consumers, for international trade or the U.S. economy. It’s shameful for this to occur in a supposedly modern, industrialized nation. Put it all together and an episode like this raises many questions, not easily or quickly answered.
Does it make the anticipated early 2016 Panama Canal expansion more relevant? Could it provide a fresh opening to Seattle and Tacoma? Does it sour the service-oriented Southern California region on industrialized freight movements? Does it become one more factor in favor of near-shoring? Will it lead shippers to insist on financial penalties for non-performance in their 2015 contracts with carriers, who they unequivocally blame for the current mess.
A number of things needs to happen to get things moving in the right direction. The ILWU and PMA need to sign an agreement, one that continues to allow for introduction of automated container-handling technology so as to allow terminals’ productivity to keep pace with the big ships. A portwide chassis pool needs to be put in place so chassis can be freely picked up and dropped off at any terminal, improving trucker productivity. Railroads need to ensure adequate capacity out of the ports, overcoming issues of their own tied to growing demand by energy shippers on limited rail capacity. Neutral operating metrics need to be agreed upon and goals against them established. And most of all, in the absence of leadership from Washington, Sacramento or the local cities, the ports need to step up. There are no other entities capable of projecting the leadership necessary to create lasting solutions.
And then all that’s left is to hope that Mother Nature spares us this coming winter.