This is supposed to be the IT age, the age of “Information Technology”. The problem is that the information being spewed out for public consumption is either inaccurate, incomplete or insincere. In a lengthy analysis of the economic conditions on the West Coast, the Regional Economic Briefing published by the Federal Reserve Bank of San Francisco included 31 graphs, a generous amount of charts and some authoritative comments on past and future developments. In all, the presentation required 12 full pages and had the appearance of a white paper rather than a “briefing”. But …. only 7 lines were devoted to the West Coast’s most important economic issue, the congestion that’s strangling port operations and the transportation infrastructure. The report, however, states that the situation has been “resolved”. Here’s what appears at the bottom of page 4 of the briefing:

“Transportation

– The backlog of inbound ships in Southern California generally has been resolved.
– Contacts at the Los Angeles port indicated that the bottlenecks were in part resolved by hiring new workers to handle the high volume of traffic.
– Shipping lines had responded to the bottlenecks by increasing their prices for ground and sea transport.

According to our contacts, transport lines have not lowered their prices as the backlogs have been resolved.”

So there you have it. Short and sweet. The backlogs have been resolved, according to “contacts”. Those contacts, of course, weren’t identified in the report, but just a few days ago at the Long Beach AAPA seminar, Mr. Philip Connors, Maersk’s Executive VP, saw things differently. After citing the port’s adverse capacity, he stated that the infrastructure limitations in the rail and trucking industries are even worse. “The real problem is infrastructure … It is, in my opinion, a national crisis”. How did the “contact” miss out on this assessment? Mr. Connors was one of the featured speakers at the AAPA seminal.

In nearby Oakland’s Marine Terminals is an acknowledged authority on West Coast congestion, Douglas Tilden, and he’s the one the Fed’s should have consulted. This is what he said:

“2004 demonstrated once again the fragility of the international transportation system. The combinations of unexpectedly strong volumes out of China and issues with “right-sizing” the Southern California work force brought previously unimaginable delays to the movement of transPacific cargo … Other ports around the world struggled with congestion, but none suffered the level of disruptions of Southern California …We will definitely be faced with much broader issues in 2005″. [Makes you wonder on what other matters the Fed may have been led astray.]

[And TODAY we should be asking … on what other matters has the Fed been leading us astray?]
Down Memory Lane … five years ago today

(What we wrote in Vol. VI, Art. 20)

“The last thing you want is for the port to act as a bottleneck. Instead, ports must facilitate the rapid throughput of cargo … Many ports are now focused on megaships, but you can’t handle all of the growing traffic in big TEU vessels. Much of the movement toward larger ships and the ports’ competition for that traffic involves ego and the corporate fanning of feathers …

“There is a significant impact on the transportation infrastructure when ships with 6,000-plus TEUs call at a port. It places a great deal of pressure on the terminal, as well as the connecting highways and rails. It creates a peaking pressure, or spikes, in container throughput. Economically, megaships will best be served by limiting the number of ports at which they call. You lose the economies of scale when the load factors are not there.” – Commander Jon S. Helmick (1997)

“It’s a good news/bad news story … The ideal is to bring the containers off the ships and put them on rail. But the question is, what happens when vessels get too large? We have seen the same thing in other modes – whether in the length of trucks, railcars, flatcars, containers or planes. There comes a point when large vessels create problems. We may be at that point now with ocean vessels.

“Larger ships mean fewer ports of call, which means shippers have to transport containers over a longer distance to get to a port. There is also the question of putting all of our eggs in one basket from a risk standpoint. What if the ship breaks down? … Eventually, bigger ships may end up losing business to smaller ships.” – Don Cameron (1997)

“Megaships are not going to be entering the Gulf of Mexico and won’t be coming to the Port of New Orleans. They will be very expensive to operate and will be required to move a lot of cargo. Now more than ever it will not be economical to bring them into the Gulf. – Jim Reese (1997)

“Megaships strain the capacity of inland infrastructure, terminal operators and rail and truck carriers. As terminals run out of space, ports will be required to seek alternate ways of expanding their operations. The most logical and least costly way to expand without straining the capacity of inland infrastructures, terminal operators and rail and truck carriers is to establish smaller container ports closer to end users.” – Nolan Gimpel (2003)

“Operational and commercial limitations … reduce the effectiveness of megaships … Carriers will have a more difficult time filling these large vessels, thereby cancelling out the economies of scale these ships are supposed to produce … A limited number of ports are able to service these larger vessels because of harbor depths … These vessels are unable to accommodate importers and exporters who prefer more direct, less costly service. The bigger the ship, the more transshipment and feedering you need, and that costs money.”
– Neil Davidson (2004)

[These warnings were given more than five years ago by some of the most knowledgeable maritime authorities … but today’s port authorities still aren’t paying attention.]

“Somethin’s gotta give …”

(What we wrote in Vol. X, Art. 20 … four years ago today.)

Regarding the “bigger is better” concept, many knowledgeable people disagree. We’ve just mentioned Commander Helmick and Mr. Davidson. Now consider the following..

“Even continuing with just one service … we were able to provide sufficient space to meet demand. There was no point in putting in two loops where each loop is running half full.” – Frankie Lau, OOCL Marketing Director.

“Global supply chains will be forced to find alternative import-export solutions as many hub port locations become land-constrained.” – Anthony A. Chiarello, Senior VP, AMB Property Corp.

“Vessels from the ‘Super-Post-Panamax Class’ … which can’t squeeze through the Panama Canal … take 56 days to complete a single loop … A crane then places the container in its temporary resting place, where it waits until the shipping company requests delivery. That could be in hours – or weeks.” – Alexander Jung, SPIEGELnet GmbH.

Shipping capacity will outstrip demand … “there is a gap, and it is growing”. – Tue Ostergaard, WestLB Bank, Copenhagen.

On our customers’ minds is the “issue of very large ships. If a box isn’t on top of the deck, if it’s bunched up below with thousands of other containers, it can take days to be unloaded.” – Edward Aldridge, President, U.S. Lines.

“Although the U.S. West Coast recently has accommodated trade growth, primarily from China, it is walking on thin ice … West Coast ports are not ready for the next spurt in ocean trade. If Asia trade continues to grow at 10 percent annually, West Coast ports will reach their limits soon … We will see delays and extra demurrage and warehousing costs … Companies won’t get cargo when they want it, factories won’t get parts when they need them. Certain industries and products – such as high-tech – will be significantly affected.” – Richard Bank, Former Director, Office of Maritime Affairs, U.S. Department of State.

“How far can a containership go and still be cost-effective? If you don’t have the service to handle the terminal side, you won’t be able to service the ship, and you won’t save anything … People don’t look at it that often, but there is a tradeoff between the size of a ship and the ability to turn it at the dock. You don’t get the economies of scale if it takes too long to discharge a vessel.” – John Martin, Consultant and Principal, Martin Associates.

“If U.S. ports don’t start improving their game right now, the field might become too busy to play in – and that could cost consumers, shippers, carriers, and others in the industry a very expensive and nasty lesson.” – Tony Seideman, Marine Digest & Cargo Business News

[Just a few more warnings that are still being ignored by today’s port authorities.]