Wholesale Changes

Here’s a problem that won’t go away unless wholesale changes in its approach are made, and those wholesale changes could be made with “the stroke of a pen” – that is, if certain executives and CEOs would only do what they’re paid to do.

The headline in Wednesday’s HKSG Group Media’s (SchedNet) March 28th story reads as follows: “US west coast dock talks to cause port shutdowns, cargo diversions”… and the story is about a festering North American supply chain wound.

“A freight newsletter,” the report begins, “is raising fears that the west coast International Longshore and Warehouse Union, currently in contract talks, will likely engage in slowdowns to provide leverage in negotiations rather than to strike outright.

“FTR Transportation Intelligence’s State of Freight Today newsletter said the ILWU will likely stress market until ‘port operators and shippers suffer enough to make concessions.’

“With bargaining talks over the next three months expected to be difficult and supply chains in North America ‘strongly affected’, shippers have been ‘moving up their orders and shifting routing,’ said FTR Transportation Intelligence’s managing director, Noel Perry.

“‘Intermodal Association of North America data indicates that movements of international containers on rail were up over 11.5 per cent year over year in April,’ he said.

“A recent survey found two-thirds of international container shippers were contemplating moving a portion of their west coast volumes through other ports, reported American Shipper.

“Mr. Perry said ports in the northeast will have trouble handling such a big shift in volume as they are already congested and have seen a decline in productivity owing to the shift to bigger ships, resulting in a concentration of activity on some days and little activity on others.

“‘This leads to congestion and reduced capacity utilization in fixed facilities and drayage trucks,’ said Mr. Perry, and that the driver shortage has hit the port drayage market very hard.

“He added that the shift by the ocean liners away from supplying chassis has been plagued with spot shortages owing to equipment hoarding by truckers.

“Railways are also troubled by the uneven daily volumes coming out of northeast ports from barge ships, and inland drayage operators are having the same drayage problems as in the northeast.

“This predicament reminds us of what we have learned about the overall trucking market. Fifteen years of difficult conditions have stripped the market of its surge capacity, the kind of buffer that mitigated problems in the past.

“‘Until shippers become willing, again, to fund surge capacity, they will suffer when the market is stressed by any outside force that demands extra capacity: bad weather, new regulations, sudden growth – or contentious contract negotiations on the west coast,’ he said.

“US west coast ports handle 12 million TEU a year, or 43 per cent of container port activity, equivalent to 26 million truck movements and 5.1 million intermodal moves.” —

Not a day goes by that someone along the supply chain doesn’t recite the complaints we’ve been hearing ever since Mr. McLean opened the floodgates. Too bad he’s not here to address those gripes. He’s probably the only one who could get their attention.

Here’s the never-ending litany of seemingly insurmountable problems:

1. “… leverage in negotiations … until port operators and shippers suffer enough to make concessions”.

[Solution: Those who’ve patented our automated system have recommended (and insisted upon) a hands-on Board of Directors having Union representation. Unheard of, you say? Well, this will also surprise you. The savings generated by our system will be more than enough to pay out to the Union 4% of the terminal’s annual gross income as an incentive bonus. Result? You can kiss goodbye to “contentious contract negotiations”!]

2. “ … ports in the northeast … already congested …”

[Solution: Simple. Look again at the Overview segment on this website. It states: “Under present conditions, truckers are being hampered by traffic jams and lengthy waiting periods, and these conditions, producing strikes, slowdowns and driver shortages, have been described as a ‘national crisis’ by traffic analysts. It is admittedly impossible for container yards, structured as they are, to devise ways to deal with congestion in and around terminals in order to eliminate this most troublesome shortcoming, but the built-in space-creating features of our patented systems have enabled our designers to perfect a new and rapid method of product delivery. Because large tracts of valuable acreage will be made available by our retrofitted space-saving systems, our delivery system, emanating from staging areas within these facilities and requiring no gates, will bring an end to traffic tieups and waiting lines. The new delivery system will eliminate once and for all the threats of driver shortages resulting from lost wages caused by long waiting lines, and with the termination of this threatened national crisis, every stumbling block to efficient, inexpensive and secure intermodal transportation will be removed.”

3. “ … a decline in productivity owing to the shift to bigger ships, resulting in a concentration of activity on some days and little activity on other.”

[Solution: In our October 7th, 2004 commentary (“A Ticking Clock”), we wrote, “These patented storage and retrieval systems will provide other benefits as well. Consider for a moment the impact that PostPanamax container ships will have upon our environment as well as our pocketbooks.

Conrad Everhard (R.I.P.), as moderator at the Port Industry Day symposium four years ago, reminded those in attendance that massive and costly dredging will be required in order to accommodate those giant vessels. He stated that public funding of these dredging programs amounted to a subsidy for those companies building those vessels. In support of this position, at a Capital Hill briefing sponsored by the AAPA in June of 2001, James Hartung advised that deep-water ports used as hubs by these giant vessels in a hub-and-spoke system of operation would actually, ‘… decrease the efficiency of the marine transportation system and skew the economic benefits’.

And here’s what Drewry reported earlier this year (2014):

“Big ships not only mean lower slot costs, but they also come with some risks of service delays for shippers … It takes longer to discharge a 13,000 TEUer than an 8,000 TEUer … Family Dollar transport chief Eric Sherman said that southern California ports take three to four days from vessel arrival to cargo delivery to the terminal gate. East coast ports do better, he said, because smaller ships facilitate a more even cargo flow. But if west coast delays, caused by bigger megaships, are to be experienced on the east coast with the arrival of neo-panamaxes, then shippers have reason to worry, he said.”]

4. “Railways are also troubled by the uneven daily volumes … and drayage operators are having the same drayage problems …”

[Solution: For the most part, our patented systems will circumvent the problems plaguing railways because almost all containers will be handled by our in-house delivery system. In the not-too-distant future cooler heads will finally take the advice of former US Secretary of Transportation, Norman Mineta, and convert at least 200 smaller US ports into container handling terminals. All deliveries will then be short haul runs to nearby end users, bringing about a drastic reduction in cost and an even more drastic reduction in “drayage” problems.]

5. “Until shippers become willing, again, to fund surge capacity, they will suffer when the market is stressed by any outside force …”

[Solution: Remember those little fourth graders we talked about in our Vol. IV, Art. 32 commentary? They actually thought that, “Nippon Yussen, Wal-Mart and those other countries … are the ones that should be funding the canal”. And then one of the youngsters wanted to know why so much of our imports from Asia were being dumped into that one spot in California. “Most of us people don’t live in California, we live somewhere else”, she said. “When my mother does her weekly food shopping, she just goes down the street to the supermarket … she doesn’t drive all the way to Florida or Canada someplace.” Out of the mouths of babes …]

6. “US west coast ports handle 12 million TEU a year, or 43 per cent of container port activity …”

[Solution: ‘Way back in our October 7th, 2004 commentary (“A Ticking Clock”), we mentioned – coincidentally – the same “approximately 12 million TEU” a year they’re having problems with today. We suggested that this “seemingly insurmountable problem” should be divided up between
17 smaller terminals on the West Coast.

We emphasized this solution in “Run To Daylight” (November 1st, 2004), and in “Sharing The Load” (November 15th, 2004) – but intransigent CEOs and port officials out west still haven’t solved that “seemingly insurmountable problem”. The whole issue of replacing costly and troublesome megaships with more sensible and highly-profitable smaller container terminals and container ships was highlighted by Katherine Yung back in our Vol. IV, Art. 24 commentary (Berth of the Blues).

“That would all be well”, she begins, “if the shipowners were footing the bills. But they’re not. As Ms. Yung reports, there are some drawbacks that are not generally considered:

• Ships of this size consume 20 tons more of fuel per day than the next-biggest carrier. (There are about 44,000 gallons of diesel fuel in 20 metric tons, and if, “In the next few years, all these ports will be overrun by these ships”, each wasting more than a million gallons of diesel each year, what kind of an effect will this reckless squandering have upon the cost of fuel at the pumps, do you suppose? Do the math and pity the poor truckers.)

• It takes 15 to 20 minutes to bring a ship of this size to a standstill, which adds almost half an hour to every maneuver.

• These giant ships can only be brought into port during daylight and when the wind falls below 10 knots.

• Only three U.S. ports can handle them – Long Beach, Oakland and Seattle.

• They can’t even fit into the Panama Canal.

• They take four to five days to unload, instead of two or three.

• They require the use of taller, bigger and more expensive cranes than those found in most ports.

• They require longer berths than those found in most ports.

• They force major railroads to make adjustments, such as running longer trains on nonstop routes across the West.

• And if “In the next few years, all these ports will be overrun by these ships”, enormous amounts of funding will be required for dredging, berth expansion, equipment upgrading, bridge and highway replacement projects, and so on and so forth.

Will the shipowners provide this funding? Of course not. U.S. taxpayers and consumers will. But if more containers per ship lower the cost to transport each container, and generate higher profits for the shipowner as a result, why can’t U.S. consumers share in this cost saving instead of facing steadily increasing costs? (Darn it all! We’re so gullible!)]

“We’re subsidizing foreigners!”, Conrad Everhard is surely saying – while turning over in his grave.