Bill Mongelluzzo, May 9, 2014, Journal of Commerce
As U.S. West Coast waterfront employers launch contract negotiations on May 12 with the International Longshore and Warehouse Union, many beneficial cargo owners are planning to ship their freight through alternative gateways in the event of disruptions or a work stoppage.
Prudent BCOs, however, have already put contingency plans into action, or are finalizing those plans now. “It is most important that you plan early,” said Dan Flaherty, vice president and general manager of port logistics at Schneider Logistics.
Flaherty said shippers that rely heavily on West Coast ports to handle their goods need at the very least 30 days to rework their supply chains, but to be safe, 60 days are more realistic.
That’s because revising a supply chain involves the entire chain. Production must be started earlier in Asia. Vessel space out of Asia will be tight, especially to ports in Canada and on the U.S. East Coast.
Trucking capacity at ports in Canada and on the East Coast will also be strained, whether it involves moving containers from the port to railheads in Canada, or moving containers from East Coast ports to warehouses in the region. Equipment must also be secured in a tight market.
Port congestion will also be an issue. New York-New Jersey and Norfolk are just now recovering from congestion experienced earlier this year that was caused in part by the harsh winter on the East Coast as well as the impact of bigger ships on terminal operations. Now the East Coast ports will be expected to handle their normal back-to-school and holiday merchandise that begins moving in the summer months, as well as the cargo that is diverted from the West Coast.
Vancouver, British Columbia, experienced its own problems this winter, caused primarily by a series of job actions by angry truckers over pay and marine terminal congestion issues. An action plan developed by Port Metro Vancouver, the federal and provincial governments, terminal operators and the trucking industry is being implemented, but full implementation will take several months.
Following unusually contentious East Coast negotiations in 2012 and 2013, complete with multiple threats of a strike, shippers are on edge heading into this year’s negotiation for a new West Coast contract to replace the current six-year agreement that expires on July 1.
Several shipper organizations have told their members to prepare for work stoppages as the expiration date approaches and in weeks after if, as expected, no agreement is reached by that date. However, these groups have no inside information that work stoppages will occur. In fact, PMA President Jim McKenna told the JOC’s TPM Conference March 4 in Long Beach he believes a tentative agreement will be reached in July after two months of difficult negotiations, and there will be no work stoppages. But even he doesn’t know for sure.
Until July 1, the “no-strike” provision in the current contract prevents the ILWU from engaging in an organized, coastwide strike. Work slowdowns are more difficult to gauge, and they may or may not occur as the deadline approaches, depending in part on how locals at the ports respond to the direction of negotiations being run by the headquarters in San Francisco.
Come July 1, both sides could agree to extend the contract for a period of time, thereby keeping the no-strike clause provision in effect, or they may choose to continue bargaining without a contract in place. That measure would increase the chances of a work stoppage or employer lockout, the latter of which precipitated the 10-day work stoppage in 2002.
Given these uncertainties, it is crucial that cargo interests have a “Plan B” in place to hedge their bets, Flaherty said. However, every type of shipper has its own unique supply-chain characteristics, so there is no single Plan B that works for everyone.
Footwear, for example, is a fashion item that changes with the season. Orders can’t be placed too far in advance. Also, given the need for rapid transport of footwear once it leaves the factory in Asia, most imports move through the West Coast, which offers the quickest transit to U.S. consumer markets, said Matt Priest, president of the Footwear Distributors and Retailers of America.
The vast majority of the world’s footwear is produced in Asia, especially China, the source of 70 percent of containerized footwear imports into the U.S. in 2013, according to PIERS, the data division of JOC Group. Import distribution centers are located mostly on the West Coast. According to Li & Fung Logistics, shipping a container from Shanghai through Los Angeles-Long Beach to New York takes 22 days. Routing the cargo all-water through the Panama Canal takes 26 days to New York, and through the Suez Canal it takes 30 days.
The gap between West Coast and East Coast transit times is even greater when the ultimate destinations are in the nation’s interior. Also, shipping price-sensitive footwear via rail or truck from East Coast ports to interior markets negates the cost advantage of all-water transit.
For that reason, “the West Coast is our wheelhouse,” Priest said.
However, importers of non-fashion goods, such as general consumer merchandise that moves on a recurring basis, have alternative options for routing, if they plan their supply chain strategies far enough in advance, Flaherty said.
Merchandise that would normally be shipped through West Coast ports for July receipt can usually be shipped for June receipt, as long as the additional inventory carrying costs are not too high. Carriers, in fact, are reporting that vessel load factors to the West Coast so far this spring have been higher than usual, which suggests that low-value merchandise is already moving early.
Carriers also report that advance bookings for June are brisk, so BCOs that have not reserved space on June sailings for cargo that would normally have a July receipt may be out of luck. They should, though, be moving immediately to book their August-receipt cargo that they intend to reroute through Canada or the East Coast.
Shippers that intend to ship through Canada’s Pacific Coast have a choice of Vancouver and Prince Rupert, which is located 500 miles north of Vancouver. Prince Rupert is served intermodally by the Canadian National Railway. The CN line runs to Chicago and Memphis and down to New Orleans.
Vancouver, meanwhile, is served both by CN and Canadian Pacific. In both cases, however, the best fit for U.S. importers is if they are located along the CN line through the U.S. midsection or the CN and CP routes in the Chicago-Detroit corridor. When import distribution centers are located at a distance from the corridors, additional transit time and cost are incurred.
Knowing which alternative gateways present the right choices given the unique characteristics of a shipper’s supply chain is crucial. But this knowledge is only actionable if shippers plan their routing changes ahead of time and communicate with all of the transportation and warehouse providers in the new supply chain, said John Edwards, director of port logistics at Schneider National.
If an importer is planning to reroute shipments through an East Coast port to an inland warehouse and that necessitates a truck move from the port, communication with the trucking company must be made weeks in advance to ensure the motor carrier has sufficient capacity, Edwards said. This will be especially important come July and August when cargo that regularly moves through East Coast ports is increasing for the summer-fall peak season, he said.
The importer should not limit the planning process to the port-to-DC move. Shippers must secure sufficient equipment and truck capacity for the subsequent move from the warehouse to the destination. Also, communication is necessary with the warehouse operator to secure space at the facility, Edwards said.
Shippers that import a variety of general merchandise should break their freight down into different categories based on transit-time requirements, sensitivity to inventory carrying costs, seasonal versus redundant shipments and other factors that affect shipping, storage and handling requirements, Edwards added. The same shipper could therefore have a variety of logistics strategies for its various lines of business.
The best advice logistics experts can give cargo interests in a longshore contract year is to “line it up way ahead of time,” Edwards said.