Two of the busiest ports, estimated to represent upwards of 40 percent of container volume in the United States, are the Ports of Los Angeles and Long Beach. Both have recently announced their highly anticipated annual operational volume statistics for 2014.
By now, most industry supply chains are aware of the significant disruption and gridlock conditions that occurred at these ports in the latter-half of 2014 that have cascaded to other supply chain dimensions. Our community remains rather concerned that conditions will worsen or the ports will themselves temporarily shutdown because of the ongoing gridlock. The open question is what the 2014 numbers provide for insights relative to addressing operational gridlock, whether the latter-half disruption was one-time or a far broader set of challenges at play. In this Supply Chain Matters posting, we share some initial observations.
The Port of Los Angeles announced that overall container volumes increased 6 percent in 2014 with total volumes exceeding 8.3 million TEU’s (twenty-foot equivalent units). That overall number is somewhat higher than those that were reported in 2012 and almost equivalent to total volumes reported in the pre-recession years of 2006-2008. Recall that 2012 was the period of the last port disruption brought about by labor contract negotiations.
The first question that popped for us was what would the 2014 numbers have been if operations were running normally in the latter half of the year? Would that percentage increase be 8 percent or 10 percent, exceeding pre-recession numbers? In the wake of a global trend toward more U.S. sourcing of production, what is behind the increase?
A review of the detail provides other indicators. While loaded inbound containers increased 4.4 percent, loaded outbound or export container shipments dropped nearly 12 percent. Traditional and social media now includes reports that exports, especially agricultural exports, were significantly impacted, and how shippers have scrambled to seek alternative ports to export commodities and goods. Another interesting but concerning statistic was that empty container shipments increased slightly over 7 percent, Both of these trends warrant further analysis.
Let’s turn our lens to the adjacent Port of Long Beach which announced this week that 2014 was its third-busiest year ever. Total volume exceeded 6.8 million TEU’s and according to reported history dating back to 1995, the other two busiest years were roughly 7.3 million TEU’s in both 2006 and 2007, again, just prior to the severe recession. Same impression, what would these numbers have been without gridlock?
By our calculation, loaded inbound containers at Long Beach increased 1.8 percent, while loaded outbound containers decreased 5.8 percent. Empty container shipments increased a little over 8 percent. At summary glance, inbound containers are on the rise while outbound is declining, a similar trend. Empty containers shipments seem to be lower than the far higher peaks of 2005-2007.
There have been various conflicting accounts of what caused both of these U.S. west coast ports to gridlock. Obviously, ongoing labor contract renewal negotiations had an impact, but certainly not all. In 2014, more container mega-ships called on these two ports which in theory required added unloading and processing time. A missing statistic that would prove interesting is how many total ships called on these ports in 2014 vs. prior years.
We do not portray ourselves as experts in shipping statistics and trends and perhaps some of our readers versed in these trends can shed additional observations. However, the focus needs to be directed at addressing underlying logistical challenges that are perhaps driving more important needs, not just for these two ports, but others as well.
In the latter-half of 2014, there were reported shortages of container carriages for surface transport causing a backup in unloading operations. Ownership of these carriages was generally outsourced to other parties by shipping lines, probably to reduce their operating fixed costs. Reports indicated continual mismatching of where carriages were required to be or congestion points for moving such carriages among ports. Ongoing labor disputes among independent contract truck drivers working at trucking companies serving ports led to slowdowns, especially when rigs were constantly tied-up or idled, awaiting to enter or exit the port. New unionization efforts were prompted by driver frustrations that as independent contractors, they were losing wages and benefits.
Intermodal transfers to rail lines likewise were impacted when operations became increasingly backlogged. This week, the CEO of Union Pacific indicated to analysts that congestion at the ports is hurting the railroad’s first quarter volumes. Echoed in a published Wall Street Journal report was the reality that railroads cannot risk another disruption to networks, and that if the ports were to encounter a total shutdown, rail traffic destined to and from such ports would temporarily cease. Compounding backlogs further led to double-digit numbers of vessels at anchor awaiting an available berth. Some moved to other alternative ports to unload because of unacceptable scheduling disruption.
The takeaway is that high level operational performance numbers while providing some overall performance indicators, can be sugarcoated, and hopefully, port management teams are conducting far deeper analysis of the multiple logistical forces at-work that can permanently alter port throughput volumes in 2015 and beyond. Today’s global transportation and logistical customer business requirements demand synchronized networks. As highlighted in our previous Supply Chain Matters commentary, speed and cost of logistics are an ultimate determining factor in global product sourcing decision-making.
A focus on optimization or cost-avoidance of certain segments impacts other segments. We trust that a tendency to sugar-coat annual performance in spite of such extraordinary challenges hides the jagged rocks beneath the surface. The ongoing labor contract negotiations are one symptomatic cause, but operators and organized labor need to be concerned with other equally if more important logistical challenges that are compounding themselves.
Port paralysis is no longer the purview of just U.S. west coast ports, but a far broader combination of logistical challenges that have impacted the global transportation industry and industry supply chain abilities to compete and deliver expected financial results. While continual pressures call for mediation and resolution of labor disputes, they should not be the panacea for not addressing ongoing serious logistical challenges that are compounding themselves in the surface transportation sectors. This an industry problem as well as a local one.
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