Big­ger ships, big­ger prob­lems

With docks clogged, lo­cal ports lose to ri­vals

Los Angeles Times - - FRONT PAGE - By Chris Kirkham and An­drew Khouri

The ad­vent of gi­ant cargo ships has caused a bot­tle­neck at ports in Los An­ge­les and Long Beach, erod­ing their share of in­ter­na­tional trade.

C.J. Nord spends her days track­ing ship­ments of metal parts from China, Tai­wan and Italy, which her Hunt­ing­ton Beach com­pany as­sem­bles into high-end bath­room fix­tures for cus­tomers de­mand­ing quick de­liv­ery.

The con­ges­tion at South­ern Cal­i­for­nia ports, some­times de­lay­ing her ship­ments for weeks, has sparked a rad­i­cal new strat­egy. She now pays a pre­mium to send some parts though East Coast ports and truck them across the na­tion — rather than di­rectly from ports 20 miles away.

“In an Ama­zon-driven day and age, the con­sumers’ ex­pec­ta­tion for when they should get some­thing has got­ten shorter and shorter,” said Nord, the sup­ply chain manager for Cal­i­for­nia Faucets.

The wait at the Los An­ge­les and Long Beach ports has got­ten longer and longer, erod­ing their share of in­ter­na­tional trade.

The ports are scram­bling to re­spond to rapid changes in global ship­ping, most no­tably the ad­vent of gi­ant cargo ships now clog­ging the docks with mas­sive loads. La­bor strife — in­clud­ing the re­cent long­shore­men’s con­tract im­passe and the last­ing ef­fects of a 2002 lock­out — has also played a role in the ports’ shrink­ing mar­ket share.

The ports han­dled 39% of U.S. con­tainer im­ports in 2002; that fell to 32% by 2013, ac­cord­ing to U.S. cen­sus data. They have lost busi­ness to com­peti­tors at a time when, over­all, global trade is boom­ing and im­ports are ris­ing at all ports, in­clud­ing L.A. and Long Beach.

“The dom­i­nance of South­ern Cal­i­for­nia as the Asia gate­way is fac­ing a lot more

com­pe­ti­tion,” said mar­itime con­sul­tant John Martin, who an­a­lyzed the trade data.

The loss in mar­ket share rep­re­sented an es­ti­mated 12,300 di­rect and in­di­rect Cal­i­for­nia jobs in 2013, and more than $112 mil­lion in state and lo­cal tax rev­enue, ac­cord­ing to Martin’s re­search.

The sud­den growth of ship size has ports across the world scram­bling to up­date in­fra­struc­ture. Many are mov­ing faster than L.A. and Long Beach, which are in the throes of multi­bil­lion­dol­lar ex­pan­sions.

Ports along the East Coast and in Hous­ton have in­vested bil­lions of dol­lars to deepen har­bors, ex­pand ter­mi­nals and up­grade rail sys­tems that connect to lu­cra­tive mar­kets in the Mid­west. The port of Sa­van­nah, Ga., has more than dou­bled the vol­ume of im­ported con­tainer goods over the last decade, while the Canadian gov­ern­ment and rail­ways ex­panded Bri­tish Columbia’s Port of Prince Ru­pert to be­come a di­rect com­peti­tor to U.S. ports far­ther south.

“When you are No. 1 in the na­tion, every­body’s go­ing to come af­ter you,” said Gene Seroka, ex­ec­u­tive direc­tor of the Port of Los An­ge­les.

The bot­tle­necks at cru­cial com­mer­cial gate­ways have led to in­creased costs for U.S. re­tail­ers and man­u­fac­tur­ers, many of which have re­sorted to stock­pil­ing goods in ware­houses or us­ing ex­pen­sive air freight to en­sure timely de­liv­ery of goods.

The con­ges­tion prob­lems are mag­ni­fied at the ports of Los An­ge­les and Long Beach be­cause of the huge vol­umes they han­dle. Long be­fore the la­bor dis­pute be­tween ship­ping com­pa­nies and dock­work­ers in re­cent months, the San Pe­dro Bay ports were among the first in the U.S. to con­tend with the chal­lenges posed by mas­sive new ves­sels de­ployed by ship­ping lines across the world.

Big boats

Af­ter years of fi­nan­cial strug­gles, am­pli­fied by the global re­ces­sion, ocean freight car­ri­ers have slashed costs and squab­bled over their shares of the mas­sive and grow­ing in­ter­na­tional ship­ping in­dus­try.

That’s sparked a race to build mega­ships that can carry thou­sands more con­tain­ers, ca­pa­ble of mov­ing more cargo on less fuel. The av­er­age con­tainer ship be­ing built now is nearly three times the size of the av­er­age a decade ago.

The quest for ef­fi­ciency at sea has over­whelmed the in­fra­struc­ture on shore. The en­tire sup­ply chain has been stretched thin, from dock­work­ers man­ning cranes to truck driv­ers stuck in lines to ware­house work­ers who sort goods des­tined for mer­chants na­tion­wide.

To fill enor­mous ships, ocean car­ri­ers are also mak­ing agree­ments to share ves­sels and pool cargo to save money. Six­teen ship­ping com­pa­nies op­er­at­ing in four ma­jor cor­po­rate al­liances now con­trol about 80% of the world’s con­tainer ship­ping f leet, ac­cord­ing to in­dus­try an­a­lyst Al­pha­liner.

That con­sol­i­da­tion has caused im­mense headaches at port ter­mi­nals, where long­shore­men must sort through con­tain­ers from mul­ti­ple car­ri­ers be­fore they can be fetched for truck­ers wait­ing to pick them up.

It’s a puz­zle that Noel Hace­gaba, chief com­mer­cial of­fi­cer at the Port of Long Beach, refers to as the “Ru­bik’s cube.”

In the past, each ship­ping line typ­i­cally ar­rived at a sep­a­rate ter­mi­nal with goods loaded in a par­tic­u­lar or­der, for dis­tri­bu­tion to Chicago or New York or Kansas City. With the new al­liances, con­tain­ers from many dif­fer­ent ship­ping lines are ar­riv­ing at the same ter­mi­nals — with their cargo stacked at ran­dom.

“It’s all mixed up. The guys have to dig for things and find things,” said Bobby Olvera Jr., pres­i­dent of the San Pe­dro chap­ter of the In­ter­na­tional Long­shore and Ware­house Union. “No mat­ter what we do here, we are try­ing to catch the cat’s tail.”

The hodge­podge of con­tain­ers can leave truck driv­ers like Danny Lima wait­ing in lines up to four hours long. He and other truck­ers are dis­patched to pick up a spe­cific con­tainer for a re­tail cus­tomer — even if it’s buried at the bot­tom of a pile.

“We need to get it,” Lima said. “Whether it’s an hour or three hours.”

Since dock­work­ers and ship­ping com­pa­nies reached an agree­ment on a new la­bor con­tract in Fe­bru­ary, the two ports have made progress in re­duc­ing a se­vere back­log. But the true test will come as the ports en­ter the peak ship­ping sea­son, said in­ter­na­tional trade econ­o­mist Jock O’Con­nell.

“Con­ges­tion will be an on­go­ing chal­lenge go­ing for­ward for the ports,” O’Con­nell said.

Caught short

The cargo chaos is ex­ac­er­bated by bu­reau­cratic re­al­i­ties of updating port in­fra­struc­ture — up to a decade of en­vi­ron­men­tal im­pact stud­ies, fund­ing ap­proval and per­mit­ting.

“There’s no way L.A. and Long Beach could have fore­seen enough five years ago to get this in place,” said Paul Bing­ham, an econ­o­mist at Hack­ett As­so­ciates, a trade and trans­porta­tion con­sult­ing group. “The in­dus­try can go to a ship­yard, say ‘I want this new ship,’ and build them in 12 months.”

Now the ports are strug­gling to catch up. Among the big­gest ex­pan­sions: a $1.3bil­lion plan in Long Beach to re­place the Gerald Des­mond Bridge, which is too low for ships ex­pected to be call­ing in the next five years; and a sep­a­rate $1.3-bil­lion ex­pan­sion of two Long Beach port ter­mi­nals that will cre­ate one of the most au­to­mated docks in the coun­try.

The Port of Los An­ge­les is in the midst of a sim­i­lar $510mil­lion project to up­grade and au­to­mate one of its ma­jor ter­mi­nals, known as TraPac.

Some of those plans will bring ad­di­tional ca­pac­ity for larger ships as early as this year, but they are still years away from fi­nal com­ple­tion.

In the mean­time, both ports are ac­quir­ing off-site stor­age yards for sorting con­tain­ers in an ef­fort to free up space on the docks and pre­vent crip­pling de­lays for truck­ers.

New threats

Clear­ing port con­ges­tion is key to staving off ri­vals seek­ing an ever-big­ger piece of tran­spa­cific trade, es­pe­cially in the face of an un­pre­dictable global econ­omy.

“We’re the fastest, most di­rect route from Asia. But we can’t rely on geog­ra­phy alone,” Hace­gaba said. “We have to demon­strate that our op­er­a­tions and our gate­ways are as ef­fi­cient as they can be.”

Higher wage rates in China have pushed some global man­u­fac­tur­ing op­er­a­tions far­ther west to places such as Southeast Asia and In­dia — mak­ing East Coast ports an equidis­tant jour­ney by sea.

The ports of New York and New Jer­sey have em­barked on a bil­lion-dol­larplus plan to raise the Bay­onne Bridge con­nect­ing Staten Is­land and New Jer­sey

Ports from Bal­ti­more to Sa­van­nah to Miami are spend­ing hun­dreds of mil­lions of dol­lars dredg­ing deeper chan­nels for larger ves­sels.

Some com­peti­tors are openly seek­ing to cap­i­tal­ize on the prob­lems of South­ern Cal­i­for­nia ports. Ad­ver­tise­ments for ship­ping to Prince Ru­pert in Bri­tish Columbia tout “in­fra­struc­ture so­lu­tions” at the “con­ges­tion­free” port.

The much-an­tic­i­pated widen­ing of the Panama Canal, ex­pected next year, could pose an­other threat. It will al­low for much larger ships to pass through the locks, open­ing the po­ten­tial for tran­spa­cific cargo to by­pass West Coast ports.

But even that project did not an­tic­i­pate the rapid shift to mam­moth ves­sels: The largest ships now call­ing at the Port of Long Beach won’t be able to fit through the newly widened Panama Canal.

South­ern Cal­i­for­nia ports’ erod­ing mar­ket share owes in part to stricter en­vi­ron­men­tal reg­u­la­tions, ex­perts said. Emis­sions up­grades for port trucks, for in­stance, ar­rived sooner here than in other parts of the coun­try.

The com­plex ar­ray of forces at work don’t help C.J. Nord, at Cal­i­for­nia Faucets, ex­plain to her cus­tomers why they have to wait.

She tries to man­age her sup­pli­ers around the world to limit the de­lays. Nowa­days she sends a dis­claimer to fac­tory sup­pli­ers in Asia and Europe: Add at least three weeks to the tran­sit times the ocean ship­ping com­pa­nies list on their web­sites.

“The prob­lem is on our side of the ocean, not theirs,” she said.

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