By Gavin van Marle
More than just port capacity will have to be made available to shippers if other North American gateways are able to relieve the congestion crisis gripping the U.S. west coast, according to speakers and delegates at last week’s TPM conference in Long Beach.
A source at Kansas City Southern railroad, which operates an intermodal network that stretches from the Mexican Pacific gateway of Lazaro Cardenas into the southern parts of the U.S., said that the expected bonanza of freight diverted from the ports of Los Angeles and Long Beach simply did not materialize. The principal reason was that Mexico’s Pacific ports do not lie on carriers’ transpacific strings. Although Manzanillo has long been the country’s established gateway, it is the newer port of Lazaro Cardenas which is felt to have the best potential to act as alternative gateway for the U.S. The Mexican ports are typically the first port of call on Asia-Latin America services.
The source said: “Asia-Latin America freight commands much higher freight rates than Asia-U.S. west coast, so carriers are generally unwilling to put lower-paying freight into slots where there is demand for much higher paying cargo that is destined for South America. “I would say that we have only had around 100 containers per call that would have been unloaded in L.A. or Long Beach being unloaded at Lazaro Cardenas, which we are then carrying up to the U.S. – there hasn’t been the space on the vessels for much U.S.-bound cargo.” he added. This view was echoed by some shippers, who confirmed to The Loadstar that they had been unable to secure slots on services into Lazaro Cardenas, despite requests to carriers to make capacity available or provide specialist sailings.
While The Loadstar reported that Disney had circumvented the congestion by using Canada’s Prince Rupert port and the Canadian National intermodal link to Chicago, many shippers located in the heart of the U.S. were put off by the distance.
Donna Lemm, Vice-President of Global Sales at Mallory Alexander International Logistics, which has its operational HQ at Memphis, said: “We looked at Prince Rupert and it was a good alternative, but it was more natural for us to move eastwards. But there was limited capacity there, unless you had been a shipper for years.”
At the same time, rates into U.S. east and Gulf coast ports had inflated to the point that they recently topped the $5,000 per FEU mark, considered by many to be past the economic mark. “Some shippers have panicked and thrown money at the problem and sent cargo into the east coast, but the extreme extra cost just doesn’t make sense for us as a non-seasonal shipper of cargo that is not time sensitive. With the labour agreement, we are now waiting for our goods to filter through the west coast,” one said.
In a special question and answer session, Maersk Line Chief Executive Soren Skou claimed the west coast problems would make shippers reconsider their long-term supply chain strategy. “Many customers have a view that they cannot put all their eggs in one basket, especially if that basket is Los Angeles or Long Beach. The recent problems will have an impact on long-term growth,” he said, adding that one possible effect could be a continued shift in sourcing locations away from Asia. “If you move manufacturing from Asia to Mexico, you don’t have to deal with any ports at all,” he noted.
Shorter-term winners have included Asia-east coast ports services via Suez, although if that rate sees anything like the same vessel size increases as the transpacific has seen recently, it would have a dramatic effect, said Philip Damas, Director of Drewry Supply China Advisors.
“If the average ship size in New York catches up with that in Rotterdam, it would mean a 65 per cent increase in average ship sizes – and we have calculated that [on current productivity levels] an 18,000 TEU vessel in New York will be there for eight days. “At a charter rate of $60,000 per day that is a very expensive port call,” he said.
Of course, much of what determines the choice of gateway depends on where in the U.S. the shipper is located. For Midwestern shippers, and even those located in the south-east, there is a more tantalising choice. Rodney Dickey, President of OA Logistics, the in-house supply chain manager of home furnishing and improvement goods provider E&E, said the problems had prompted one major retailer, which currently pushes 70 per cent of its Asian imports through the U.S. east coast ports and 30 per cent through the west coast, to bring “100 per cent through the east coast”.
Reprinted courtesy of The Loadstar (www.loadstar.co.uk)