End to end

   The retail industry’s supply chain faces continuing challenges along its entire length—from the factories where retailers source their products through delivery to the consumer, whether the product is purchased at a store, through a catalog, or, increasingly, via a computer website.

   The industry was hard hit in 2014 and 2015 by congestion at the nation’s ports, especially those on the U.S. West Coast during the contract negotiations between the International Longshore and Warehouse Union and its employers.

   “A lot of those goods came in late, had to be marked down immediately, didn’t make sales,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation (NRF).

   At the same time, retailers are having to adjust to changes in how consumers shop, as well as new trade agreements that can affect where it is most economical to source goods.

   “There is a lot going on in the transportation space. That’s a lot of where the retailers’ focus is certainly,” said Jess Dankert, senior director of retail operations for the Retail Industry Leaders Association (RILA). “The one that kind of rises above and is more overarching is the question of the port congestion and just general ports operations.”

   The congestion at West Coast ports in 2014-15 “put a finer point on some of the issues that need to be addressed,” she said. There is interest in “benchmarking U.S. ports against leading ports globally” to find out where improvements can be made.

   A provision in the Fixing America’s Surface Transportation (FAST) Act, signed by President Obama in December, calls for the creation of a port performance freight statistics program and appointment of a working group to advise the director of the U.S. Bureau of Trade Statistics on how, specifically, performance should be measured.

   Retailers would like to see “a more seismic degree of improvement among the ports,” Dankert said.

   “Collaboration and the cooperation among ports, terminal operators, carriers, clients, warehouse operators, 3PLs, and everything else is improving at a really quick rate right now,” said Ron Marotta, vice president of origin cargo management for the international division at Yusen Logistics (Americas) Inc. “You have to talk to all your partners in the supply chain and, as a 3PL, we’re doing that, our customers are doing that.”

   Marotta said retailers are not only traveling more to Asia to meet with their supply chain partners, but when they visit the U.S. West Coast “depending on the carriers that they use, they will go visit every single terminal operator on the West Coast that they use.” They will meet with drayage companies, trucking companies, chassis leasing companies, “all of those partners, those cogs in the wheel, of the supply chain,” he added.

   A report for NRF by PricewaterhouseCoopers released in 2014, which used 2012 statistics, found retail accounted directly for 7.7 percent of the U.S. gross domestic product and 29 million jobs scattered across 3.8 million establishments. With indirect and induced impacts thrown into the mix, PwC said retail accounts for 16 percent of GDP and 42 million jobs—and 11.8 percent of those jobs are in logistics and freight transportation.

   While supply chains are global, Gold noted they have a big impact on Main Street businesess. About 95 percent of retailers having 50 employees or fewer, and “If anything happens to the supply chain, it has a bigger impact on those folks than Walmart,” he said.

   New trade agreements like the pending Trans-Pacific Partnership may influence where a retailer chooses to source a product.

   “Retailers have become global in nature and certainly how they move freight around the world is very important,” explained Myles O’Brien, chief customer officer for Toll Global Forwarding. Companies move freight from one entity to another to minimize corporate tax rates, “as these free trade agreements come along, they also have to maximize duty-free opportunities,” he said.

   For example, a U.S. company may make a product in Vietnam, but then ship it to Hong Kong where it’s further shipped to various countries around the world, including Australia. If a new free trade agreement is signed, the company now may be able to source those Australia-bound goods duty-free directly from Vietnam, but the retailer also needs to weigh that benefit against changes to corporate taxation.

   “So there is an onus now on global retailers to be able to structure their supply chain to maximize both corporate taxation and duty-free opportunities that arise when new trade agreements go into place,” O’Brien said.

   Retailers and other businesses are uncertain whether shippers will be able to smoothly comply with a new International Maritime Organization requirement that the verified gross mass of a container be provided prior to it being loaded on a ship.

   Retailers are “trying to figure out what carrier cut-off dates are going to be, what documentation they are going to need. Everyone is going to do it differently, which is going to be more of a problem,” Gold said.

   There are unanswered questions for retailers about how “measurements will be communicated and verified and declared” and how compliant their suppliers are, O’Brien said. If shippers do not comply “the freight’s not going to move.”

   O’Brien compared the challenges of the new law to the known-shipper regulations that went into effect after the Sept. 11, 2001 terrorist attacks which eliminated the anonymous tendering of freight. “In the lead up to that there was a lot of confusion, but a lot of the confusion was about what exactly the requirement was and who was exactly responsible for it and in reality who would do it,” he said. “So it’s really about the clarity of the regulations.”

   Freight rates deteriorated in 2015, and while carriers were able to push through rates at the end of the year, Drewry is forecasting that the container-shipping companies are likely to lose $5 billion in 2016 as the industry is plagued by overcapacity. It predicted freight rates would continue to drop this year. Many retailers sourcing goods in Asia are currently negotiating service contracts for cargo moving to the United States, contracts that typically run from May 1 to April 30.

   “With spot rates where they are, it’s in the BCOs’ interest to negotiate early and commit to longer terms, and that’s, I think, why the carriers made such an effort to get rates up in January,” O’Brien said. “Having said that, most customers I speak to don’t want carriers to go out of business, and the carriers need to get a return on their assets in order to stay in business.”

   There is also uncertainty about the underlying demand for retail goods.

   The Global Port Tracker report prepared for the NRF by Hackett Associates and released in early January estimated import container traffic at the nation’s leading gateways totaled 18.2 million TEUs, up 5.4 percent from 2014.

   Founder Ben Hackett cautioned that inventory levels remain high, in part because of warm weather that reduced demand for winter clothing.

   “We continue to remain concerned about the high inventory-to-sales ratio,” Hackett said, adding enough time has passed since the disruption on the West Coast in 2014-2015 “that we can no longer look to that for justification of the high level.”

   While imports were relatively robust in the United States compared with Europe in 2015, the stock market plunge in early January, should it continue, could cool consumer demand.

Port Congestion. Container shipping saw the announcement in late 2015 of two major mergers expected to be completed sometime this year: CMA CGM is acquiring APL and the two large Chinese carriers, COSCO and China Shipping, are combining.

   It’s unclear how those mergers will change the makeup of container-shipping alliances—CMA CGM and China Shipping belong to the Ocean Three alliance, while APL belongs to the G6 alliance and COSCO to the CKYHE alliance.

   Retailers usually like to spread their cargo out and have it carried by several carriers or alliances.

   “As the industry goes through this period of consolidation, it takes away sailing options,” Marotta said. “I hear a lot of the retailers are working closer with their sourcing groups and trying to plan better and strategically plan in terms of production.”

   Another challenge: the growing size of containerships.

   Marotta noted “when that vessel comes into port they can’t possibly take all that cargo off as fast as you can unload a smaller vessel. So there is extra time on the unloading process, on the cargo availability process that everybody’s dealing with.”

   “I think it will be important for big BCOs to have some control or some negotiations to where there containers are loaded and stowed on these big ships,” O’Brien said. “If you want to affect how your cargo is stowed on a ship, you are going to have to be talking to the owner of the ship.”

   “Until we can push containers out of the terminals quicker, everyone in this business is concerned about the bigger ships, how we are going to deal with the volumes,” said Steve Schulein, vice president of drayage and industry relations at the 3PL National Retail Systems.

   Creation of a gray chassis pool in Los Angeles and Long Beach has helped drayage companies, “but it is not without some issues,” he said.

   Chassis leasing companies are working on creating a port-wide chassis pool in New York/New Jersey, Schulein said. NRS has also purchased chassis to test them for its own use.

   Congestion at West Coast ports in 2014 and early 2015 resulted in retailers diverting some cargo to Canadian West Coast ports, such as Vancouver and Prince Rupert, as well as East Coast ports like New York and Savannah.

   “That has not totally gone away… but the numbers have fallen off as would be expected,” Schulein said.

   Drewry said in January that “For the U.S. western seaboard ports, 2015 ended on a much brighter note than where it started. Head-haul flows from Asia to WCNA (west coast of North America) in November were registering year-on-year gains of 6.6 percent—only one point behind what the ECNA (east coast of North America) terminals were achieving. The extent of this current rebound and of the leveling of demand growth between the two shorelines is underscored by the 12-month rolling growth average. For the Asia-WCNA trade, the annual growth rate by the end of November was barely touching 2 percent whereas the East Coast ports were steaming ahead at a rate of 17.3 percent.” Marotta said not all the business that was diverted from West Coast ports during the 2014-2015 congestion has returned to those ports.

   The Port of Savannah, for example, has seen its volume “grow far ahead of the market,” and “there are a lot of retailers, importers, and even manufacturers that have new DCs (distribution centers) down there. There is more development going on, and nearly every building for transload is full,” he said. Schulein said New York “benefited a lot from the additional tonnage, but having said that we experienced extensive lines at various terminals on any day of the week. It was a problem. Ships were off schedule which definitely impacted the terminals and the drayage carriers,” because the ships were dumping more volume at the ports.

   Schulein added the drayage industry continues to have problems in finding qualified drivers. NRS, which has drayage operations in Los Angeles/Long Beach, New York/New Jersey, and Savannah, has “an ambitious program, and I know a lot of our competition has as well, to attract drivers to the business.” That’s tough because of the delays at terminals and difficulty getting several trips per day, especially by independent owner-operators whose income is based on how many loads they can carry in a day.

   NRS has more than 1,200 drivers, both for drayage and domestic transportation, and he said it is easier to find drivers for its domestic business than for drayage..

   In California, drayage companies have also been sued by drivers who claim they are employees instead of independent owner-operators.

   “There is a very strong move on the West Coast for more asset-based operations in trucking,” O’Brien said. Toll now has employee drivers on the West Coast who are unionized, and “it’s working very well for us. We don’t have problems, efficiency levels, etc., are good.”

Free-Time Reductions. In December, the Port of Long Beach said it was considering reducing free time for containers at the port from four days to six shifts. It said the change could encourage terminals to more consistently operate at night.

   “When containers stack up in terminals, it leads to extra handling that makes the process slower for longshore workers, the shippers that depend on them, truckers who move the goods, and ultimately the consumer,” said Jon Slangerup, the port’s CEO. “This approach will keep the system more fluid and help avoid congestion.”

   Both the Los Angeles Customs Brokers and Freight Forwarders Association and NRF have weighed in with strong concerns about the proposal.

   The forwarders said no change should be made before an analysis is made of the decision for more terminals to switch to an appointment system for drayage truckers coming to container terminals before picking up or dropping off cargo.

   Gold told Slangerup in a letter that reducing free time would lead to additional congestion, operational issues, and potentially additional demurrage costs to retailers.

   He suggested a combination of efforts identified through the supply chain optimization groups that the ports of Long Beach and Los Angeles have set up were a better way to speed container traffic.

Appointment Systems. Look for the U.S. Federal Maritime Commission to continue its examination of port congestion and offer possible solutions in the coming year. Mario Cordero, chairman of the agency, said in response to concerns raised by shippers, he is pressing PierPass, the system that collects fees on cargo moving through the port during the day to fund truck gates at night and on weekends to have a third-party audit. The agency has also asked PierPass for additional information to set up a similar system in Oakland to fund weekend operations.

   Cordero said he is in “lockstep” with a call by Slangerup for a “PierPass 2.0.”

   The extended gates and appointment system at the Port of Vancouver in British Columbia could be a potential model. Cordero noted queue times for truckers at Vancouver’s terminals are measured both inside and outside the terminal, terminals keep consistent hours, and the appointment system penalizes both truckers and terminals if appointments are not kept.

   Groups similar to the L.A./Long Beach supply chain optimization committees have been set up in several ports around the country, including New York/New Jersey where it is called the Council on Port Performance and the Northwest Seaport Alliance in Seattle and Tacoma where it

is known as the executive advisory council.

   Those local efforts are important, Gold said, because each port operates slightly different. “We are all for infrastructure and building and improving the last mile, but until you fix some operational issues” the flow of cargo through ports is unlikely to improve, he explained. As of 2015, five terminals in the ports of Los Angeles and Long Beach required truckers to have appointments and an additional five were planning to require appointments in 2016. Terminals in the Port of New York and New Jersey are also planning to require appointments.

   “We are in the midst of implementing a reservation system in the port [of New York and New Jersey], of which GCT Bayonne will be the first to work with it,” said John Atkins, president of Global Terminals USA, in January.

   Port Newark Container Terminal also said it was active in discussions of “a port-wide appointment system with the Council on Port Performance.”

   Schulein said it is sometimes impossible to get desired appointments because all time slots are booked. He also said containership arrivals are sometimes delayed, which “puts a lot of pressure on the terminals and will ultimately impact the scheduling” of appointments.

   And if a truck is delayed and misses an appointment, it may have to start the process all over again.

   Schulein said the use of larger ships is going to require terminals to remain open for longer hours. While the unloading and loading of container vessels occurs around the clock, unlike Los Angeles and Long Beach, where terminals offer night gates for truckers, night and weekend hours are not regularly offered at New York and New Jersey terminals.

   If extended hours are offered, truckers also need to be able to deliver cargo to warehouses at night or on weekends.

   “California has adapted to night gates, we haven’t gotten to that point” in the New York region, Schulein said.

   “The big retailers are clearly going to have to be a lot more flexible—be able to adapt to a more omni-channel supply chain,” O’Brien said.

   A retailer might have transload facilities, both national and regional DCs and products could be in any one of those places at any time, he said. A retailer may “want to get its hands on a particular product no matter where it is along the chain and be able to pull it out and deliver it. The visibility tools that you need to be able to do that are extremely important.”