CP Ships: Traffic boom, lines? practices exacerbate port congestion

CP Ships: Traffic boom, linesÆ practices exacerbate port congestion    CP Ships has warned investors and industry analysts that container shipping will have to live with port congestion for years to come, and that fast-growing container volumes, underinvestment in infrastructures, and pressures on carriers to operate services without scheduled buffer times have all increased the risk of port delays.
   “I think it’s probably going to be here in the next five years,” Ray Miles, chairman of CP Ships, told an investors meeting in New York May 12, referring to port congestion.
   Jeremy Lee, vice president of investor relations and public affairs at CP Ships, told the investors meeting that more widespread port and intermodal congestion in container shipping is the result of:
   * Four years of sustained growth in container traffic.
   * Ocean carriers reducing the “buffer” in their shipping schedules to lower costs and raise asset utilization.
   * Underinvestment by ports in sufficient additional capacity to keep pace with demand, particularly in North America and Europe, as well as poor port productivity and “inflexible work practices.”
   * Underinvestment in rail infrastructure.
   * The departure of port truck drivers caused by adverse pressures on their rates and costs.
   Port congestion has spread across the United States, Europe, Latin America and India, Lee noted.
   “Ocean carriers have since 2001 tightened the buffers in the ship schedules,” he told the New York meeting. But strong volumes have increased over the same period, making the schedules more vulnerable to delays.
   “If anything goes wrong with the ship schedules, whether it’s bad weather… a labor strike — there’s been several one-day strikes in Europe in the first quarter — it’s very difficult to catch up the schedules,” he explained. “Therefore you get a bunching of ships coming into port.”
   Some carriers and shippers are diverting transpacific shipments to the East or Gulf coasts to avoid getting caught in port congestion in Los Angeles, but CP Ships said such measures cannot solve the problem on their own. Nor can 6,000-TEU or larger ships now common in the transpacific trade be diverted to the Panama Canal all-water route.
   North American ports “are going to have to improve their productivity,” Lee warned.
   He also cited the decision by Wal-Mart to set up a distribution center in the southern United States and route imports via the U.S. Gulf.
   But there is also a need for more investment in port and rail capacity. “The cost is phenomenal — it’s billions of dollars in terms of building that infrastructure,” Miles said. Both the public authorities and the private sector face this question, he added.
   Miles believes that port congestion “might knock 2 or 3 percent off the global increase in supply” of container shipping capacity. “In a way — it’s an unusual thing to argue — congestion could be good for the (carrier) industry, but that’s not how our customers think about that,” Miles said.
   Port congestion is leading to “higher costs and slower transit times,” Lee said. He sees a potential radical knock-on effect from less reliable supply chains for shippers.
   “There is just a possibility that, if the supply chain really gets interrupted and slowed down, companies that outsourced their production from the U.S., Europe, Mexico to China may rethink their sourcing strategies,” Lee suggested.