Final straw for Southern California?
The recent stalemate between unionized clerical workers and employers at the ports of Los Angeles and Long Beach has brought back some unpleasant memories in Southern California from the past decade.
No thoughts of palm trees gently swaying, just nightmares of locked-out longshoremen, dozens of anchored vessels and extreme congestion.
The threat of work stoppages hovers over the nation's most important container gateway like a guillotine, always accompanied by the harrowing financial impact such actions might cause on a daily basis.
But if work were to stop this time, the problems might be even more severe. In 2002 and 2004, when labor disagreements or structural supply chain challenges got in the way of the ports functioning as they should, trade was booming and Southern California had no realistic challengers to handle more than a fraction of their throughput.
Only at the tail end of the frustrating peak season in 2004 did thoughts of cargo vacating Los Angeles and Long Beach seem real. But this year, the ports aren't coming off huge growth.
In fact, they're just starting to return to volume levels seen five years ago. In December, they ended an 18-month run of declining cargo volumes. As the U.S. economy struggles to regain a lasting foothold, this much is clear: the San Pedro Bay ports are in a much more fragile position than they have been.
But also, the U.S. goods movement industry is in a far more fragile position. There's a real question as to how shippers and carriers would be able to handle a labor impasse at Los Angeles and Long Beach. As it was phrased to me by one shipper, 'you can't just redirect everything from L.A. and Long Beach.'
The impacts would ripple not just to Southern California's harbor, but all the way to factories in Asia ' a region, it should be mentioned, that is also recovering from a 2009 that saw purchase orders stopped and factories shut down.
With vessel space from Asia to the U.S. West Coast opening up in recent weeks ' to the benefit of cargo owners ' a work stoppage could be catastrophic for shippers who last year navigated dampened demand, then earlier this year fought tight vessel capacity and now face ocean container shortages.
If it's not one thing, it's another.
But getting back to the Southern California ports specifically, any sort of prolonged disruption at the two ports could finally convince shippers with discretionary cargo that they need to avoid the major West Coast gateway. Which would be a shame, since the two ports have plenty of capacity ' and are building more ' to handle additional volume.
As the shipper told me, though, supply chain consistency is absolutely critical, and a shipper will do whatever they can to eliminate unplanned disruptions.
Important few months
The next couple months should provide a clue as to whether strong demand will hold through the end of 2010 and into the first half of 2011.
Drewry is forecasting headhaul transpacific demand to grow 5.3 percent in the second half of the year ' in other words, solid but unspectacular.
'In the containership business segment, there are a number of causes for concern, including the impact on the real economy of euro depreciation in Europe and sluggish growth in personal consumption and depressed home sales due to the employment stagnation in the U.S.,' said 'K' Line in a statement announcing its first quarter results in late July. 'Nevertheless, as the peak season approaches, robust cargo movements are expected to continue for some time on all routes, and especially on east/west routes.'
Banking on huge growth during the peak season could be a dangerous game. Container volumes started strengthening in the last quarter of 2009, and also remember that volume in early 2010 was abnormally strong. So even a decent showing in early 2011 could lead to volume reductions on key lanes.
Most analysts are forecasting growth for 2011, but at far lower levels than that seen this year.
'K' Line's statement is a good measure of the carrier industry at large ' conscious and wary of the underlying economic problems, but ready for and hopeful that demand will stay strong.
Nhava Sheva congestion real or imagined?
Reports in mid-July suggested that congestion at India's biggest port complex ' alternately called Nhava Sheva or Jawaharlal Nehru port ' was becoming problematic.
Carriers, including Maersk Line, OOCL and APL, started instituting congestion fees for shipments moving through the port. In Maersk's case, it said the port was 'facing severe congestion, which unfortunately causes inconveniences and delays both to you and to Maersk Line.'
In late June, APL used the same phrase ' serious congestion ' in announcing its own surcharge.
But officials at the port called the congestion charges 'misleading and confusing' to the trade, and that the port strongly opposed the 'unjustified' surcharge, according to a report in mid-July by Containerisation International.
I suppose this is a question of what constitutes congestion. What a carrier deems a delay may seem like nothing at all to a port. But if numbers are any indication, the three terminals at Nhava Sheva are operating over capacity, if not necessarily busting at the seams.
A proposal to construct a fourth terminal has been waylaid by typical bureaucracy in the Indian government (as has a dredging project that would allow more heavily laden vessels to arrive at the port, though this may be a blessing in disguise in the short term).
Having visited two of the three terminals ' ones operated by DP World and APM Terminals (the other is government-managed) ' it's safe to say they operate efficiently and to an international standard. But efficiency or not, when a terminal reaches its capacity, congestion is likely to occur.
That landside infrastructure problems plague ports in India hurts the ability of those terminals to unlock latent capacity. These issues are often out of the reach of port officials, and so it's understandable that they would decry surcharges that paint a picture of inefficiency at Nhava Sheva.
But if the carrier deems a surcharge necessary, and if the shipper accepts it, it's likely that congestion is a problem. There's no escaping that reality.