Port congestion’s root cause

Industry experts take aim at big ships and low rates as culprits in heated debate.    Participants at a port conference in December called out the container shipping industry for not taking responsibility for severe congestion at major ports, and other speakers urged carriers to get more involved with port authority task forces to help find solutions.
   Two reasons behind the massive backlogs, according to maritime experts, are massive new ships introduced by ocean carriers and their divestment of chassis. Both moves were taken to cut costs. 
   Larger vessels currently arriving in some ports have two- to three-times the carrying capacity of previous generation vessels, resulting in a 25 percent cost reduction for transport when fully loaded. Chassis now are mostly owned by third-party leasing companies or truckers, but the transition to a new market has caused significant chaos and shortages in the short term.
   Critics say liner carriers made decisions in their best interest while only engaging in minimal consultation with other parts of the port ecosystem that might be affected.
   Carriers dumped chassis, built bigger ships “and they whipsawed ports into agreements that are barely compensatory, with little left for funding of infrastructure improvements. And then they complained about congestion and inefficiency,” Stanley Payne, the former director of Port Canaveral and deputy executive director at the Port of Virginia, said at a Journal of Commerce event in Newark, N.J. “They complained like they are victims or innocent bystanders.”
   Payne, the founding partner of management consulting firm Summit Strategic Partners in Melbourne, Fla., rhetorically asked carriers: Imagine what your bottom line would look like if you had to pay rates that truly reflected the full cost of port operations and maintenance and expanded facilities necessary for those bigger ships that you bought, including deeper channels?
   “Imagine what your bottom line would look like if federal, state and local governments hadn’t all chipped in to subsidize the true cost of port operations and expansion?“ he added.
   James Devine, who retired last summer as chief executive officer of New York Container Terminal and now works as a consultant for Mercator International, said the pending deployment of mega-ships kick-started a dredging spree in the United States that will cost billions of dollars and allow carriers to improve their profitability.
   “And while there is collateral benefit in getting a cheap flat screen TV, it’s not as tangible to a lot of the public and I think the carriers need to look in the mirror as to what they’ve done and how they need to help solve some of the issues,” he said from the audience during another session.
   Allen Clifford, an executive vice president for Mediterranean Shipping Co. who gave a motivational speech about the need for industry collaboration to work through the disruptive conditions, said the problem isn’t the big ships, but demands by big shippers for cut-rate pricing.
   Large retailers are “not willing to pay a viable, remunerable rate in the ocean transportation setting” because they feel their customers won’t pay for more expensive merchandise, he said. “I understand that the carriers perhaps brought some of this onto themselves. But with that said, there’s a cause and effect to this. And if we’re paid a remunerable price for our services and not $250 to move a container to Hong Kong on the transpacific westbound, perhaps we wouldn’t find ourselves in this situation today.
   “The tip at my dinner at Smith & Wolensky last night was higher,” he quipped.
   Shippers also object to fuel and other surcharges carriers seek to cover their costs. “I don’t go to the gas station and argue about change in price each day. What am I going to say to the attendant? ‘How did you get to that price? What’s your Platts formula for bunker surcharge? When do you get deliveries?’
   “The guy’s going to look at me with a blank stare, point down the road and say, ‘Go to BP,’” Clifford said.
   Devine pushed back, saying carriers built the capacity that allowed them to get beaten down on rates, to which Clifford good-naturedly responded: “But we also built the capacity so Walmart could become a world-class company. And Target and IKEA. If it wasn’t for the steamship lines these companies would still be in the corner of Bentonville.”
   Walmart is headquartered in Bentonville, Ark.
   Speaking earlier at a freight conference in Florida, Elton Poisler, DuPont’s international logistics manager, said shippers are willing to pay more for service if carriers demonstrate they can consistently provide it.
   He, too, acknowledged that whether to invest in improved capabilities or capture needed revenues first is a chicken-and-egg situation for carriers. Good communication and engagement with shippers can help make the decision easier, he added.
   Productivity of marine terminals is critical for ocean carriers, Clifford insisted.
   “I can have the prettiest ship, I can run 19K-TEU vessels between Asia and Europe; I can have the greatest looking offices and headquarters, I can have floorboards in those containers made out of bamboo, but if those containers don’t load on that ship or discharge and get on the rail to final destination, I’m the one who loses,” he said.
   Asked why airports seemed better prepared for the new, jumbo Airbus A380 aircraft than ports were for the ultra-large vessels, Clifford suggested that liners need to maintain a certain level of secrecy about their business plans because they design vessels themselves and outsource construction compared with airlines that order off-the-shelf conveyances. 
   “Before you build a 19,000-TEU vessel, you can’t consult with everyone. You have to operate a lot on hope that when bringing in these big ships—and you have discussions prior a little bit, not much—that there will be some capital improvements.
  “And in our industry, infrastructure has to do with states, with port authorities and terminals. There are different ways to operate and one of them isn’t to always give forewarning, because that takes away a little the element of surprise,” he said.

This article was published in the February 2015 issue of American Shipper.