Major shipper and railroad told a Senate panel about the harmful impact of work slowdowns at West Coast ports.
It will take weeks, even months, for supply chains to get back to normal once the longshoremen’s labor dispute crippling West Coast port operations ends, representatives for a major agriculture shipper and freight railroad testified Tuesday on Capitol Hill.
Importers and exporters are complaining loudly that they are being caught in the middle of the contract dispute between the Pacific Maritime Association and International Longshore and Warehouse Union, paying a heavy price in delayed shipments and extra transportation costs and fees, as both sides try to gain leverage by reducing work levels at the ports. Container ports along the West Coast are struggling with the overflow of containers and vessels waiting at anchor.
Negotiations between PMA and the ILWU were expected to resume today. They had last met on Friday, Feb. 6.
“Our best estimate is on chilled shipments it will take at least a month to get back into a normal flow,” while it could take three to four months to unwind the backlog of frozen meat shipments, Norman Bessac, vice president of international sales for pork at agricultural services conglomerate Cargill, told the Senate Commerce, Science and Transportation subcommittee on surface transportation and merchant marine infrastructure, safety and security.
The recovery time will continue to increase every day the artificially generated congestion remains, he added.
It will take several weeks for BNSF Railway, which handles more international cargo than any other U.S. railroad, to retrieve locomotives stored across its western network and reposition them at the ports, said Katie Farmer, vice president of consumer products for BNSF.
Farmer said the upcoming Chinese New Year, which will result in fewer vessel arrivals as factories shut down production for up to two weeks or more, offers an opportunity for the freight transportation system “to work off the backlog at the ports” if the labor crisis is averted.
The situation could get worse before it gets better.
The hearing featured handwringing by lawmakers and businesses over the labor dispute, but participants agreed that once the situation is solved industry and government need to address the pre-existing conditions for congestion at major container ports and long-term infrastructure challenges for intermodal freight.
Productivity at the ports of Los Angeles, Long Beach, Oakland, Seattle and Tacoma has fallen by 50 percent in recent months as negotiations between the ILWU and waterfront employers, represented by the PMA, have deteriorated into finger pointing for the lack of a deal. The union instituted a work slowdown in November that has severely constrained vessel, truck and rail operations, and caused container yards to overflow with unclaimed cargo. Terminal operators have responded by eliminating some night and weekend shifts to save having to pay labor costs for a fraction of the normal work. The situation has gotten so bad that terminal operators are threatening to lockout longshoremen and shut down the ports altogether.
Senators from inland states said their constituents were being harmed by the port problems. Almost 13 percent of U.S. Gross Domestic Product is tied to goods moving through West Coast ports.
Conductix Wampfler, a French-owned company with two plants in Omaha that makes electric conductors for industrial applications with components from Asia, has seen its import times double and costs triple because of the slowdown, according to subcommittee Chairman Deb Fischer, a Republican from Nebraska.
Freshman Sen. Steve Daines, R-Montana, said an outdoor products manufacturer in his state could soon be forced to scale back hiring plans and potentially lay off some personnel if there is no resolution to allow cargo to flow faster.
Commerce Committee Chairman John Thune, R-S.D., said giant meat producer Tyson Foods, which has offices and plants in South Dakota, is storing beef and pork in refrigerated warehouses near the ports waiting to get on vessels to Asia. He also said that Outdoor Gear Inc., a family-owned wholesaler that receives 95 percent of its inventory through West Coast ports, has been forced to miss deadlines, pay late delivery penalties and pass up important sales opportunities.
Meat suppliers are losing sales because of the delays at ports and the uncertainty that products will be delivered before their freshness expires, Bessac testified.
Fresh beef and pork have shelf lives of 60 and 45 days, respectively. Under normal circumstances a container of pork can be shipped to Asian buyers, including trucking and customs clearance, in 20 days. Shipments are now taking two to three weeks just to get off the docks because of the port congestion.
“With this delay, our Asian customers cannot count on a dependable supply of U.S. beef and pork, so they have started to cancel orders and are looking to suppliers in Chile, Australia and the European Union to meet their needs,” Bessac said.
Japanese customers notified Cargill Monday that they would start canceling next week’s orders for chilled pork shipments because of concerns the meat will have no shelf life by the time it arrives. The shipment of about 15 containers is worth an estimated $1 million.
The North American Meat Institute conservatively estimates that the West Coast port situation is costing meat and poultry companies $40 million per week, in addition to initial losses in excess of $50 million. The U.S. Hides, Skins and Leather Association reports losses in sales of $45 million per week. And the U.S. Forage Export Council says hay and forage growers are losing $266,000 each day.
In January alone, cherry growers in Oregon lost more than $250,000 of export sales directly related to port disruption, according to a news release from the Agriculture Transportation Coalition.
The situation leaves shippers with three choices, Bessac said: continue to ship despite the uncertainty, which can result in shorter shelf life, increased risk of spoilage and even complete product loss; airfreight products at three to five times the normal cost; or scale-back production and stop exporting.
Shippers say they face rising transportation costs for switching to airfreight, cold storage waiting for vessels, container plug-in charges, truck wait times, dry truck runs, chassis usage charges, congestion surcharges imposed by ocean lines and rent for containers that are not picked up or returned within an allotted window of days.
Bessac said Cargill, which ships more than 1,000 containers a month through West Coast ports, has experienced a “substantial decline in our volumes” during the last couple months, and to a lesser degree all last year, because of congestion and the growing strength of the U.S. dollar, which makes American products more expensive overseas.
The company has also experienced delays of other exports such as cotton, canola meal, soybean meal, whole grains, syrups, sweeteners, distillers dried grain and food ingredients.
According to the Agriculture Transportation Coalition, farmers and food producers exported $1.75 billion worth of commodities in November, 50 percent less than the same month in 2013.
Exporters say the situation is doubly worrisome because it may be difficult to win back customers once they have changed to suppliers in other nations that can provide more efficient and reliable transportation.
“Any time you disappoint a customer, it takes a long time to build trust back,” Bessac said.
The loss of productivity at West Coast ports due to the ILWU-PMA negotiations has forced BNSF to cut its eastbound train moves in half to 30 per week because there is not enough freight to move in unit trains, BNSF Railways’ Farmer said.
“When we do that it sits on the mainline and causes ripple effects across our network, which impacts other customers in addition to our intermodal customers,” she said.
Each missed train carries a minimum of 250 containers that are not going to retailers and manufacturers. The railroad then has to turn away freight at inland hubs because it doesn’t have enough trains and containers for outbound transportation back to the ports.
Farmer and Walter Kemmsies, the chief economist for maritime infrastructure engineering firm Moffat & Nichol, said that once there is labor peace, all sectors must work on structural issues – chassis supply, inland container imbalances, inefficient terminal practices, and declining port trucking capacity, among many – that have contributed to congestion in the face of new ultra-large vessel deployments.
“Today’s excruciating slowdown on the West Coast may be the result of contract negotiations, but the impact its having on retailers provides a window into the future as increasing volumes and complexity will create similar backups, delays, higher costs and lost productivity,” the Retail Industry Leaders Association said in written testimony. “These issues will undoubtedly negatively impact employment throughout the supply chain, and put us in a weaker position with many of our trading partners around the globe. Well performing infrastructure and an efficient supply chain is vital to economic growth in the decades ahead. Now is the time to address the challenges that could disrupt that growth, and prepare ourselves for a future that gives American workers the opportunity to reap the benefits of an expanding global economy.”
There is little Congress can do about a labor dispute between private parties, but several speakers said Congress needs to do a better job of infrastructure investment to move goods and people more efficiently.
Sen. Richard Blumenthal, D-Conn., said his state needs to upgrade rail lines to accommodate 287,000-pound rail cars that are the standard in North America, or it will become a “freight island” that can’t connect with the rest of the rail network.
“That’s just one example of how clogged arteries can stymie economic progress and job creation,” he said.
Congress is gearing up to debate a multi-year surface transportation reauthorization bill that will create the budget for maintenance and expansion of highways, bridges and transit. A key sticking point is declining gas tax revenue to support the Highway Trust Fund to pay for infrastructure upgrades. Disagreement over tax policy and government spending is expected to make any deal difficult.
The Department of Transportation projects that freight volume will increase 45 percent by 2045.
“As demand grows, both within and outside the United States, the pressure on our goods movement network significantly increases, this growth and the economic value it brings to our economy will be stunted if investment in our freight system is left to wither,” John Greuling, president of the Will County Center for Economic Development in Illinois, said.
Testifying on behalf of the Coalition for America’s Gateways and Trade Corridors, he emphasized that investment must be strategic and multimodal, to include locks and dams on inland waterways; first-and-last-mile connectors between modes, distribution centers and transport hubs; tunnels and grade separation of rail and road crossings.
Another CAGTC policy priority is for Congress to establish a freight fund with a dedicated revenue stream of at least $2 billion per year. The money would be awarded through grants based on measures of economic benefit and performance. The group of 60-plus private and public organizations is also calling for development of a multimodal national freight transportation policy to guide infrastructure planning across states and regions.
West Coast port backlog could take weeks to unwind
