Retailers See Trouble on Ports’ Horizon

It was a SigAlert at sea that lasted for months. Two years ago, an offshore traffic jam of historic proportions paralyzed the ports of Los Angeles and Long Beach.

Shipping lanes were clogged. Giant cargo vessels sat idle outside the ports, and their goods -- electronics, clothing, toys and furniture -- waited as long as a week to be unloaded. And frustrated importers scrambled to get their goods to market on time.

The congestion’s cost to the U.S. economy was estimated by former U.S. Transportation Secretary Norman Y. Mineta to be as much as $70 billion.

Today, the nation’s two largest cargo ports are handling another record pace with aplomb. But memories of the congestion remain.

“Everyone paid a price in 2004,” trade economist Paul Bingham said. “CEOs told their supply chain people not to let this happen again. Shareholders said this cannot continue if these assets are going to make us money.

“There was too much money lost by too many players,” he said.

As a result, some of the nation’s biggest shippers have been working to prevent similar problems in the years ahead.

For now, the buzz is back. Cargo shipments at Los Angeles and Long Beach are outpacing all competitors on both coasts.

Business lost in 2004 has come back to Southern California. Dockworker shortages are a thing of the past, and the ports remain the only major harbor in America where the terminal gates are open for business at night and on weekends.

“Things are looking good this year. The railroads are prepared. Labor is prepared, and that’s reflected in the volumes we are seeing,” said Geraldine Knatz, executive director of the Port of Los Angeles, adding that “there is a new level of confidence out there about San Pedro Bay in general.”

The two ports are smoothly unloading and sending ships back on their way within 35 to 50 hours of arriving at their berths, said Richard B. McKenna, deputy executive director of the Marine Exchange of Southern California, which tracks port traffic.

But nobody at the massive harbor is ignoring 2004. Nor have the nation’s retailers forgotten an even more costly labor contract fight between shipping lines and dockworkers in 2002 that idled all West Coast ports for 11 days.

Unfortunately, experts say, other problems are on the horizon.

“We see this as the lull before the storm,” said Erik Autor, vice president and international trade counsel of the National Retail Federation.

With trade increasing faster than the capacity of ports, rail lines, and highways to handle it, he said, “we know at some point we will be back into a very tight scenario.”

The retail federation is a consortium of some of the nation’s biggest retailers that depend on the nation’s ports to ship and receive goods. It commissioned a continuing study of the nation’s major ports by economist Bingham’s firm, Global Insight Inc., a Boston-based economic forecaster.

The retailers receive a detailed report every month from Global Insight -- called Port Tracker -- on the harbors they rely on most, including those in Los Angeles, Long Beach, Oakland, Seattle and Savannah, Ga.

As part of that, Global Insight also created the Congestometer. It rates each of the ports and their supporting labor pools, rail lines and truck corridor infrastructures using a Department of Homeland Security-like risk assessment system.

The meter rises when complications surface.

Pacific Northwest ports, for example, rose from “low” to “medium” last summer, when a seven-week port trucker strike in Vancouver, Canada, diverted cargo to Tacoma, Wash., and Seattle.

With more detailed port information available more quickly, businesses can better monitor their product shipments, said Greg Johnson, executive vice president for marketing at Alameda, Calif.-based GT Nexus Inc.

Johnson’s company provides a Web-based platform to help customers such as Evian North America, Williams-Sonoma Inc. and Celanese Corp. track deliveries along their high-volume supply chains.

That means they are more quickly able to shift shipments, if necessary, to different shipping lines and to different ports.

“It’s a different world,” Johnson said. “Everyone is trying to get better and more nimble and react more quickly. If you can’t be nimble, you will be left behind.”

Currently, all nine ports reported on in Port Tracker are rated as low risk for congestion. But Autor of the retail federation and others point to the U.S. economy’s continuing reliance on imports, double-digit increases in trade and the massive buildup overseas in facilities designed to move larger amounts of cargo to the U.S. and Europe as indicators of problems to come.

“You look at what China and India are doing, the amount of infrastructure being built there, new roads and new rails and new ports,” Autor said. “The last time we did that here was in the 1950s. These problems will cost the U.S. economy as a whole and hinder the competitiveness of U.S. businesses.”

John Bowe, president of the Americas for shipping line APL Ltd., a subsidiary of Singapore-based Neptune Orient Lines Ltd., warned that “you will begin to see backups, increased costs to businesses as they try shipping freight by air, none of which is good in the long term for the U.S. consumer.”

“You will see a slowing down of the system as it reaches capacity, and the unavailability of goods when customers want them and expect them,” he said.

Rising fuel costs might also force more truck drivers out of the business, exacerbating an already nationwide shortage, a Port Tracker report said. Pending labor contract negotiations between shipping lines and union dockworkers in 2008 could also result in problems.

“Longer term, there are some real worries,” Global Insight’s Bingham said.

“The view is that this gets tougher and tougher to keep up with.” Bingham said. “To say we are fine because we have gotten through two years would be insane.”