Regrets, recriminations, diversions: the legacy of bad times at West Coast ports
From business losses to ruptured relationships, the damage from the recently resolved labor dispute continues to mount. But was it enough to spark permanent change?
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The nine-month labor-management dispute on the West Coast waterfront spread misery across a broad front. But perhaps no one had it worse than the Port of Oakland.
Like other ports, Oakland, the nation's fifth-busiest containerport, faced mounting backlogs and diminished productivity as tensions escalated between the International Longshore & Warehouse Union (ILWU) and waterfront management represented by the Pacific Maritime Association (PMA). At the height of the standoff in mid-February, Oakland's largest terminal was operating at half of its normal capacity, and its second largest was functioning at 65 percent, according to J. Christopher Lytle, the port's executive director.
Vessels that would normally discharge Asian imports at either the port of Los Angeles or Long Beach and then call up the coast at Oakland were unwilling to deal with more congestion at Oakland. Instead, many turned around after unloading in Southern California and returned to Asia. As a result, consignees with product to be distributed throughout Northern California were forced to find costlier land transportation to get goods to market.
But what set Oakland apart from its brethren were the problems it encountered moving U.S. exports. Exports account for 55 percent of Oakland's traffic mix, understandable given the port's proximity to the agricultural abundance of California's verdant Central Valley. With vessel operations hamstrung and with no other place to go, exporters watched helplessly as their perishables sat, and in some cases rotted, in warehouses. And they took out their frustrations on port officials. "Customers are very upset," Lytle said in a phone interview several days before a tentative five-year collective bargaining agreement was reached Feb. 20.
That may be why a $100 million project to build a global logistics hub at the port has taken on added significance. Over the next two to three years, the port and the city plan to turn a decommissioned army base on the facility's outer harbor into a 360-acre logistics center that includes a warehousing network, trans-loading facilities, and a dry-bulk terminal. Westbound goods, whether they are bulk agricultural commodities or dry bulk shipments, would be moved by rail to the center. There, they would be loaded aboard containerships or dry bulk vessels for trips to Asia.
The first step was announced in late January, when the port and Union Pacific Railroad Co. (UP), the giant Western railroad, began a $25 million initiative to link the new site with UP's main line into Oakland. The work, set for completion in October, calls for the construction of 7,400 feet of lead track and the reconfiguration of adjacent track. When finished, the project will better position the port to receive bulk shipments from both UP and BNSF Railway, its rival in the West. The port and the state's "Trade Corridors Improvement Fund" will finance the work.
Lytle didn't mince words when describing the logistics center's impact on his facility. "This is the future of Oakland," he said.
STAYING RELEVANT
From Seattle to San Diego, the 29 ports covered by the new five-year labor agreement are clearing backlogs and trying to stanch the bleeding as importers that shifted deliveries to the East Coast (via the Suez and Panama canals), to Canada, and to Mexico debate whether to bring them back west. On that score, opinion is mixed. Ben Hackett, who heads a consultancy bearing his name, believes most diverted cargo will return because West Coast ports, especially Los Angeles and Long Beach, remain the most cost-effective way to get imports to U.S. end markets. Kumar Venkataraman, a partner in the retail practice of consultancy A.T. Kearney, sees a two-tier market evolving with big Beneficial Cargo Owners (BCOs) having the scale and sophisticated technology to implement a diversified U.S. distribution strategy utilizing multiple ports, while smaller BCOs lacking those capabilities either return to the West Coast or, having never left, simply stay put.
An industry insider, speaking on condition of anonymity, said West Coast ports will suffer as importers who had long thought about moving away from the West are now pushed to act. "Until now, the logistics guys couldn't convince their leadership to move because there was no event to prompt it. All they were looking for was a reason. Now they have one," the executive said.
Larry Gross, a senior consultant at consultancy FTR Associates, wrote in late February that for big BCOs with multiport strategies already in place, a further shift from the West "is more a matter of turning the dials than building something from scratch." Noting that neither labor nor management seemed to publicly show remorse for the damage inflicted on shippers, intermediaries, consignees, and vessel operators, Gross said the warring parties will "end up paying dearly for having ignored the needs of the shipper who truly pays their bills."
SECULAR PROBLEMS
Though the agreement averts the immediate crisis, it does nothing to address the afflictions that plagued the U.S. goods-moving system long before the standoff began. Port congestion at dock and landside remains a critical concern. Ever-larger ships are expected to hit the water in the next two to three years; about 60 percent of the global ship order book is composed of vessels of 10,000 twenty-foot equivalent (TEU) container units, according to research firm Alphaliner.
Because operators of the large vessels must minimize berth times in order to justify the huge investment in them, the ships are likely to call at fewer ports, analysts said. This means more tonnage to be handled by a smaller cluster of ports already straining under the current load.
An imbalance of truck chassis, and the amount of time truckers spend picking up and returning the equipment, added significantly to the backlog, especially at Los Angeles and Long Beach. On March 1, a long-awaited chassis provisioning model began at the ports that is designed to enable the free exchange of more than 80,000 units across 12 marine terminals and a network of rail yards, container yards, and other locations in the sprawling complex.
In an ideal world, technology will be optimized at port facilities to ramp up productivity and to expedite the import loading and unloading process. But the world is not ideal. The 2002 and 2008 contracts introduced automated processes to improve productivity. However, a management source said in late February that the 2015 contract, whose details were unavailable at press time, did not include further automation advancements as part of agreed-to work rule changes. That will surely disappoint those who believe technology at West Coast ports badly lags behind that used in Asia and Europe.
"West Coast U.S. ports have become over the past decade the least productive, most prone to labor disruption, most expensive, least automated ports in the developed world," Peter Friedmann, executive director of the Agriculture Transportation Coalition, a group representing agricultural and forest products exporters, said in early January.
For all their hand wringing, importers could have fared far worse. The impasse occurred after the pre-holiday shipping season. Sensing trouble, many importers had moved their goods into U.S. commerce over the summer to ensure their availability during the holidays. In addition, most import commodities are dry goods that aren't prone to physical obsolescence. And it's not as if U.S. importers are going to shift their buying away from Asia.
As it stands, importers will likely face the inconvenience of delivery delays of six to 12 weeks while the current backlogs are cleared. This will result in lost business and higher delivery costs, but minor lasting damage.
NO RESOLUTION IN SIGHT
For U.S. exporters, though, the situation couldn't be more different. Agriculture accounts for a large share of U.S. exports to Asia. Much of that volume is made up of perishable foodstuffs. Foreign buyers have supply sources outside the U.S. and would not hesitate to use them if U.S. delivery schedules are compromised. There are no other viable ports outside the U.S. that have capacity adequate to accommodate a massive diversion of exports. Vancouver's Port of Prince Rupert—geographically the closest North American gateway to Asia—today handles about 400,000 twenty-foot equivalent units a year, according to Hackett Associates. By contrast, the Los Angeles/Long Beach port complex handles about 8 million total TEUs a year. "U.S. exporters are pretty much stuck with the ports they have," Hackett said.
Adding to the problem is the chronic lack of access to empty containers to ship Midwest agricultural exports from sparsely populated origin points to the ports via rail or truck. Containers entering U.S. commerce are typically bound for densely populated regions, and vessel operators that have a billion dollars or so invested in the equipment want them to remain there. This makes life tough for growers whose products are in parts of the country where land is abundant but consumers may not be.
For example, Minneapolis, the closest large metro area to many upper Midwest grain suppliers, has the most acute shortage of 20- and 40-foot containers out of 19 markets analyzed by infrastructure design consultancy Moffatt & Nichol from data provided by the U.S. Agriculture Department.
Walter Kemmsies, who as an economist with Moffatt & Nichol has raised concerns for several years about equipment imbalances, is not encouraged about the current trend's direction. When asked at the SMC3 annual conference in January if anything had changed, he said, "export containers are even tougher to find, and it's more expensive to procure and ship them if you can."
Kemmsies said the contract battle should serve as a wake-up call to "reset" a flawed infrastructure that has undermined export flows and, by extension, American competitiveness in world markets. The key, he said, is to fully embrace the idea of a seamless multimodal network and to bring it to fruition.
"Intermodalism is the essence of freight movement. ... It's time to resurrect the [U.S. Department of Transportation's] Office of Intermodalism and tie infrastructure investment to economic objectives again," Kemmsies said.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”