The new International Maritime Organization container weight rule was just one of many concerns raised during the Port of Long Beach’s annual Pulse of the Ports Peak Season Forecast on Wednesday.
The timing of implementation for the new requirement in the Safety of Life at Sea (SOLAS) treaty for shippers to provide the weight of containers before they are loaded on ships is a growing concern for shippers, according to a logistics executive at Johnson and Johnson.
The International Maritime Organization rule is due to go into effect July 1, just as the shipping industry moves into what is traditionally its busiest time of year.
“SOLAS is going to start being enforced right at the beginning of peak season. How is that going to affect productivity? What’s going to happen when SOLAS starts July 1st?” Lori Smith, a sourcing lead for ocean transportation at Johnson and Johnson, said at the Port of Long Beach’s Pulse of the Ports Peak Season Forecast on Wednesday. “July, that’s a peak season month. I think all of us have to worry — is that going slow productivity more, is that going hamper the supply chain?”
Smith, one of several speakers at the annual forum, said reliability is a key focus for Johnson and Johnson as a shipper, and that the container weight regulation was one of just many challenges facing beneficial cargo owners.
Others include deteriorating customer service from ocean carriers, including rolled bookings and back office processes such as invoicing; consolidation by ocean carriers which means fewer services to the destinations shippers need to reach; larger ships and their effect on port productivity; lack of schedule and transit time reliability; shortages of equipment; unreliable productivity at ports all around the world; volatile freight rates; and climbing accessorial costs such as demurrage, particularly with some ports, like Long Beach, for example, talking about a potential reduction in free time.
Complaints about truck driver misclassification before California’s Department of Labor and in the courts are another concern, according to Smith.
“How is that going to affect the operations out here (in Southern California) in particular,” she asked. “Are we going to lose valuable truck driver resources? Are we going to lose valuable truck driver resources? Are we going to lose very good truck driving companies? That scares me quite a bit.”
Smith urged her audience to “stay focused on the customer.”
“We’ve gotten better with all the people thinking the customer is the BCO (beneficial cargo owner), but I just want to say that we really need to focus on the customer being the consumer,” she said. “What is in the box and who is it going to, ultimately. Our focus is on the consumer as a shipper. Every BCO’s focus is on the consumer….All of us in this room are end customers–that should be the focus with everyone in the supply chain.”
For its part, Johnson and Johnson is diversifying its carrier base by using more shipping lines, using NVOCCs more, transloading, and calling more varied ports, including ports on the East Coast and Gulf of Mexico.
Having served on the Port Productivity Task Force in the Port of New York and New Jersey as well as the Supply Chain Optimization Group organized by the ports of Long Beach and Los Angeles, she said an important “best practice” that ports could develop would be key performance indicators showing “true” trucker turn times at marine terminals.
John Slangerup, the chief executive officer of the Port of Long Beach, highlighted the increased cooperation between his port and the Port of Los Angeles.
“We have learned not only how to compete effectively against each other, but we enjoy working together as well,” he said.
“I call it coopetition. We love to steal each other’s containers, but as long as the containers are coming to this gateway, that is what matters. That is how the jobs are created, that is how economic development occurs.”
“We are, in fact, the fastest, most direct and most cost effective route from Asia into the interior markets of the United States,” added Slangerup.
Revis Stephenson III, a senior manager for export container trade at Scoular Co. told the audience that the Port of Long Beach is better positioned than other ports in the county to handle exports of containerized agricultural commodities because of a plentiful supply of empty containers in Southern California.
Without those empties “you are stopped dead in your tracks,” he said.
Stephenson said transload services, competitive drayage costs, and service reliability are key, adding that Scoular is always looking to save $50-$100 per container to make exports of products like grain and soybean more competitive in the world market.
The company has a facility in Ontario, California that is served by rail and transloads products into containers. That facility can handle shuttle trains of grain and “in the past we have loaded quite a bit of containers of grain through there,” he said.
“Today, the economics just don’t pencil. We have a very low margin business model and it just does not work with our costs today,” said Stephenson. However, the company does use it to handle about 10-15 containers per week of a higher margin product.
Several speakers, including Mario Moreno, senior economist for IHS Maritime & Trade, and Seana L. Fairchild, senior director of international intermodal sales for Union Pacific Railroad, noted that peak seasons are no longer as regular as they once were.
Moreno noted that between 1990 and 2007, the peak month for container imports from Asia was October in 10 out of 18 years, and the years when that was not the case were marked by a recession, economic slowdown or other event such as the Asian financial crisis that began in 1997.
Between 2010 and 2015, the busiest month for Asian container imports has fallen only once in October, four times in August and once in July.
Fairchild also noted a flattening of intermodal imports over several months resulting in a less pronounced peak. She attributed some of the changes to containerships getting larger, causing alliances to grow in step and forcing them to call at multiple terminals, sometimes in the same port.
In the past, UP used to see unit trains with containers from a single terminal and an intermodal container transfer facility, but increasingly the railroad is making up trains with containers from multiple terminals and ICTFs.
“We are having to marry them all up and go on their way and that is creating some challenges,” she said. She also noted there is also not as much block stowage of containers going to common inland destinations such as Chicago and Dallas on ships, meaning that railroads have to do more “mixing and matching” of freight.
Fairchild said the Union Pacific is “always ready for surge demand,” and has 1,600 locomotives in storage and 3,900 employees on furlough, ready to return to work at the drop of a hat.
“Bring it, I’m ready with my locomotives,” she said.
Coincidently, the Grand Forks Herald in North Dakota also reported on remarks made about furloughs by Matthew Rose, the chairman of BNSF Railway. He said during an interview at the Montana Energy conference that his company has about 4,600 railroad employees furloughed and that declining oil prices and coal demand have thrust railroads into depths not seen since the Great Recession.
Fairchild said customers can help railroads by reducing the amount of time containers dwell at UP terminals because a third of rail transportation time is consumed by dwell time at terminals.
She said accurate forecasts of cargo volumes are also an important to the railroad, noting that a one percent margin of error can affect 60-70 locomotives, 150 employees, and 2,500 rail cars.
Vic La Rosa, the chief executive and president of Total Transportation Services Inc., said congestion at marine terminals is increasing for truckers and drayage trucking companies are facing threats from attempts to make all drivers employees.
Drayage trucking is a low margin and fragmented industry that has “never had pricing power….The real pricing power is in the hands of steamship lines and BCOs,” he said.
When the ports of Long Beach and Los Angeles created their “clean trucks” programs, the drayage industry became less fragmented because of the increased cost of new trucks, and the requirement that truck drivers have Transportation Worker Identity Credentials or “TWIC cards” also helped create a driver shortage.
But La Rosa said those trends are changing, resulting in more congestion.
“Trucks are getting cheap again,” he said, and the number of licensed motor carriers is increasing. Instead of fewer trucks and fewer drivers being available to serve the larger ships calling Long Beach and Los Angeles marine terminals, “We are putting more trucks in the port and we are getting in each other’s way.”
La Rosa also complained that PierPass, the program that charges a premium to truckers picking-up and dropping-off containers during the day in order to subsidize night operations, is also contributing to a “bottleneck.”
“Our model is predicated on turn times and turn times are not what we need to perform at optimum,” he said.
SOLAS implementation date could be a case of bad timing
