Nothing short of a system reset based on policies characterized by intermodalism will avoid what could eventually be years of freight gridlock.
Strategic View
with Walter Kemmsies
It is difficult to predict tipping points, the combinations of events and trends that result in a large break from the past. They usually become evident after the fact. It is possible that congestion in port gateway regions in many parts of the world is more of an indication that a milestone has been reached in global freight movement, and not simply the result of a few short-term issues that can be corrected by a few targeted investments. If so, then nothing short of a system reset based on policies characterized by intermodalism will avoid what could eventually be years of freight gridlock.
Some port gateways in the United States had to deal with significant congestion problems both inside and outside the port authority’s gates. A variety of issues were blamed, such as severe winter weather, stevedore contract negotiations, insufficient track length on or near dock rail yards, truck driver shortages, a less than smooth transition from ocean carriers providing chassis to beneficial cargo owners and independent chassis pool operators supplying them and more. The likelihood that all these events would independently come together at the same time rounds to 0 percent. It is far more likely that there is an overarching root cause.
The more likely explanation is that economic growth, paltry as it has been, caught segments of the industry by surprise, so that imbalances in capacity investment and process restructuring exposed a number of choke points. This hypothesis is supported by the fact that container volumes handled by U.S. ports in 2014 surpassed the 2007 peak level. Railcar traffic and truck tonnage have also reached new peaks.
The obvious place to look for capacity investment causing imbalances is in the ocean carrier industry since it takes a fraction of the time to build a larger ship than it does to respond with the landside improvements to support it, specifically at the container segment given that space on larger ships has been growing quickly, according to Alphaliner reports. At the end of 2012, about 12 percent of the global fleet consisted of vessels with 10,000 TEUs of capacity or greater, and by the end of 2014 the share was 19 percent. In late 2012, 46 percent of the vessel orders were for those greater than 10,000 TEUs, and by late 2014 the share was 56 percent. The growth in the share of vessels greater than 10,000 TEUs occurred despite an anemic global economic environment and the financial stress in the ocean carrier industry. One can only imagine what will happen as global economic growth regains momentum.
Ports have responded to this trend by pushing for their access channels and berths to be dredged to depths required by these larger deep-draft vessels. They have also acquired larger container-handling equipment, such as ship-to-shore cranes that can handle super post-panamax vessels, and are reallocating real estate to improve the flow of chassis and containers in order to minimize wait-times for trucks. Many ports, including those in southern California, have increased the on-road weight limits for trucks and the number of roads that can handle heavier trucks. There are major rail projects in the planning stage that should also help.
However, it is not clear whether traffic planning agencies, such as metropolitan planning organizations and transportation departments, have factored in the impact of freight surges resulting from larger vessels calling at ports with improved infrastructure. If a port handling say 4 million TEUs from 200 ship calls continues to handle as many containers but from half as many ship calls in the future, significant volatility of truck traffic around ports will result as increased volumes surge through roads surrounding the ports.
It is an issue of scale. The last time U.S. ports handled as many containers as in 2014, there was great concern surrounding intermodal capacity and road congestion. Planning and other congestion issues went dormant during the economic recovery from 2009 to 2014. It is not a matter of dusting off old plans, because the mix of imports and exports has changed to become more balanced. The mix may change even further if infrastructure improvement plans were more focused on exports, which are needed to sustain the economic recovery. Recent data trends indicate congestion for imports has a more negative impact on exporters because ocean carriers are more adverse to losing time getting containers back to import origins.
The key message is that solving short-term problems and putting Band-Aids on long-term problems will leave the supply chain worse off. It is time to focus on sustainable trends and rework the freight movement system. What worked for a world population of 4 billion and a 1-billion-person middle class will not work for a 7-8 billion population and a global middle class of 5 billion people (as the OECD anticipates will be the case by 2030). Attributing growing congestion problems to a range of issues will not cut it. Industry participants must rethink how to handle flows based on the intermodalism that characterizes U.S. freight movement.
Kemmsies is chief economist at Moffatt & Nichol, an infrastructure engineering firm. He can be reached at (212) 768-7454 or email.
This column was published in the March 2015 issue of American Shipper.