Port Diversion Strategy: Consistency Beats Velocity
A steady increase in imports from Asia during the last five years has helped create a logistics dilemma for U.S. businesses using West Coast ports.
The ports of Los Angeles and Long Beach and their key partners—rail, labor, stevedores, truckers, and distribution centers—were not properly prepared to handle these volumes, leading to significant receiving and transportation delays.
As a result of this overall decrease in supply chain velocity, distributors, transportation and logistics providers, and suppliers began looking for alternatives to West Coast ports, namely inland ports and large regional DCs.
These alternatives are more accurately defined as port diversion strategies, where companies permanently move a portion of their supply chain from gateway A to gateway B. The strategies include new models for trade lanes that do not always put "total number of sailing days" as the final decision point, but instead look at total transit times and consistency to destination distribution centers.
A paradigm shift has occurred among importers: consistency now beats velocity.
Companies importing shipments to Dallas, for example, could use an all-water route to Houston, then send goods via truck to Dallas instead of importing through the congested Port of Los Angeles and shipping via rail and drayage to Dallas. If the all-water route through Houston is on time more often than the L.A. route, it is a successful diversion strategy.
Large Retailers Line Up
Large retailers in particular are embracing port diversion strategies. Wal-Mart, for example, placed a 4-million-square-foot import distribution center in Houston; Target Stores is building a 2.2-million-square-foot facility in Savannah, Ga.; IKEA is choosing between a Gulf Coast or East Coast port city to locate its next DC; and Best Buy aims to move half its imports out of L.A./Long Beach to other ports of entry.
These inland distribution centers are strategically located based on their proximity to dense population clusters, strong transportation infrastructure, and available land for development.
Many cities, counties, economic development corporations, and real estate developers are marketing their areas to attract new inland distribution hubs. Rapid growth is taking place in traditional inland port markets such as Dallas/Ft. Worth; Columbus, Ohio; Chicago; and Atlanta. These cities are building new distribution and intermodal centers.
Memphis and Kansas City are also becoming hot inland gateway locations, with commitments to construct new intermodal ramps.
This shift in port usage and the desire to increase velocity by efficiently transporting goods has also led to growing volumes at previously under-utilized ports.
Total TEU volume at the Port of Houston, for instance, has increased to slightly less than 2 million, the 12th-highest in the nation. The Port of Savannah has grown considerably over the last few years, as more carriers utilize the Panama and Suez canals to ship materials from the Pacific Rim to ports on the Gulf and East coasts. And thanks to its favorable balance of import and export volumes, the Port of Savannah has become a port of choice for carriers that benefit from having goods originating in both the United States and the Far East.
The U.S. logistics industry is in the midst of a growth spurt, as we shift from a producing economy to an importing economy. This adjustment means import containers will continue to come into the country, regardless of whether oil hits $100 per barrel or we experience a "flat" economy.
These facts, coupled with now-permanent diversion strategies, ensure that gateway import markets will be popular for years to come.