How is a logistics airport alleviating congestion at Los Angeles ports? By operating as a multi-modal 3PL. Facing the unenviable task of cutting time and costs during transshipment at ports, forwarders, 3PLs, and shippers are looking to inland multi-modal facilities such as Southern California Logistics Airport to circumvent congestion and ensure quicker turnaround times for their customers’ shipments.
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Seaports are arguably the most critical links in global supply chains because they serve as the primary interface between waterborne cargo traffic and land-linked rail, road, and air distribution networks. In the United States alone, 95 percent of import and export trade moves through coastal gateways and inland waterways. Anticipated growth in Asian markets will feed more demand for efficient intermodal services.
But where the maritime shipping industry has virtually limitless flexibility in accommodating growing cargo capacity with larger ships and expanded schedules, West Coast ports such as Los Angeles and Long Beach are considerably less elastic, given geographic constraints, limited real estate availability, and urban congestion.
As a result, shippers and forwarders face the unenviable task of cutting out time and costs during transshipment.
One way they are bypassing these congestion problems and speeding product to market is by rerouting shipments from the docks to Southern California Logistics Airport (SCLA), a multi-modal facility located less than 100 miles inland from the ports in the Northern Inland Empire region. A growing number of forwarders, retailers, and manufacturers are outsourcing their distribution and warehousing operations to SCLA and leveraging the airport’s access to road, rail, and ocean transportation networks to ensure quicker turn-around times and drive more cost savings in their supply chain operations.
The Port Problem
“As international trade continues its expected growth, the demand for improved intermodal access to U.S. ports will rise, particularly at containerized ports in urban areas,” notes the 2003 U.S. International Trade and Freight Transportation Trends report by the U.S. Bureau of Transportation Statistics (BTS).
“Issues and concerns include the condition of local roads for accessing ports, at-grade rail crossings, rail drayage time and costs, dredging and channel depths, and availability of truck-only lanes for access to ports.”
The questions raised in the BTS report reflect a growing concern in urban areas, especially around Los Angeles (see sidebar, below), where congestion is bottlenecking port access points. Limited or overpriced real estate has impeded expansion efforts that might otherwise alleviate overcrowding, and increased cargo volume has only fractured existing intermodal cracks.
Other issues including labor availability, environmental restrictions, and security compliance have similarly prompted logistics service providers and transporters to find ways to fill in or bypass these gaps.
Ports are also encountering pressure to adapt their operations, not only to accommodate customer needs and marginalize their physical limitations, but to increase the velocity of throughput at their dock facilities.
For these reasons, ports in urban areas will revert to their traditional function as staging facilities, predicts Don McKnight, president, The Pasha Group, a Corte Madera, Calif.-based 3PL that specializes in marine terminal operations. “I see port property more exclusively being used to offload and load ships, rather than doing a lot of storage and breakbulk work.”
In fact, it would be a natural adaptation for ports, says Dougall Agan, principal, Southern California Logistics Airport, because “they really aren’t intended to be breakbulk facilities, but rather pass-through facilities to gain access to the United States.”
Considering that most of the inbound volume into the United States along the West Coast—as much as 60 percent according to some sources—is destined for eastern markets, both McKnight and Agan’s assessments are telling. This pragmatism is also the driving element behind SCLA’s rapid growth as a multi-modal distribution and warehousing hub.
A Port Apart
Located in Victorville, Calif., SCLA is a former U.S. Airforce military base that has been redeveloped into a 5,000-acre multi-modal business and designated foreign trade zone (FTZ).
The airport itself boasts two landing areas—a soon-to-be-expanded 15,000-foot strip and another 10,000-foot runway—capable of servicing international airfreight shipping needs. SCLA also integrates manufacturing, industrial, and office facilities with core business units including air cargo, aviation maintenance, rail, and real estate programs.
Perhaps the more compelling aspect of SCLA’s recent expansion efforts has been its focus on providing customers with a total logistics solution.
“We control the infrastructure—the airport and rail—and we can integrate a lot of solutions that some 3PLs cannot because they don’t control and own those assets,” says Agan. “This gives customers a greater level of confidence because now they can find long-term contracts with a flat profile vs. a volatile rental structure that can go up significantly during peaks. Our goal is to come up with a very long-term static approach of operational cost that customers can afford.”
Instead of having to ramp up labor, equipment, and facilities to meet seasonal fluctuations, customers can counter excessive overhead by outsourcing to SCLA on a per-unit basis. “We gear the economics and operational costs to the flow of their demand, so there is never a time when costs are way ahead of revenues,” notes Agan.
This flexibility poses an attractive alternative not only to freight forwarders and 3PLs wary about investing capital in port facilities or looking to circumvent congested areas, but also to manufacturers and retailers seeking strategic site locations to accommodate future growth. That major players such as ConAgra Foods, Goodyear, Mars/M&M, Boeing, and GE Aircraft Engines have chosen to locate in Victorville is further testament to the area’s growth potential as a major transshipment hub.
Planes, Trains and Intermobility
In 2000, SCLA began looking at how it could enhance airfreight movement through its facility and develop capabilities beyond traditional cargo airports.
“We got together with all the carriers and forwarders and listened to the services they typically had to outsource,” recalls Agan. “Then we said, ‘what if we became a full-service environment where you could look at us as a third-party logistics provider and you wouldn’t have to go out and hire new people to manage your operations.'”
With positive feedback from its customers, SCLA partnered with The Pasha Group to come under its umbrella and help create a global access logistics service where it could provide warehouse management, import and export administration functions, and other accessorization and palletization services.
Leveraging Pasha’s expertise in ocean terminal and drayage operations, and rail yard management, SCLA augmented its role as a multi-modal facility, while similarly enhancing its value proposition to prospective customers. Rather than being viewed as simply an access point to land a plane, the airport became an integral part of SCLA’s supply chain management service.
“The advantage we have now is that if there is an accelerated move that needs to come in via air, or if there is a bulkfreight shipment for seasonal delivery that we are picking up via sea connection, it comes in to the same consolidation point,” says Agan.
Shippers and forwarders then have the luxury of being able to breakbulk and/or consolidate shipments and tender them via their mode of preference.
A Modal Approach
For The Pasha Group, the opportunity to locate at SCLA had strategic advantages for meeting its own long-term growth expectations.
“As an operator at the Port of Los Angeles, we recognized the problems associated with congestion at ports, on the freeways in and around Los Angeles, and with trains and trucks in the Inland Empire area,” says McKnight.
“We had a few customers that were interested in expanding and we didn’t see adequate facilities to support that there. We were looking for a safety valve to set up an operation that could contribute to relieving some of that congestion while at the same time consolidating some of the operations we had in mind for future growth and development,” he says.
The airport component, coupled with SCLA’s access to two Class I railroads and two major thoroughfares going north/south and east/west (U.S. Highway 395 and Interstate 15) gave Pasha the modal flexibility it required.
“There is also an excellent labor pool in the high desert; it is well-educated and the community in and around that area is very business- friendly,” adds McKnight. “Property is very much available, and compared to Inland Empire and the L.A. Basin, it’s very inexpensive.”
All these factors contributed to Pasha’s decision to begin developing a 700-acre multi-modal logistics and distribution complex at the Victorville site. When completed, the facility will provide multi-functional services for container loading and unloading. Pasha also plans to operate warehousing, distribution, and processing facilities that will specifically serve auto manufacturer needs for vehicle consolidation and parts distribution.
As part of its development project, Pasha is working with SCLA to build a rail complex with leads to the Transcontinental Main Line, served by both the Union Pacific and Burlington Northern and Santa Fe railroads. A rail easement, leading directly into the airport, will be spur-connected to manufacturing and distribution companies, further enhancing the efficiency of moving freight in and out of SCLA.
“Our expectation is that product will not stay at ports for long periods of time as it does now. Cargo will come in and quickly move off port to inland facilities. I think you’ll see much better utilization of on-dock rail—more direct rail loading on dock as opposed to draying freight inland,” says McKnight.
Go-Video Goes SCLA
Direct rail access to the ports was an important consideration when DHL Danzas Air & Ocean and The Pasha Group jointly selected SCLA as the new North American distribution hub for Go-Video in June.
For the past three years the Scottsdale, Ariz.-based consumer electronics manufacturer has been working with DHL Danzas to streamline its inbound sourcing operation and increase throughput to its customers in North America. Go-Video currently uses several contract manufacturers in Asia to build its turnkey products, which are then placed into ocean containers for shipment to the United States.
Annually importing more than 2,000 TEUs of consumer electronic products through the ports at Long Beach and Los Angeles, nearly 60 percent of Go-Video shipments are bound for destinations east of the Rocky Mountains.
The justification for locating at SCLA was twofold: First, DHL Danzas was looking for a way to better serve its customers by avoiding the congestion in and around Los Angeles. After conducting a feasibility survey, it concluded that SCLA’s location, facilities, and cost matrix were the right fit.
“SCLA’s location allows us to operate in a more cost-efficient manner. We are avoiding space and congestion issues that confront us in the L.A. Basin and we are closer to our customers nationwide through reduced transit times,” says Delano Melikian, district manager, DHL Danzas Air & Ocean.
Second, Go-Video was looking to DHL Danzas to find a better way to perform its domestic warehousing and distribution.
“Our volumes were increasing but our turnaround times were decreasing,” says Gregg Todd, vice president of operations, Go-Video. “For example, if we get 10 or 12 containers on Wednesday, we want them turned around virtually instantaneously. But if you are limited by the number of square feet you have in your warehouse, you can only turn so many shipments.”
Seamless in SCLA
Under the current arrangement, Pasha is the lead 3PL, operating on behalf of both SCLA and DHL Danzas to manage customs clearance of inbound containers, coordinate freight movement from the ports to SCLA, and break down pallets for distribution to Go-Video’s North American channels.
“As it now works with DHL Danzas, we take the product off the port and truck it out to SCLA under our supervision so that it is basically a seamless move once it is off the ship,” says McKnight.
“Then we break out the containers, prepare the shipments, and tender to the trucking companies that will make deliveries all over the country. The idea is to make this as seamless and tightly controlled as we can with limited responsibilities.”
Having available warehousing and operating space to actually execute these responsibilities is another advantage of using SCLA, notes Todd, “because Pasha can work multiple containers at the same time and spot more opportunities to consolidate outbound domestic shipments. As it builds our orders, rather than have shipments sitting on the dock or in a warehouse, Pasha can load them out immediately on trucks for domestic distribution.”
This flexibility lets Go-Video consolidate shipments and conceivably cut costs—which it can pass along to its customers—while also accommodating spot business as it comes along. Moving forward, SCLA and The Pasha Group are currently in the process of working with an on-site U.S. Customs Office to develop a system where Go-Video’s shipments would be cleared directly at the airport. This capability, coupled with the rail access, will create a seamless and secure link from the ports to SCLA.
The Ports of the Future
While ports have successfully adapted from staging facilities into full-fledged logistics and warehousing hubs, the realization that valued-added services do not resolve core intermodal weaknesses is increasingly apparent.
As a result, McKnight anticipates there will be “more direct rail involvement at ports, and greater use of centrally located off-dock warehousing and distribution complexes that provide a variety of services and activities.”
This adaptation will clearly alleviate some of the capacity constraints currently handcuffing ports. But shippers and consignees will still continue to be aggressive about seeking service providers that can add tangible value to their business over time. The onus, then, will fall on forwarders and 3PLs.
To this end, logistics facilities such as SCLA offer a value proposition that is appropriate for both the present and the future—enabling shippers and forwarders to eliminate redundancies, avoid congestion, and deliver short-term ROI while also helping customers stay ahead of the supply chain growth curve.
Perhaps nowhere has urban congestion been more apparent than along the West Coast United States—a fact that became painfully clear to supply chain service providers, shippers, and consumers during the West Coast port lockout in the fall of 2002.
Aside from the labor dispute that precipitated the lockout, the high volume of cargo traffic into and out of the Los Angeles area created a ripe environment for the inevitable port shutdown.
In 2002, three of the top five U.S. container ports (in terms of TEUs) were located in California—Los Angeles (1), Long Beach (2), and Oakland (4). The ports of Long Beach and Los Angeles together represent approximately 30 percent of the total U.S. market share in terms of import and export volume, according to the Intermodal Association of America’s 2002 statistics.
On the air freight side, Los Angeles International Airport (LAX) ranks third in the world for number of passengers handled, and is the fifth-busiest cargo airport in the world, moving more than two million tons of origin and destination air cargo in 2002, according to the Airports Council International’s annual report.
By ocean and air, 40 percent of imports move through facilities on the West Coast. By 2008, volume is expected to approach 50 percent. This increase in traffic has only exacerbated existing infrastructure problems.
Traffic congestion in the Los Angeles area is the worst in the United States, according to the Texas Transportation Institute’s 2002 Annual Urban Mobility Report. The Los Angeles area’s Roadway Congestion Index (RCI), which measures vehicle travel density on major roadways in an urban area, ranked number one at 1.59. An RCI exceeding 1.0 indicates an undesirable congestion level.
A byproduct of highway congestion is fuel wastage, and not surprisingly Los Angeles tops the Texas Transportation Institute’s list in that category as well. Its average of 1,188 million gallons of wasted fuel in 2000—measured by the total annual wasted fuel for each year and urban area divided by the number of cities in that particular urban area—nearly doubled that of its closest competitor.
As these statistics suggest, it is the transportation to and from port facilities where logistics providers, carriers, and shippers face the greatest challenge, a reality that the AAPA’s America’s Ports: Gateways to Global Trade report correctly addresses: “For some ports, the weakest link in their logistics chain is at their back doors, where congested roadways or inadequate rail connections to marine terminals cause delays and raise transportation cost.”