Logistics at Sea Level
Ocean, rail, and intermodal leaders discuss why capacity concerns, infrastructure inadequacies, and a paucity of policy keep them up at night.
The U.S. intermodal container industry faces challenges that, if not met effectively, could negatively impact the nation’s long-term economic well-being.
The first challenge is managing the ripple effect caused by a significant disparity in trade with China, the rest of Asia, and many other global trading partners.
“The United States’ large inbound containerized trade, as opposed to small and lower-valued trade outbound, creates major imbalances in the flow of transportation assets,” notes Richard Bank, president, Millennium International Consultants, Washington, D.C., and counsel to Thompson Coburn LLP.
The second challenge is the country’s increasingly inadequate domestic infrastructure to support long-term global trade growth.
And third, the United States offers little in the way of a national intermodal infrastructure policy, coordination, strategy, or means for development—”and we are, and will be, suffering the consequences,” Bank says.
Intermodal leaders have a lot to say about these issues. In a series of interviews, they share their thoughts, concerns, and opinions about the present and future of the U.S. intermodal sector.
Supply Chain As a Team Sport
How can the U.S. intermodal network continue to cope with freight volumes that grow in excess of 10 percent each year? Good question.
Unless we start to look at the supply chain as a team sport, we will not make serious progress in improving productivity. We are all trying to run a supply chain that starts in mid-China and ends in the mid-United States. We have to do that as a team.
It’s time to take a fresh look at how supply chain partners deal with one another and manage handoffs.
When we bring containers off-ship, for example, we need the railroad right there, on the dock. That is much more productive than having draymen haul individual containers to a container yard.
Shippers have a stake in this team. They can’t continue to use the supply chain as a means to store inventory in transit. Suppose we have 10 containers coming in for a consignee. We know they’ll arrive Tuesday, two weeks from today; the consignee knows that as well.
But when the containers are delivered, the consignee does not vacate them for 10 days. That creates problems for carriers and service providers trying to redeploy those assets.
We are making progress, though. Organizations such as the Waterfront Coalition, chaired by senior professionals who have strong knowledge of the rails’ role in the supply chain, understand that without cooperation, the rails’ ability to continue to fuel this economy is in jeopardy.
The entire supply chain needs to work harder to become as productive as possible. No one is suggesting that there are slam-dunk, easy solutions.
But without improved productivity across the supply chain, the rails will not be able to handle increased freight volumes for the foreseeable future.
As Rails Evolve, Infrastructure Lags
Less than one year ago, the hot topic in the rail industry was how to handle the tremendous explosion in trade. Today, we’re looking at a very different picture.
The U.S. economy has slowed down, driven by a housing and automotive downturn, and high fuel prices. Today, the hot question is: ‘How long, how deep is the slowdown?’
Despite the current economic downturn, intermodal’s long-term prospects are bright. One major business driver during the past five years was the transition of manufacturing to China thanks to low wage rates.
A large disparity between wages in China and the rest of the world still exists, creating a tremendous opportunity to better utilize the country’s huge work force for some time to come. The benefits of China sourcing will continue for decades.
With regard to U.S. transportation infrastructure, the Minneapolis bridge collapse is a perfect example of what we have been saying for some time—we are not spending what we should on our infrastructure.
The bridge collapse will, in all likelihood, effectively block the trucking industry’s efforts to raise truck weight limits or allow longer combination vehicles on more roads. This means that ultimately, to handle increasing cargo volumes, more freight will have to move by rail.
For many reasons, more long-haul trucking business will shift to rail. Trucking will become more of a short-haul, pickup and delivery provider. Rail will play a bigger role in providing linehaul service. But the rails’ current capacity is not sufficient to handle this evolution.
We need to focus on how the United States will build the infrastructure to support growth in transportation demand. The U.S. Department of Transportation must better coordinate planning across modes.
The rails also should pursue mode-specific ideas for funding new infrastructure, and driving productivity both in individual modes, and across modes.
Manage the Network
Forecasts show that many East Coast ports will hit capacity shortly after their West Coast counterparts. Charleston is predicted to be the third-most congested port by 2012.
While added port development in Mexico and Canada will come online over the next few years, creating additional capacity, that is an incremental solution.
One by-product of greater congestion is a decline in carrier on-time performance. A recent study shows carriers operated 46 percent on time in 2007 (Q1), compared to 57 percent on time in 2006 (Q1), an 11-percent drop year to year.
This lack of predictability in a constrained environment will make matters worse. The truck driver labor market is very tight, forcing carriers to pay more for drivers. Most carriers are not making as much money as they used to, so they can’t invest in transportation infrastructure.
Port facilities are constrained, and it takes longer to work the larger ships because they require more land and gantry crane time, often delaying departures. Many ocean carriers are making multiple port calls, and if they hit a constrained port first, the rest of the trip is delayed.
The industry is trying to reduce the congestion that results when ships arrive at ports at the same time. Ports and railroads are working to develop more on-dock rail, and to eliminate or reduce truck drayage traffic.
What many fail to recognize, however, is that U.S. port and freight activities are part of an immense network, and should be managed accordingly. This is not happening.
Yet, in the face of all these challenges, companies are getting smarter at managing risk. Companies that have been affected by risks such as hurricanes, trading scandals, earthquakes, and fires are building simulation scenarios to understand how these supply chain disruptions could play out. They are modeling the effects of those events so they can improve decision-making.
Forecast Calls for More Planning
To be more efficient domestically, intermodal providers need better forecasting from customers about consumer demand. Without good forecasting, service providers have no effective way to plan box assets.
Forecasting is difficult, but to continue to take cost out of the intermodal supply chain, service providers have to find better ways to forecast the use of assets.
Shippers are better at planning now than they were 20 years ago. But we have much less capacity today than we did in the 1980s and 1990s.
Back then, a shipper could call us and ask for 100 containers over the weekend. Today, there aren’t 100 containers available. Planning has to improve or shippers won’t get a box to move their products.
The Watchword? Capacity
Capacity continues to be the watchword for the transportation industry and intermodal sector.
Industry analysts predict that foreign imports will double by 2017. Foreign-produced goods currently enter the United States via West Coast ports and travel to the population centers of the East by rail and truck.
An increased burden on West Coast port facilities, driver shortages, and highway congestion—coupled with the increasing cost of doing business thanks to higher port access fees, Clean Air Act compliance, port security, and TWIC (Transportation Workers Identification Credential) cards—will cause steamship operators to change their business models.
Freight volumes will migrate from West Coast ports to all-water services to the U.S. East Coast via the Panama and Suez Canals.
Much of the intermodal service growth will come from industry expansion in Western China and the Indian peninsula. These operational changes could add three to four days to the supply chain. Shorter inland transit times and reduced port congestion, however, could offset the lengthening chain.
Major intermodal interchange points for Class I rail carriers will see even more rail and intermodal traffic. Railroads are currently working to increase capacity at these points through projects such as double-stacking containers, lengthening rail sidings, and double-tracking main lines.
Public-private partnership projects—such as CREATE in Chicago, which is designed to maximize the use of five train transportation corridors—also are addressing capacity expansion.
Rails Turn The Corner
After struggling with capacity issues for the past few years, the rails have turned the corner on their ability to handle trans-Pacific trade by investing heavily in infrastructure.
Long term, trans-Pacific trade will see significant growth. Short term, a continued need for inland point intermodal service, and service growth projections, indicate the rails will enjoy a robust market.
The railroads, ports, and ocean carriers have focused on maximizing on-dock loading. Our priority is to keep on-dock facilities fluid and resources flowing. We develop rail schedules that coincide with vessel schedules, and work with ocean carriers to optimize train length and train slot utilization.
At the same time, we see greater demand for transload service—the process of transferring product from ocean containers into domestic intermodal, or over-the-road trailers.
Transloading does have its down side, however. It removes the on-dock intermodal rail option, puts additional pressure on container handling capabilities, and increases demand for truck services in ports and port areas. This generates additional concerns about highway congestion, safety, security, air quality, and other issues.
A Man on a Mission
The U.S. economy has undergone dramatic change in the past few years, particularly regarding containerized imports, creating many challenges for the intermodal transportation system.
Marine container terminals are not expanding as fast as the demand for capacity, while governmental, environmental, and physical factors limit their ability to grow.
This has created a less reliable intermodal transport system for supporting a U.S. economy ever more dependent on foreign sourcing. As a result, East Coast ports have grown rapidly, with ships coming all-water from Asia through the Panama Canal.
But the Panama Canal is just at capacity, marking yet one more route that has become congested and nearly saturated for handling containerized imports.
More recently, APL and other ocean carriers have begun to use the Suez Canal as an all-water option; APL recently launched a Suez Express service covering southeast Asia through the Suez Canal.
Broad consensus shows that the U.S. government will not invest large sums to increase transportation fluidity. But the federal government could take the lead through tax policy to encourage private investment.
To get this message out, we visited federal agencies such as the Department of Transportation and branches of the White House domestic policy group. We brought some large shippers with us—those with many employees and billions of dollars in sales, representing major parts of the U.S. economy.
Our message was: ‘Something needs to be done. The lack of transportation fluidity affects our ability to serve customers, and will ultimately drag down the U.S. economy.’
The 100% Rule
In the dog days of the Washington, D.C., summer, President Bush signed into law a piece of legislation with far-reaching ramifications for the ocean shipping community.
H.R.1: Improving America’s Security Act of 2007 states that within five years, 100 percent of all containers bound for the United States must be scanned for weapons of mass destruction before they depart their port of origin. The containers also must be secured with a seal that meets standards established by the Secretary of Homeland Security.
Ports that are unable to comply within the five-year time frame could receive a two-year extension from the U.S. Department of Homeland Security.
Just days after President Bush signed H.R.1 into law, Lasszlo Kovacs, European Commissioner responsible for Taxation and Customs Union, condemned it, insisting that it will damage trade, place an unfair and significant financial burden on European Union ports, and require major restructuring of port operations.
The World Shipping Council opposes the statute as well, charging that it:
- Fails to define who will perform the scanning.
- Fails to define who is to purchase, operate, and maintain the technology.
- Fails to address health and safety issues relating to the use of the scanning equipment.
- Fails to seek or obtain the necessary cooperation of other governments.
- Fails to “practice what you preach”—the U.S. government does not perform this function on export cargo, scans virtually no U.S. export containers, and has no plans to do so.
- Fails to define the scanning requirement—for example, what to do with the scanning data generated, whether or when to transmit the data from the scanning equipment to the U.S. government, or who is to analyze the data generated.
- Fails to address who is responsible for analyzing the scanning data.
“These are fundamentally important issues with difficult operating protocols and significant costs associated with them—all of which the legislation does not address,” the World Shipping Council states.