Concerned that the looming deluge of holiday-season imports may pile up and overwhelm local ports, officials at the ports of Los Angeles and Long Beach, as well as shipping lines, are preparing to press major retail chains to institute round-the-clock distribution operations.
Chains such as Wal-Mart, Kmart and Target will be contacted this week on ways to facilitate deliveries to distribution centers 24 hours a day, seven days a week.
The goal is to head off potential congestion during the heavy traffic season from July to November, which accounts for 70% of the annual volume moving through the ports, according to Hal Hilliard, marketing manager for the Port of Long Beach.
Containerized imports from Asia ran about 17% higher during the first quarter (traditionally a slow period in the trans-Pacific trade) than in the like period last year. Projections suggest that imports from Asia during the peak period could be 15% higher than last year.
Wake-Up Call
“I think this is a wakeup time for importers that they have to be part of the equation,” said Al Fierstine, director of business development for the Port of Los Angeles. “As long as the economy stays strong, which (Fed chief Alan) Greenspan hasn’t reversed, we’ll be busy, so this is a way to plan ahead.”
The unusual joint effort by the two ports, normally fierce competitors, is an indicator of just how seriously port officials are taking the potential traffic problems.
“Even though we compete for the same shippers, those customers look at us as one port, so if we go out together in a bloc, we’re selling the Los Angeles harbor complex and have better leverage that way,” Hilliard said.
That kind of leverage might be critical, because port executives have a hard sell on their hands. Retailers will have to pay distributors in the tens of thousands per shift to handle 24-hour service. Usually, distribution is handled in one or two eight-hour shifts; it would require adding a third shift to build up 24-hour service.
“We currently run three shifts at our warehouses when we need to,” said Teresa Stephens, spokeswoman for Kmart Corp., which operates 1.2 million square feet of distribution centers in Ontario and Carson. “We haven’t been contacted yet, so we can’t speculate on what needs to be done until we’re contacted by the ports.”
Added Target spokeswoman Patty Morris: “We understand the problems and the issues of the ports, but we hope that the onus isn’t on only us to make changes.”
Speed Critical
With 50% of the local cargo traffic going to local destinations and 90% of those trips terminating somewhere between San Bernardino and Oxnard, port officials say it’s in the best interest of all parties involved to work together to move shipments quickly. Railroads are analyzing their peak-season requirements, as well.
In addition to negotiating with major retailers, port officials are trying to convince terminal operators to extend their gate hours beyond the traditional 8 a.m. to 5 p.m. workday. About 50% of the terminals are now opening their gates earlier and keeping them open later, said Fierstine, but the results have been mixed.
APL Ltd., whose 262-acre terminal is the largest in the complex, recently announced its move to institute “hoot owl” gates between 3 a.m. and 8 a.m., but the company is now re-evaluating that decision because there aren’t enough warehouses open at those early-morning hours to encourage truckers to pick up cargo then.
“They’re getting dismal results. It’s not working because no one on the outside (at distribution warehouses) is taking advantage of the situation,” Fierstine said.
Phillip Wright, operations manager of Hanjin Shipping Co., said the firm began operating a third “hoot owl” shift three years ago, but it has come at a cost, $30,000 to $40,000 extra every day.
Costly Shifts
“It costs us an absolute fortune. We move 600 to 700 containers during that shift, but most of my freight moves between 5 a.m. and 8 a.m. and the rest of the time our guys are twiddling their thumbs,” Wright said. “Most of our users recognize this is there, but there needs to be better awareness of the fact that it’s available.”
Should cargo operations run into troubles, many observers warn that shippers will turn elsewhere.
“A lot of shippers here in the Midwest,from those who handle automotive goods to finished consumer goods,are looking at the Pacific Northwest to bring freight in,” said Bill Barron, vice president of global business for Next Generation Logistics, a shipping consulting firm in Inverness, Ill.
“That’s why you see ports in Vancouver last year hit over 1 million TEUs (20-foot equivalent units). That’s a 28% increase over the year before. Southern California saw its imports rise 10% to 12%.”
Some importers who feel that the area has moved too slowly to deal with congestion have taken matters in their own hands.
“We started diverting freight to Seattle three years ago to head off problems,” Target’s Morris said. “About a third of our freight goes to Seattle.”
Indeed, local ports stand to lose large contracts when shippers shift cargo operations to other venues. But Fierstine said such effects have been minimal so far, and the Pacific Maritime Association concurred. Southern California ports last year accounted for 64% of the West Coast’s total box volume, according to the association.
“We did a study and found that any diversion of cargo we’re seeing is less than 2% of volume, and we’re growing at 13% per year,” said Fierstine.
Sarkisian-Miller is a staff writer at the Los Angeles Business Journal.
