By Hugh Finerty
The good new is that the rumors I reported on Friday morning of an agreement being struck late Thursday night, were true. The agreement was officially reported late Friday. Although a five year agreement has been struck between the ILWU and the PMA, the bad new is it still could take weeks for the rank and file to “ratify” the agreement and many of the structural problems causing delays will remain for many more months. Here is an issue-by-issue assessment of the challenges facing the West Coast ports
Clearing the cargo backlog: Local officials in the west coast ports expect a 4-6 week phase to clear out the backlogs. Industry experts believe this prediction far too conservative and that a 3+ month time horizon is more likely. Rescheduling labor, digging out chassis, a shortage of trucks and the arrival of mega-ships are the challenges to be overcome. At least there might be a short “breather” of new cargo arriving due to factories being closed during Chinese New Year.
Labor and Port Operations Normalization – Many industry experts expect it to take up to 6 months from the labor contract ratification for port operations to normalize. Port operation “normalization” refers to the re-establishment of sufficient crews and operational working hours. This does not refer to disruptions that will remain due to chassis shortages and the arrival of the mega-ships carrying 14,000 TEU’s per ship. The ports will need to devise a plan for the “new normal” of these large ships.
Shortage of Chassis – the chassis shortage remains a significant component of the delays in the West Coast ports. Many chassis have been damaged and sit idle while waiting for repair. Other functioning chassis are “buried” amongst the damaged chassis, or sitting under containers that are not being accepted back into the ports due to congestion. By March, the new “gray” or neutral chassis pool of 4 operators should be up and running. There are skeptics as to whether this new chassis operation will be able to meet the demand of the mega-ships carrying 14,000 TEU’s, especially during peak season.
Shortage of Trucks – There will be an immediate high demand for trucks to remove the logjam of containers from the ports. This will include local drayage trucks, as well as the long-haul trucks who will be delivering containers inland to customers who can not wait for the containers to move by train. Many are expecting sharp increases in trucking rates during this phase. Another factor contributing to a truck shortage is the “turn-down” rate of loads. Many truck companies refuse to send their drivers to the ports due to long wait times. As port operations normalize, trucks will return to the market. This phase will provide opportunities for the truck brokerage sector to provided much needed load matching services.
Mega-Ships – the arrival of the mega-ships is causing havoc with labor, chassis and trucks needed to meet the new demand. These mega-ships carry up to 14,000 TEU’s; a significant increase over the average ships that carry only 8,500 TEU’s. The question that is still to be answered is how long it will take the stakeholders at the ports to model the systems and resources needed to efficiently and effectively handle this never before seen level of demand.
Calculating these risks into your supply chain plan for 2015 and into 2016 is a key to keeping your customers satisfied. The disruptions of the recent 6 months should have identified problems in your supply chain that need to be addressed and improved. Please feel free to contact me to arrange a review of these areas and a discussion of possible solutions.
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