The warehouse problem in Southern California is much like the freeway system, with one big traffic jam after another.
Even if a trucker were able to quickly snatch a cargo container off of the docks at the Los Angeles/Long Beach port complex, the question is where to put it. It’s like solving a jigsaw puzzle. Truck yards are full. Docks are full. Warehouses are full.
“There are 20 million pairs of tennis shoes coming across the water right now,” said Matt Schrap, chief executive officer of the Harbor Trucking Association, whose members pick up cargo at the ports. “We have no place to put them.”
Not helping are the number of empty containers clogging the decks waiting to go back to Asia. There are so many empties that ocean carriers are sending over “sweeper vessels” across the Pacific Ocean to collect them.
In addition, rail yards are extremely backed up. In May, a cargo container at the ports of Los Angeles and Long Beach, which sit next to each other, waited at a terminal an average of 11.3 days to be transported to the rail yards. That is close to the all-time dwell record of 11.8 days in June 2021 and up from 3.3 days in December, according to the Pacific Merchant Shipping Association.
Cargo being collected by trucks are sitting at terminals for 5.34 days, which is considerably better than the recent high of 8.37 days seen in November. Historical averages are 3.3 days.
Complicating the congestion problem is the contract negotiation between the longshore workers and their employers. Merchandise shippers were worried that if no agreement was reached by the July 1 deadline, there might be work slowdowns, a lockout or even a strike.
That didn’t happen. Without much fanfare, that date came and went. The two sides on July 1 said they would continue to negotiate without a temporary contract extension for the 22,000 members of the International Longshore Workers Union, who work at 29 West Coast ports. They are negotiating with the Pacific Maritime Association, which represents 70 companies and terminal operators employing the workers.
“They weren’t planning to reach an agreement by the first of July and will continue to work on negotiating,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, which has been closely following the talks.
But people are still concerned. “This ILWU thing is hanging over everyone’s head,” said Schrap of the Harbor Trucking Association.
He noted the Biden administration has been very proactive in getting the two sides to move forward in their negotiations. The president met with the two sides on June 10 when he was visiting the Port of Los Angeles. Secretary of Labor Marty Walsh has been checking in weekly with the negotiators.
But Schrap said the ILWU workers are basically in the “catbird seat” because they toiled through the pandemic and feel they need a good contract. Now, they are the glue holding the supply chain together as peak season arrived a few months earlier than normal, in late May for the back-to-school and holiday seasons.
In the longshore worker negotiations, ILWU salaries are always on the table. According to the PMA, the average wage for a full-time longshore employee was as much as $195,000 a year, and ILWU members pay nothing for medical insurance. But the longshore workers pointed out that last year the shipping industry posted EBIT [earnings before interest and taxes] profits of $190 billion, according to Drewry, a maritime research consultancy in London. Dock workers would like a salary increase.
One of the traditional sticking points in these negotiations has been automation. The terminal operators are pushing for it, but the longshore workers have been fighting it because they believe automation will lead to fewer jobs.
While the negotiations have been going on, major U.S. retailers and manufacturers who got burned with weeks of delivery delays in 2021 are looking for alternatives to send cargo to the Southern California ports.
Shipping delays have been very costly, too. In its first quarter for fiscal 2022, Gap Inc. revealed it paid $170 million to have goods airfreighted into the U.S.
Deckers Brands, a footwear company based in Goleta, California, was on the hook for an extra $100 million in freight costs last year to ship its Ugg, Teva, Sanuk and Hoka brands, it noted in its annual report.
Levi Strauss & Co. said in its fourth-quarter earnings results ending Nov. 28 that supply chain issues cost the San Francisco company about $50 million.
To fix the problem, many clothing companies and retailers have altered their shipping plans this year. Robert Krieger, a customs broker who is president and chief executive of Krieger Worldwide in Long Beach, California, said many of his clients decided to bring goods in earlier than normal because of port delays and the longshore workers’ contract negotiations.
It is no accident, he said, that the ports of New York/New Jersey and Savannah, Georgia, have been particularly busy. “It’s like that Waze app that tells you how to navigate the streets,” Krieger said. “When traffic is busy, you get off the freeway, get on surface streets and move your cargo to the East Coast.”
Despite past problems, the Southern California ports are making progress. On Jan. 9, there were 109 vessels anchored or floating off the coast waiting for berths. On Tuesday, there were 24 containers in line.
Ship traffic has been helped by a new container vessel queuing system, called Pacific Maritime Management Services, set up in November to manage the vessel traffic to the Los Angeles and Long Beach ports, which account for 42 percent of all U.S. container traffic.
Last year, it was a free-for-all for berths. Whoever arrived first and crossed the 20-nautical-mile line was put on a waiting list for a dock. Now container ships are assigned into an arrival queue based on when they depart their last port. “Before everyone just steamed over from Asia as fast as they could, hoping to get a slot, but there weren’t enough slots, and they couldn’t unload their ships fast enough,” said Schrap of the trucking association. “Now, they are metering it more efficiently.”
Despite the container congestion problems at the two Southern California ports, cargo continues to arrive in record levels because the region is densely populated with some 24 million customers waiting for all those clothes, shoes, washing machines and computers to be unloaded.
Last year, the two Southern California ports processed nearly 20 million 20-foot containers — an all-time high. That’s up 17 percent from 2019. This year, they may even exceed that number. “You’ve got every ship deployed in the waterborne architecture of these trade lanes, and there’s more cargo than there is ship space,” admitted Gene Seroka, the executive director of the Port of Los Angeles. “The amount of cargo coming in will continue to be a pinch point.”
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