California Apparel News

The crux of the shipping season isn’t even here yet, but industry experts already are reading the tea leaves and seeing signs of port congestion up and down the West Coast.

In some ways, it is like the beginning of the perfect storm. In the Los Angeles area, highways leading in and out of the port complex have not been widened in decades to accommodate increased truck traffic. Railroads hired thousands of new workers and took delivery of hundreds of new locomotives but were hit with rail lines being washed away across Los Angeles during the January and February downpours. The lines have since been repaired.

The union that represents longshore workers at the Port of Los Angeles and Port of Long Beach has hired 5,000 casual workers to fill in during the heavy season. But union leaders, who support the ports staying open during evening and weekend hours, now fear the new PierPass program will outsource many union jobs by implementing new technologies. Traditionally, the International Longshore and Warehouse Union has dealt on technology issues with the Pacific Maritime Association, the official employer and contract negotiator with longshore laborers.

Shipping lines have been following these developments closely, knowing that any kink in the system will idle vessels longer than necessary. The shipping companies are not optimistic.

“The congestion we faced last year is likely to be around this year, and it will be some time before it is resolved,” said David Lim, president and chief executive of Neptune Orient Lines (NOL), a large shipping conglomerate based in Singapore. Neptune is the parent company of shipping line APL Ltd.

Lim, speaking at the recent Trans-Pacific Maritime Conference held Feb. 28–March 1 in Long Beach, Calif., noted that bigger ships, capable of hauling as many as 8,000 containers, are coming on line. But they are in danger of becoming huge floating warehouses if they are not unloaded quickly.

If ports are congested, that only means that shipping rates and surcharges will rise. Already, shippers have seen rates increase by at least 11 percent.

Lim said that NOL and other shipping companies should perhaps expand their menu of services, adding tasks such as getting goods through customs and onto railroad cars, to speed up the process. “Customers need cost-effective throughput,” he observed.

Fast shipping, slow ports

Speed-to-market has been the hue and cry of importers trying to get their goods from Asia to the United States.

Last year, the shipping season revved up in June, a few months earlier than normal, and didn’t let up until November. Labor shortages created a backlog so great that at one point, there were more ships anchored outside the two ports that make up the Los Angeles/Long Beach port complex than docked. Jon Hemingway, president and chief executive of SSA Marine, which operates several marine terminals at the complex, noted that port congestion and other problems forced labor productivity at the ports to decline by 9 percent when it should have gone up 10 percent. The cargo crunch meant that container traffic at the Port of Long Beach was up 24 percent last year over 2003. It’s not getting better.

In January, West Coast ports experienced a 10.4 percent uptick in container traffic, compared with the same period in 2004.

Last year, many shippers skipped sending their goods to the Los Angeles ports. Several shippers who needed their goods to end up on the East Coast chose to move their containers through the Panama Canal instead of having them unloaded on the West Coast and transported across the country by rail or truck.

Others diverted goods to less-congested West Coast ports in Oakland; Seattle; and Tacoma, Wash. But that strategy may not work this year because those ports are already facing their own mini-congestion problems.

A Limited Brands logistics executive who attended the conference lamented he was waiting two to three days to get containers on trains in Tacoma because the traffic there had mushroomed. And high shipping season has yet to begin.

John E. Kaiser, vice president and general manager of inter-modal traffic for Union Pacific Railroad, also at the conference, confirmed that inter-modal traffic in Tacoma was up 60 percent in January, compared with January of last year.

In January, Tacoma’s container traffic was up 32 percent over the previous January. Seattle’s cargo arrivals shot up 57 percent during the same month.

Even the Panama Canal is approaching capacity. Last year, vessel traffic ballooned 14 percent over 2003. The watery link between the Pacific Ocean and the Caribbean Sea is now at 90 percent of capacity.

Clogged and congested

Even if the ports of Long Beach and Los Angeles worked more efficiently, truckers would still have to battle congestion on local highways. One executive from APL, a predominant shipping line at the local ports, said he met recently with U.S. Department of Transportation officials and told them the highways and other infrastructure around the Los Angeles port complex had to be expanded to accommodate the flood of containers arriving.

“We told the Department of Transportation that diversions [to other ports] can work only so far. We are running out of tricks,” said Robert Sappio, APL’s senior vice president of trans-Pacific trade. “At the end of the day, L.A. has to work.”

Some steps are being taken to make it work. Railroad executives noted that this year they are concentrating on beefing up their labor pool and adding more equipment. But that still might not provide immediate relief.

“Shipping season will not be without its problems,” said Steve Branscum, group vice president of consumer products at Burlington Northern Santa Fe Corp., one of the two railroad companies that transport freight out of the Los Angeles/Long Beach complex.

Last year, the company added 334 new locomotives, 2,300 workers and 3,156 doublestack platforms. This year, it expects to add 70 new locomotives, 3,700 double-stack platforms and 2,100 workers.

Union Pacific added 700 locomotives to its system last year and will be putting 300 more locomotives on the rails this year. Additionally, it hired 6,400 workers last year and this year, increasing its work force by 16 percent. The goal is to get the whole railroad system moving faster. “In 2005, we are focusing on improving our velocity,” Kaiser said.

In the last two years, Union Pacific’s velocity dropped by 3 mph. This year, the company aims to increase velocity by 2 mph.

Working round-the-clock

Railroad executives said they believe their problems would be alleviated if everyone at the Los Angeles/Long Beach complex worked around the clock, just like train system employees.

That will start to become a reality in June, when the PierPass program begins keeping the ports open beyond the current 8 a.m. to 5 p.m. schedule. The program is devising a software system so that its computers can communicate with all 13 terminals.

When PierPass is launched, marine clerks can check truck drivers through the terminal gates during evening and weekend hours. The program will start with gates being open four week nights and one weekend day.

But some are skeptical that this will help much. “As far as I can see, it will affect only about 20 percent of the people,” said Enrico Salvo, chief executive of Carmichael International, a Los Angeles freight forwarder and customs broker that has several apparel clients.

No one is sure how many distribution centers will opt to remain open after 5 p.m. to accept freight or how many trucking companies or drivers will choose to work late at night or on weekends.

But the International Longshore and Warehouse Union is hiring 300 additional clerks to work during off-peak hours.

Outlook for 2005

The super ship is the latest technology being embraced by the shipping industry. About 60 new megaships, capable of hauling 8,000 containers each, will be delivered to shipping companies this year, said Mark Page, director of research at Drewry Shipping Consultants, based in London.

But congestion will still reign, which means that shipping rates will go up and congestion surcharges will be in place during high season. Page said he expects shipping costs from Asia to the West Coast to increase $285 per 40- foot container on May 1. Also, a congestion surcharge of $400 per 40-foot container will go into effect between June 15 and Nov. 30.

Adding to the congestion is the fact that in the next five years, more factories will be moving to China thanks to the elimination of quotas on U.S. imports from World Trade Organization members. Last year, China accounted for 13.3 percent of all U.S. imports. That number is expected to rise to 18 percent by 2009. Currently, China makes 20 percent of the world’s clothes and textiles. That figure is expected to double in the next few years.

The increase in Chinese factories also contributes to growing pricing pressures. Managerial salaries there have risen 10 percent to 15 percent in the last few years. Copper and steel prices have exploded, rising 50 percent last year. Electricity costs have risen nearly 20 percent.

Still, Asia will be the favored spot for producing apparel and textiles as more U.S. retailers and clothing manufacturers seek cheap labor. As a result, many carriers and freight forwarders are advising their customers to build an extra seven days into their delivery times this year to accommodate the congestion expected at the ports.

PierPass Inc., scheduled to start on June 1, is an ambitious program designed to keep terminal gates open during evenings and weekends.

But the International Longshore and Warehouse Union, which represents the marine clerks and dockworkers at the ports, is casting a wary eye on the plan. The ILWU fears Pier- Pass will implement certain technologies that will end up outsourcing some ILWU jobs.

While James Spinosa, the ILWU’s president, backs the ports being open at night and weekends, he points out that the ILWU and the Pacific Maritime Association, both based in San Francisco, spent several months negotiating a contract that spells out how technology is implemented on the waterfront. The PMA employs all the dockworkers at the port.

“We are somewhat uncomfortable with what PierPass is really about,” Spinosa said at the recent Trans-Pacific Maritime Conference in Long Beach, Calif. He shared the stage with Jim McKenna, the PMA’s president and chief executive.

“We have a contract with the PMA, and we now have another organization dealing with technology and putting it in the work force,” Spinosa added. “We don’t have a contract with PierPass.”

The 2002 ILWU contract included several steps governing the implementation of technology on the docks. When a new technology is proposed, the PMA must inform the ILWU, which then can study the effect of the technology on longshore jobs. The contract was preceded by a 10-day dockworker lockout imposed by West Coast terminal operators and shipping lines.

“There is a whole system we argued over,” said ILWU spokesperson Steve Stallone. “They give us information on technology, and we check it out so they are not doing an end run and outsourcing our jobs to someone else. This is what the whole lockout was all about: Who is going to operate the new technology.”

Stallone noted that the ILWU accepts that technology will eliminate some jobs. But the union objects to technology outsourcing jobs to non-union workers. The PMA maintains that only 20 percent of the technological advances they expected to have by 2002, such as radio frequency identification tags on trucks and containers, have been undertaken.

Last spring, the ILWU and the PMA met with an arbitrator in San Francisco to discuss the PierPass issue. The arbitrator said he will have no jurisdiction over the matter until the PierPass program starts. “If they try to implement any technology and not go through the proper process, we will be filing for arbitration.” Stallone said.