West Coast Port Congestion Could Become a Trade Barrier
Manufacturing goods in China may be cheap,but it could lead to problems down the road.
A recent report conducted by analysts at the Boston Consulting Group warns that future congestion at West Coast ports could make it hard to get imported items into the country on time. The analysts suggest that manufacturers diversify their sourcing strategy by producing in Mexico or the United States.
“In their rush to source from China, many companies are blindly walking into a strategic risk,” wrote George Stalk Jr., a BCG senior partner in Toronto, and Kevin Waddell, a partner in BCG’s Warsaw, Poland, office.
“The risk is thinking that sourcing from China will result in lower product costs, when in fact the supply-chain dynamics will, in many cases, drive up overall costs and reduce profits.”
The analysts warn that the same fate holds true for importers trying to bring goods in through European ports that also are growing rapidly.
There is still some excess capacity at major European ports, and steps are being taken to expand. However, the situation on the West Coast is more serious and complicated, with many ports experiencing virtual gridlock. The result is a giant, non-tariff trade barrier. Stalk predicts that the crunch year will be in 2009 or 2010.
The U.S. problems go beyond the ports and extend into the railroad lines, where existing infrastructure to disperse the flood of goods from China is being strained. Rail freight out of Los Angeles and Long Beach is already near capacity, and freight out of Oakland, Calif.; Seattle; and Tacoma, Wash., is expected to reach capacity in the next few years, the report said.
Indeed, the ports of Los Angeles and Long Beach have seen double-digit growth in the last few years, but goods have been getting off the docks relatively quickly. Nearly two years ago, the ports opened up their gates at night and on Saturdays with the PierPass Inc. program, with importers paying an extra fee to pick up goods during the day.
“Hopefully we will avoid a situation like that [congestion] by continually looking at our facilities and figuring out ways to increase the velocity. We have at least a dozen major projects that are on deck for environmental assessment,” said Port of Los Angeles spokesperson Arley Baker. “But we realize that we will have rail-capacity issues unless we work now on a number of levels to head that off.”
Baker pointed out the port received 8.5 million 20-foot containers in 2006, up 13 percent from 2005. Port traffic is expected to increase 8 percent to 10 percent this year. “The volume from Asia will continue to grow,” Baker said. “So we are approaching growth from all angles.”
—Deborah Belgum
