Executive Briefings

Cargo Flows Today, But We May Again See Transportation Gridlock

Transportation and logistics professionals are gearing up for what is expected to be another peak season of double-digit U.S. import growth. The good news is that our freight transport infrastructure-ports, railroads and over-the-road trucking-should be able to handle the load with no more than the usual delays. The bad news is that before the decade is out, that transport system could be overwhelmed. The ongoing issue of congestion has the potential to create a meltdown with serious repercussions for all of us if something isn't done-and soon. 

Shippers got a taste of such a meltdown a few years ago, when congestion-related bottlenecks were at all-time highs. Many more are aware of its costly potential today, because transportation and government officials have begun to sound the alarm.

The problems should be familiar by now:

• Seaports that are nearly out of room to expand and are not nearly as productive/efficient as they need to be to make good use of the land they have;

• A U.S. rail system that is under great stress, needs greater investment in tracks, equipment and infrastructure to handle today's loads much less those of tomorrow; and

• Over-the-road transport plagued by highway congestion around major freight terminals and a chronic shortage of truck drivers.

However awareness and previous experience aren't the equivalent of a cure. While some progress has been made, true solutions to the problem of our outmoded transport system are still many years away. Our country's aging transportation infrastructure can't be overhauled overnight-or without considerably more funding.

The question is what can we do in the meantime? And how can we work together to minimize its effects?

We can start by understanding the root causes.

Perhaps the most significant of these is the shift from domestic to global sourcing. Trans-Pacific shipments to the United States are growing dramatically. By 2010, containerized imports will be 50 percent higher than they were just two years ago. And by 2020 they'll more than double.

Unfortunately transportation capacity hasn't experienced the same dramatic growth, which has placed our nation's busiest ports, together with the rail and road freight networks surrounding them, at a disadvantage. In fact, our infrastructure is creaky and inadequate, and that's probably putting it kindly. It's already groaning under the pain of all this increased international traffic, and there's clearly more to come.

In addition to limited infrastructure, there have been port productivity issues. U.S. ports have about half the annual productivity per berth that the Port of Hong Kong does.

Outside port gates, truckers and rail carriers have been dealing with their own set of challenges, among them a limited track availability that only enables intermodal trains to travel at less than half their potential speed, and a truck driver shortage that has seen hundreds of thousands of drivers leave the profession since 2001.

Finally, there is the huge impact of the sum of all these parts. The problem with congestion isn't merely that most of our country's modes and corridors are getting overcrowded, it's also that they're all being over-taxed at once. This leaves very little slack in the supply chain and very little room to accommodate even small exceptions, like rush hour traffic preventing a truck from arriving on time to pick up a container or a vessel arriving late because of bad weather.

 

Costs Upon Costs

It's also important to acknowledge just how devastating transportation congestion can be. It's far more than just an issue of suffering from long lines at ports, bumper-to-bumper traffic on the interstate and minor delays in the harbor. Any time inventory, containers, trucks or other elements of the supply chain experience delays, the consequences are far-reaching, and the price tag is high. For example:

• In February 2006, a report from the Federal Highway administration estimated that in 2004 alone, trucks spent an estimated 243 million hours idling due to highway bottlenecks, costing trucking companies nearly $8bn. It's quite possible that these bottlenecks also cost the trucking industry some of its drivers, because most are paid by the mile, and longer waits in traffic or at port gates equal smaller, less attractive paychecks.

• And for every mile rail cars have to travel slower due to congested tracks, the rail system requires 200 to 250 more locomotives, 5,000 more freight cars and 180 train, engineer and yard employees.

If you need more evidence, think back to the last time congestion happened on a serious scale. Picture again how it felt when unexpected demand overwhelmed the West Coast in 2004. Ships at anchor in the Port of Los Angeles were waiting up to a week just to get a berth. Eastbound trains were late departing. And retailers were sweating whether or not they were going to be able to get the goods they needed to go into the peak holiday shopping season.

Thankfully we were able to address the problem then, and we haven't had an encore performance. But the incident continues to be instructive, because it could be a sign of things to come again if we don't make some changes soon.

Based on the interdependent nature of the world's transportation network, it's safe to conclude that few (if any) U.S. companies can expect their supply chains to be immune to the next serious bout of congestion.  Nor will they be the only ones who suffer, because congestion isn't just a U.S. problem. If trade bogs down here, it will have a ripple effect that will be felt clear back to our origin points in Asia.

However that doesn't mean that there aren't some techniques you can employ to keep its most serious symptoms under control.

For example, while West Coast ports (particularly those in Southern California) have traditionally been the most logical point of entry for goods manufactured in Asia, some companies have found that bringing their materials in via a wider variety of ports enables them to get their goods into the United States more quickly without long waits at the harbor.

The practice of deconsolidation-breaking down a single, large shipment (such as an ocean container) into several smaller shipments and then timing and organizing those shipments for delivery-has bought some companies an extra measure of supply chain flexibility that comes in handy during highly congested time. Among other things, it eliminates redundant transportation-which helps relieve some of the pressure on an already full truck and train transportation pipeline. And it keeps large-sized ocean containers closer to ports, reducing the problem of delays in container returns.

Non-peak shipping can also be effective. Companies that have been able to ship some of their cargo during their industry's off-season have sometimes managed to avoid some of their industry's worst capacity crunches. And companies that have leveraged night and weekend pick-ups at marine terminals where they're available have been rewarded with shorter truck lines and faster turnarounds-which explains why during its first year, the PierPass program in Southern California successfully diverted 2.5 million truck trips to off-peak hours at the ports of Los Angeles and Long Beach.

Premium transportation such as guaranteed ocean shipping has enabled several shippers not only to get their goods loaded on and off vessels quicker but ensure they already have trucking capacity lined up when they're ready to roll.

Finally, many companies have elected to even out the uncertainty of global shipping by bringing goods in earlier than they're needed and using warehouses to store them.

But even highly positive steps like these are only enough to keep the issue of congestion temporarily at bay. In order to prevent significant trade disruption in the years ahead, it's is going to take an unprecedented level of cooperation among players in all parts of the supply chain.

Shippers need to accept less free time at the ports, striving for pick-ups and deliveries within three days. They need to demand better performance from railroads. And they need to work with things like freight management services to optimize their transportation and reduce empty miles.

Railroads need to continue investing in improvements and improve service levels.

And 3PLs need to look for ways to offer visibility tools and other technologies that will speed the flow of goods and information.

But most important of all, we need a consensus among the public and private sectors that freight transportation is a national priority. We need to channel money into expanding and improving infrastructure throughout the supply chain-better and more productive seaports, more rail tracks and equipment and higher-quality roads. And we need a national freight policy that guides us on which projects to undertake first and how to fund them.

Finally-speaking of funding-we need to accept that all of us with skin in the game (and that means carriers, 3PLs, shippers, consumers and the government) are going to have to pay our fair share in order to make these projects a reality. No one entity, not even our government, has the energy or funding to do it all.

From added infrastructure funding to regulatory changes and enhanced process development, the most effective and far-reaching solutions to this problem will have to come from everyone. And they must happen sooner, rather than later-because today cargo is flowing with only moderate interruptions. But tomorrow, it could be gridlocked again.

 

Noone is vice president and managing director for the U.S. Eastern Region for APL Logistics and APL. Visit www.apllogistics.com and www.apl.com.

Transportation and logistics professionals are gearing up for what is expected to be another peak season of double-digit U.S. import growth. The good news is that our freight transport infrastructure-ports, railroads and over-the-road trucking-should be able to handle the load with no more than the usual delays. The bad news is that before the decade is out, that transport system could be overwhelmed. The ongoing issue of congestion has the potential to create a meltdown with serious repercussions for all of us if something isn't done-and soon. 

Shippers got a taste of such a meltdown a few years ago, when congestion-related bottlenecks were at all-time highs. Many more are aware of its costly potential today, because transportation and government officials have begun to sound the alarm.

The problems should be familiar by now:

• Seaports that are nearly out of room to expand and are not nearly as productive/efficient as they need to be to make good use of the land they have;

• A U.S. rail system that is under great stress, needs greater investment in tracks, equipment and infrastructure to handle today's loads much less those of tomorrow; and

• Over-the-road transport plagued by highway congestion around major freight terminals and a chronic shortage of truck drivers.

However awareness and previous experience aren't the equivalent of a cure. While some progress has been made, true solutions to the problem of our outmoded transport system are still many years away. Our country's aging transportation infrastructure can't be overhauled overnight-or without considerably more funding.

The question is what can we do in the meantime? And how can we work together to minimize its effects?

We can start by understanding the root causes.

Perhaps the most significant of these is the shift from domestic to global sourcing. Trans-Pacific shipments to the United States are growing dramatically. By 2010, containerized imports will be 50 percent higher than they were just two years ago. And by 2020 they'll more than double.

Unfortunately transportation capacity hasn't experienced the same dramatic growth, which has placed our nation's busiest ports, together with the rail and road freight networks surrounding them, at a disadvantage. In fact, our infrastructure is creaky and inadequate, and that's probably putting it kindly. It's already groaning under the pain of all this increased international traffic, and there's clearly more to come.

In addition to limited infrastructure, there have been port productivity issues. U.S. ports have about half the annual productivity per berth that the Port of Hong Kong does.

Outside port gates, truckers and rail carriers have been dealing with their own set of challenges, among them a limited track availability that only enables intermodal trains to travel at less than half their potential speed, and a truck driver shortage that has seen hundreds of thousands of drivers leave the profession since 2001.

Finally, there is the huge impact of the sum of all these parts. The problem with congestion isn't merely that most of our country's modes and corridors are getting overcrowded, it's also that they're all being over-taxed at once. This leaves very little slack in the supply chain and very little room to accommodate even small exceptions, like rush hour traffic preventing a truck from arriving on time to pick up a container or a vessel arriving late because of bad weather.

 

Costs Upon Costs

It's also important to acknowledge just how devastating transportation congestion can be. It's far more than just an issue of suffering from long lines at ports, bumper-to-bumper traffic on the interstate and minor delays in the harbor. Any time inventory, containers, trucks or other elements of the supply chain experience delays, the consequences are far-reaching, and the price tag is high. For example:

• In February 2006, a report from the Federal Highway administration estimated that in 2004 alone, trucks spent an estimated 243 million hours idling due to highway bottlenecks, costing trucking companies nearly $8bn. It's quite possible that these bottlenecks also cost the trucking industry some of its drivers, because most are paid by the mile, and longer waits in traffic or at port gates equal smaller, less attractive paychecks.

• And for every mile rail cars have to travel slower due to congested tracks, the rail system requires 200 to 250 more locomotives, 5,000 more freight cars and 180 train, engineer and yard employees.

If you need more evidence, think back to the last time congestion happened on a serious scale. Picture again how it felt when unexpected demand overwhelmed the West Coast in 2004. Ships at anchor in the Port of Los Angeles were waiting up to a week just to get a berth. Eastbound trains were late departing. And retailers were sweating whether or not they were going to be able to get the goods they needed to go into the peak holiday shopping season.

Thankfully we were able to address the problem then, and we haven't had an encore performance. But the incident continues to be instructive, because it could be a sign of things to come again if we don't make some changes soon.

Based on the interdependent nature of the world's transportation network, it's safe to conclude that few (if any) U.S. companies can expect their supply chains to be immune to the next serious bout of congestion.  Nor will they be the only ones who suffer, because congestion isn't just a U.S. problem. If trade bogs down here, it will have a ripple effect that will be felt clear back to our origin points in Asia.

However that doesn't mean that there aren't some techniques you can employ to keep its most serious symptoms under control.

For example, while West Coast ports (particularly those in Southern California) have traditionally been the most logical point of entry for goods manufactured in Asia, some companies have found that bringing their materials in via a wider variety of ports enables them to get their goods into the United States more quickly without long waits at the harbor.

The practice of deconsolidation-breaking down a single, large shipment (such as an ocean container) into several smaller shipments and then timing and organizing those shipments for delivery-has bought some companies an extra measure of supply chain flexibility that comes in handy during highly congested time. Among other things, it eliminates redundant transportation-which helps relieve some of the pressure on an already full truck and train transportation pipeline. And it keeps large-sized ocean containers closer to ports, reducing the problem of delays in container returns.

Non-peak shipping can also be effective. Companies that have been able to ship some of their cargo during their industry's off-season have sometimes managed to avoid some of their industry's worst capacity crunches. And companies that have leveraged night and weekend pick-ups at marine terminals where they're available have been rewarded with shorter truck lines and faster turnarounds-which explains why during its first year, the PierPass program in Southern California successfully diverted 2.5 million truck trips to off-peak hours at the ports of Los Angeles and Long Beach.

Premium transportation such as guaranteed ocean shipping has enabled several shippers not only to get their goods loaded on and off vessels quicker but ensure they already have trucking capacity lined up when they're ready to roll.

Finally, many companies have elected to even out the uncertainty of global shipping by bringing goods in earlier than they're needed and using warehouses to store them.

But even highly positive steps like these are only enough to keep the issue of congestion temporarily at bay. In order to prevent significant trade disruption in the years ahead, it's is going to take an unprecedented level of cooperation among players in all parts of the supply chain.

Shippers need to accept less free time at the ports, striving for pick-ups and deliveries within three days. They need to demand better performance from railroads. And they need to work with things like freight management services to optimize their transportation and reduce empty miles.

Railroads need to continue investing in improvements and improve service levels.

And 3PLs need to look for ways to offer visibility tools and other technologies that will speed the flow of goods and information.

But most important of all, we need a consensus among the public and private sectors that freight transportation is a national priority. We need to channel money into expanding and improving infrastructure throughout the supply chain-better and more productive seaports, more rail tracks and equipment and higher-quality roads. And we need a national freight policy that guides us on which projects to undertake first and how to fund them.

Finally-speaking of funding-we need to accept that all of us with skin in the game (and that means carriers, 3PLs, shippers, consumers and the government) are going to have to pay our fair share in order to make these projects a reality. No one entity, not even our government, has the energy or funding to do it all.

From added infrastructure funding to regulatory changes and enhanced process development, the most effective and far-reaching solutions to this problem will have to come from everyone. And they must happen sooner, rather than later-because today cargo is flowing with only moderate interruptions. But tomorrow, it could be gridlocked again.

 

Noone is vice president and managing director for the U.S. Eastern Region for APL Logistics and APL. Visit www.apllogistics.com and www.apl.com.