November 10th 2014
Some shippers with sensitive cargo are diverting containers away from the U.S. West Coast to the port of Virginia, despite higher transportation costs, to avoid congestion and potential labor action.
Pat Moffett, vice president of global logistics for Voxx International Corp., told JOC.com that his company normally ships its consumer electronics merchandise from China and Malaysia across the Pacific to the ports of Seattle and Oakland or via all-water Panama Canal services to the East Coast, but has been rerouting since late August and early September via the Suez Canal to the port of Virginia because of fear of disruptions.
“At the end of August, after two months of no contract and no word that everything was fine, I started to get a sense of the 2002 lockout,” the 50-year industry veteran said. “As we started to move into September – that’s about when the 2002 lockout took place – I started to shift some merchandise over in case there was something going on, so I could get some merchandise backed up in Norfolk for the West Coast range.”
While transit times via the Suez Canal are up to six days longer than via Panama, Moffett said he chose to divert via the Suez Canal because Voxx has a contract with Maersk Line and a couple of other carriers that use 10,000-TEU vessels to transit the Egyptian waterway.
“There’s a better chance of getting a booking on a 10,000-TEU vessel than a 5,000-TEU vessel going via Panama,” he said.
Perhaps that’s why for the first time in history, the Panama Canal has become the less-popular route for carriers sailing from Asia to the U.S. East Coast, with more than half of capacity in the trade sailing via the Suez Canal, according to new data from Drewry Maritime Research.
A logistics analyst from a manufacturing company – who requested to remain anonymous – told JOC.com that he has diverted all of his company’s cargo – around five to 10 containers per month – from France and Spain to Virginia, instead of through the normal supply chain route via the ports of Los Angeles, Long Beach and Oakland, because the company cannot afford to let its expensive, temperature-sensitive freight remain on docks without being hooked up to reefer plugs.
Some of the company’s cargo must be refrigerated, and one of the company’s containers can costs hundreds of thousands of dollars, the analyst said. The unpredictability of cargo handling on the U.S. West Coast at the moment makes the move through those ports too risky, he said.
“Transit times to Virginia from France and Spain are actually shorter than to the West Coast by five to seven days, but normally it’s more expensive to truck the containers across the U.S.,” the analyst said.
Even with mounting congestion fees of around $1,200 per month through Los Angeles-Long Beach, plus $1,000 to transit through the Panama Canal, costs are still around 30 percent higher when shipping to the East Coast, the analyst said. But without those fees, costs would be about 50 percent higher.
The analyst said he chose Virginia as its East Coast diversion port because it was the first port on the sailing schedule the company already uses, and it has a temperature-controlled warehouse.
Moffett, on the other hand, considered other ports for diversions. He said he first tried sending two containers – originally destined for Toronto – to Vancouver, to test out Port Metro Vancouver’s reliability, but it was not successful.
“Those containers spent three weeks on the pier,” Moffett said. “It was a mess, so we’re not diverting anything that way. When those two containers got tied up, I said, ‘I don’t want any part of that.’ That gave me a bad taste.”
Virginia is clearly benefitting from the congestion situation on the West Coast. For the first time in its history, the port handled more than 220,000 TEUs in a month, making October the port’s busiest month ever. October was also the fourth consecutive month of volume exceeding 200,000 TEUs.
“These volumes present a challenge to our delivery of efficient service to the motor carriers, and we are fully engaged in portwide efforts to improve throughput for trucks,” said John F. Reinhart, CEO and executive director of the Virginia Port Authority, in a statement.
Both Moffett and the logistics analyst said they have seen minimal congestion problems at Virginia, if any.
Although some shippers diverted or accelerated shipments ahead of the July 1 contract deadline between the International Longshore and Warehouse Union and the Pacific Maritime Association in anticipation of disruptions, Moffett said he didn’t divert until the two parties settled on the health care issues. While some said the health care deal was the clearest indication of peaceful talks, Moffett disagrees.
“Originally, I didn’t move a thing,” he said. “The health care deal bothered me because neither side has the $150 million to pay the Obama tax, so it sounds like it might only be a three-year contract when all is said and done.”
Since late August, Voxx has diverted about 8 percent to 12 percent of its yearly shipments to Virginia, or roughly 250 40-foot containers out of an annual total of 2,000 to 3,000 40-foot containers. Containers diverted from the U.S. West Coast to Virginia end up as far west as just west of the Mississippi River, Moffett said, but that comes at a price – domestic freight is about 8 or 9 percent more costly, especially when it’s in a backhaul lane with so much mileage.
And yet the bigger problem now isn’t even higher costs, but getting merchandise on shelves in time for the holiday season. Moffett said CMA CGM recently declared force majeure – meaning its contractual obligations are suspended – on a vessel calling at Seattle with five of his 40-foot containers still onboard holding vital holiday cargo. The port of Seattle, as well as Tacoma, has been slammed by ILWU actions since the beginning of November.
“As soon as I see a carrier declare force majeure, there’s a message there: It’s not a good situation,” Moffett said. “I don’t know when those containers will come back, but we need them for the holidays.”