Dave in SD Library_11-11-2014Everyone needs glass jars, plastic containers and bags for their cannabis flowers and extracts, along with t-shirts, swag, paraphernalia, hemp oil products, etc. for a happy holiday season, but between “the seven levels of the candy cane forest and the sea of swirly twirly gumdrops”, your valuable holiday freight is stuck on a container ship anchored somewhere off the shores of Los Angeles, California.

Millions of dollars of freight – primarily holiday goods inbound from Asia into the US have been severely delayed due to the most brutal port congestion in a decade at the ports of LA and Long Beach. Amid much finger pointing, solutions to the problem have been slow to emerge. Some shippers are turning to air freight as a solution, but huge increases in demand have led to skyrocketing rate hikes for air freight in the lanes between Asia and the US. Although the damage has likely been done for this holiday season, there are some practical ways to mitigate this issue for you and your valuable customers in 2015. Before we get to those, let’s explore how the current congestion came to be.

A Perfect Storm:

The Ports of LA and Long Beach currently process 40% of our nation’s inbound freight. Every year in September, holiday freight spikes the volume of containers arriving into the ports. This year LA and Long Beach have each experienced that spike, in a big way – over 10% year-on-year increase from 2013. Additional factors have combined to make this year especially congested. “This is really a perfect storm,” said Port of Los Angeles Executive Director Gene Seroka. (Andrew Khouri, 2014) Here are some of the likely culprits:

  • Surge in volume of holiday goods arriving for the shopping season
  • Larger vessels with more containers that take longer to service at the berths
  • Long trucker turn times
  • Chassis (trailer) shortages – dislocations
  • Intermodal railcar shortages
  • ILWU labor contract delay

The surge in volumes of containers in the holiday season is easy to understand; it happens annually in September and October. This year we saw year-on-year volumes increase over 10% at both the Port of LA and the Port of Long Beach. Similarly easy to understand is the impact that larger container vessels are having on the ports. With more vessels carrying more containers – some three times as many as the ports were designed to process – it’s easy to understand how congestion could occur.

Harder to understand are the longer trucker turn times, chassis shortages, and intermodal rail car shortages. A turn time is defined as “A generic and ambiguous term that variously refers to the time a truck takes (a) to make a trip to the port (which may involve one or more transactions at one or more terminals) and back to the home yard, or (b) to make a trip to the port, to a customer location and back to the home yard.” (PennLease.com, 2014) Chassis are the trailer that the container is placed onto and that the trucks haul. Intermodal railcars are like chassis that carry containers lifted off from the ocean vessel – but they are part of the train versus the truck.

Three factors are likely driving much of the inefficient distribution or dislocation of chassis across the docks of the port operators.

  1. The weak economy over the last several years led the steamship lines to divest in assets, including chassis. Most of the chassis are now owned by chassis leasing companies who are not yet fully comfortable in their new role as service providers. This chassis ownership regime change is at the root of much of the congestion problem.
  2. Exacerbating this new ownership model is an agreement of the G6 carrier alliance made up of six of the largest ocean freight carriers in the world, including: NYK, Hapag-Lloyd, OOCL, APL, HMM and MOL.(World Cargo News, 2014) “With the carrier alliance arrangements, vessel operators that used to call only at one container terminal and were familiar with that facility’s chassis operating model are now calling at multiple terminals, each with its own model, said Phil Connors, executive vice president at Flexi-Van.” (Mongelluzzo, 2014) So you have a bunch of non-standard operating procedures being conducted by players unfamiliar with the landscape – a recipe for disaster that is now coming true.
  3. Finally, and most controversially, the ongoing delay of a labor contract between the International Longshoreman & Warehouse Union (ILWU) and employers represented by the Pacific Maritime Association is causing much of the problem. The last contract expired in July of 2014 but ILWU workers have been showing up for work ever since with no contract in place. The lack of a contract manifests itself in two ways related to the current severe port congestion. First, the final report and recommendation of a two year study conducted by transportation consultant Joe Pollazzo for the chassis stakeholder’s group has been postponed until after the new labor contract is in place.(Mongelluzzo, 2014) So all of the proactive efforts of the group and the consultant are on hold right when they are needed most. And secondly, there have been numerous accusations that the ILWU leadership is intentionally taking action to slow work on the docks to build leverage in the ongoing labor contract talks – not cool!

Port congestion for the season will likely work itself out in January when volumes decline. However, many of the underlying issues of this year’s severe congestion will carry over to the holiday season in 2015.

Here are 5 tips on how you can avoid delays for your customers next year:

  1. Reroute freight to other container ports – Oakland, Seattle-Tacoma, Vancouver, Mexico and even East Coast Ports via the Panama Canal are an option if it makes sense for your freight’s final destination. Take the time to run the numbers and work with a transportation professional to give yourself a leg up on the competition.
  1. Ship via Air Freight – If your product is dense (small & heavy) and represents a high cost item – think i-Pods or i-Pads, you may consider shipping via air freight. This is a VERY expensive option that will make sense in only a small percentage of instances.
  1. Pay a premium for priority service at the docks – In some cases you have an option to pay a “Priority Service” premium to bump your freight to the front of the line. This is an expensive solution but may be necessary if you need to receive your goods in time for Christmas.
  1. Near Shore – Source goods closer to home, especially Mexico where labor rates are only slightly higher than those in China where labor rates have been on the rise in the last few years. Total Cost of Ownership (TCO) or Total Value of Ownership (TVO) are ways that you can determine the pros & cons of near shoring and changing your supplier network. This is complex stuff so please work with a strategic sourcing and/or transportation professional.
  1. Re-Shore – Bring the manufacturing home to the US. This sounds great, but, depending on your product(s), labor rates in the US may not be a viable alternative for you. Again, run the numbers and consult with a professional.

I hope this helps you to get all those ancillary products into your dispensaries in time for Christmas.

All the best!

The author may be reached at dminer@cannabizsuccess.com or by phone at 619-631-8420.