Chain of Thought

Port Options: Opportunities for Optimism

It wasn’t long ago that retailers were worried about congestion at the coastal ports due to labor unrest. After that issue was settled, the effects of “economic sequestration” on port staffing became the next worry. Now, with the holidays around the corner, retailers are worried whether the ports will be handling enough volume.

Retail is not a game for sissies. But besides being tough, it helps to be an optimist at heart. Jonathan Gold, vice president for supply chain and customs policy for the National Retail Federation, recently voiced cautious optimism that, even with the slow economic recovery and flat import numbers so far, the industry will see stronger increases this fall.

It will be interesting to watch how retailers act on this optimism, not only as this year’s holidays approach, but as they take advantage of the newly expanded Panama Canal once it’s at full capacity in 2015. Some have been planning for the freedom of choice this represents for them.

Keith Andrey, vice president of ocean freight services at UPS, told me he’s seen two large retailer customers change their operating models over the last decade to be less dependent on West Coast routings from Asia. In fact more and more retailers are bolstering their economic optimism by developing contingency plans to mitigate the risks related to port operations on the West Coast. Those plans include taking advantage of all-water service to East Coast and Gulf ports.

“In the past that’s been heavily driven by Suez Canal routings but now it’s the increase of the capacity of the Panama Canal,” he said. “We believe we’ll see more retail customers taking advantage of that.”

Other strategies include finding ways to increase shipping container capacity when port capacity becomes strained. And as we report in our July issue, inland ports provide another means of releasing pressure on seaports—and the carriers and shippers who depend on them. That’s being done through technology.

“Using a solution for scheduling appointments at the ports eliminates waiting times,” reports Chris Cameron, a logistics solutions architect for Elemica. “Slot booking applications allow shippers and carriers to schedule appointments and book time slots at loading and unloading facilities, which streamlines their loading workflows and reduces delays and wait times for carriers, resulting in lower assessorial charges and fewer scheduling resources. Anything inland ports can do to speed up the loading and unloading process, decrease dwell time, reduce errors and ensure they have the right personnel, equipment and space available for carriers, the happier carriers will be.”

Andrey says because UPS is a non vessel operating common carrier (NVOCC), it can act as a shipment consolidator or freight forwarder for shippers. Where ocean shipping is concerned, UPS relies on the assets of other logistics service providers.

“We make decisions based on who has the best infrastructure and who’s making the investments necessary to grow with the demand within those ports,” Andrey says. “With the economy being soft, a lot of the infrastructure improvements our asset providers have made helped them keep pace with volume. When there’s robust growth we’ll see challenges for our third parties. The advantage of the NVOCC model is we can use multiple providers and that gives us options.”

Where the impact of the Panama Canal is concerned, the biggest bang for the shipper’s buck will be in the greater distance covered by water, adds Eric Souza, director of ocean freight services at UPS. He believes that while East Coast shippers will benefit from larger shipping vessels, the real question will be how much volume they’ll shift from the West Coast ports to an all-water service via the Panama Canal with rail transfer to interior points.  

“Companies are anticipating that along with the larger vessels they’ll see lower transportation costs,” he says. “Today the significant cost of moving an ocean shipment to an inland point is the expense of moving it by rail. We know that ocean movement can be much more cost effective in that regard.”

Retailers have many options opening for them when it comes to sourcing products. And with more consumers saying they’d be willing to pay more for products made in the USA, domestic sourcing may be one of them. With all of these chances to improve their business, maybe retailers won’t have to be as cautious in their optimism by this time next year.

Click here to view this full-sized infographic, The State of Reshoring 2013.

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