(Dennis McDonough is VP of Client Solutions at Weber Logistics)
I recently attended the Distribution Management Association’s (DMA’s) 2013 kick-off meeting in Ontario, CA. The theme: “2013 Logistics Outlook.” Recent economic forecasts have not been very optimistic, but I came away from this meeting with a re-born optimism and enthusiasm for the logistics industry in Southern California.
Bill Mongelluzzo spoke at the DMA event. He is associate editor at the Journal of Commerce (JOC) – a definitive information source on international freight transportation.
According to Mr. Mongelluzzo, two words sum up the future of international ocean freight in the U.S.: BIG SHIPS!
Not long ago, a cargo ship’s capacity was 5,000 TEU’s (twenty foot equivalent). The vessels used today by the largest ship lines are pushing 12,500 to 13,500 TEUs. Over the next 5 years, Post Panamax cargo ships will have the capacity to carry up to 18,000 TEUs. These larger ships will carry more volume, but will operate more efficiently and cleaner, bringing down the importers’ average cost per container.
Fortunately for Southern California, the deep water ports and infrastructure are already in place to service these Post Panamax ships. And ship lines continue to invest heavily in developing their own ability to handle larger volumes of ocean freight through LA and Long Beach ports.
Automation Will Drive Huge Increase in Port Productivity
Over the years, port labor disputes have resulted in painful, short-term supply chain disruptions. But negotiations from these disputes led to agreements that allow terminal operators to add technology and automation. In the future, this ability will give the Southern California Ports a competitive advantage throughout the World.
Port cranes will be operated automatically. They will be giant robots able to pick up two containers at a time, doubling unloading speed. Containers will be stacked adjacent to the vessel and automated trucks will be wire guided to the containers while another crane automatically loads them on a chassis.
According to Mr. Mongelluzzo, new technology will eventually increase the capacity of Southern California ports by 300%.
Impact of Panama Canal Expansion
Although the Panama Canal expansion (scheduled for completion in 2015) will enable transit of Post Panamax ships through a wider, deeper canal, Mr. Mongelluzzo predicted that this new capacity will not redirect much cargo from SoCal ports. He cited three reasons.
- Inventory carrying costs. Southern California ports are the closest distance from Asia to the U.S. It would take up to 2 weeks longer to ship goods to an East Coast port.
- Ship line costs. The China to SoCal ship lane is more efficient for shipping companies. Any changes will be reflected in much higher shipping costs.
- Eastern Ports playing catch up. They simply don’t yet have the deep water capability and supporting logistics infrastructure that Southern California has been building for the last 50 years.
The freight most likely to move to East Coast ports are lower cost products. But Mr. Mongelluzzo said he’d be surprised if more than 3% of the cargo is diverted past Southern California.
What else is new and different at the Southern California Ports?
Several major ship lines have gotten out of the “Chassis Business” in Southern California. Today’s harbor truckers (draymen) need to own their chassis or lease from the ship lines or another source. There is a daily fee to lease these chassis. In the near future, these chassis will need to be leased or owned throughout the country. Southern California is already ahead of the curve on this issue.
The Air Quality Management Districts (AQMD) and the Environmental Protection Agency (EPA) have had great success in affecting the harbor trucking practices in Southern California. Beginning in 2008, the term “Clean Truck” was enacted. Truckers with older model trucks were assessed a fine if their vehicles did not meet the “Clean Truck” criteria. Over the past five years the trucking community has responded to this challenge and surpassed all of the EPA’s expectations. Since 2005, there are 90% fewer freight emissions at Southern California Ports. The LA and Long Beach Ports are ahead of the rest of the country on clean air.
Mr. Mongelluzzo also commented on e-Commerce revolution. Importers are selling more and more of their products on line. Amazon recently opened a 950,000-square-foot, fully automated DC in the Inland Empire, east of LA. There is a great demand for warehouse service providers in Southern California that can provide high-volume, time-sensitive fulfillment. The industrial real estate vacancy factor in Southern California is down to 6.3%, from a high of almost 18% five years ago. This suggests a keen interest among importers in Southern California as a distribution point.
Thanks to the Post Panamax “BIG SHIPS” and continued consumer demand for high-valued, imported products, Southern California will continue to be a hub for premier logistics services.
It’s an exciting time to be a logistics service provider here. I Love LA!
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