Something we have been harping about for quite some time now is how congestion and other related factors are impacting supply chains, particularly when it comes to cost. Logistics Today has an excellent article this month asking the important question “How Much Does Congestion Cost?”

As sourcing from China surges, import traffic growth is straining U.S. West Coast ports and inland distribution infrastructure. More shipments are arriving late. Transit time variability is driving up costs. Importers are holding more inventory in safety stock to protect against the vagaries of their extended supply chains. As much as half the air freight from China to the U.S. could be upgraded ocean freight that’s flying to ensure schedule integrity.

That’s a high price to pay for low-cost manufacturing.

Looking into the future, consumer goods alone are expected to grow 3 million TEUs from 2005 to 2010—a 60% increase in volume.

Intermediate goods should grow 1.4 million TEUs or 70% in volume during the same period.

Last year, on several occasions, I was asked for my opinion on the state of seafreight container pricing by an investment firm. They were curious to know my impression of where pricing was headed considering analysts’ expectations that new capacity was coming online and pricing was expected to fall. At the time, I remember expressing skepticism, believing that demand would remain strong and doubtful that capacity would outstrip demand. I was also highly critical of the incredibly large vessels that everyone was raving about, explaining that advantages gained in transportation cost could be negated by the impact such vessels would make on port infrastructure and the congestion problem. Global trade, particularly trans-Pacific trade, was growing, not shrinking, and West Coast ports were barely coping now. I opined that perhaps rates might fall in the short-term, but that problems with port infrastructure and rising congestion, as well as increased demand, would force costs to rise in the long term. Each time the investment firm contacted me, they asked me similar questions and I continued to offer similar answers. I was surprised they kept calling me when I kept giving similar answers and was told that I was one of only a very few people they had spoken to who saw things in this way. This surprised me, since most of the information I was reading and receiving painted a grim picture of port capacity and congestion.

Half the volume of ocean container imports comes through West Coast ports (Los Angeles/Long Beach, Oakland, Seattle/Tacoma). Those ports are already congested and operate at or close to full capacity during peak periods. Efficiency improvements are marginalized by constraints and bottlenecks in inland transportation.
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Even at conservative growth estimates, West Coast ports will be operating at full capacity year-round as early as 2007. Larger ships offer a lower cost on port-to-port transit, but they increase landside congestion as they unload greater numbers of containers during a single port call.

Emphasis ours.

This is a must read article that paints a very realistic picture of how congestion and poor infrastructure, combined with rising demand, can severely impact your supply chain. Logistics Today outlines a number of things shippers can do, I won’t go into detail, you can go to the article to find information on each one, but here’s a quick run down:

- Use alternate ports
- Upgrade LCL to FCL
- Upgrade from rail to truck delivery
- Streamlined handoffs

I would add to this list the following:

- Use direct sailings, where possible
- Investigate possibility of sea-air routings
- Negotiate long term airfreight contracts during off-peak seasons, regardless of whether you think you will need airfreight or not in the peak season (don’t worry, you will).
- Look into utilizing airfreight instead of seafreight for higher demand and high value products

These are just a few of the things that come to mind, if anyone else has further ideas and suggestions please make them known. Things are looking to get worse, not better, and companies need to take the initiative to avoid problems in the future.

Stumble it!