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Issue 3 2019 - FBJNA From the Editor


Concerns, wevolutions


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MATT WEIDNER Tel: + 1 610 486 6525 matt.weidner@fj-online.com


JOHN SAUNDERS - PUBLISHER Tel: +44 (0)151 427 6800 Mobile: +44 (0)7932 102026 john.saunders@fj-online.com


EDITORIAL


KAREN THUERMER-EDITOR karen.thuermer@fbj-online.com CONTRIBUTING EDITORS: PETER BUXBAUM MARK CALDWELL HANK DONNELLY JOHN JETER ADINA SOLOMAN


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By Karen E. Thuermer


Over the last two months, I’ve been attending several trade conferences as well as the annual Luſthansa Cargo press conference where I heard repeatedly concerns for the global economy. Most executives revealed they are taking a wait-and-see approach regarding future plans. The possibility of a global recession egged on by the US political environment, US-China trade concerns, and Brexit are some of their major concerns. They also see the logistics industry being linked over the next six months to


uncertainties related to seaport congestion caused, in part, by US-China tariffs disputes. This has contributed to backlogged trucks and a shortage of chassis. Beyond that there’s issues surrounding environmental regulations, and the China One Belt Initiative, which could result in steamship line rotation changes. The disruptions at the Ports of Los Angeles and Long Beach caused by operational


issues are particularly troubling to retailers who import many products from China. Bryan Ward, senior director of International Logistics at Home Depot, was critical of the terminal appointment systems at both ports regarding truck turns and chassis management. He was one of a panel of speakers at this year’s Retail Industry Leaders Association (RILA) Supply Chain Conference held in February in Orlando, FL. “There’s pressure on truckers to solve the [congestion] problems at the ports,” he


said. “The ports expect them to figure out which system works best. The ports need to manage truck flow, and don’t seem to solve truckers’ problems.” Contributing to the problem is the arrival of large ships such as the MSC Eloane, with


its capacity of 19,500 TEUS. The MSC Eloane called at APM Terminal at Los Angeles on March 13 and Total Terminals International dock in Long Beach five days later. It usually sails on the Asia-to-Northern Europe rotation, but arrived Southern California to basically pick up empty containers. Those containers have been stockpiling up at the Port of Los Angeles because of free


storage provided by drayage providers. But they must be picked up before no charges begin to be pressed. But each terminal at the Port of Los Angeles operates like its own fiefdom. Over half


of empty and export containers brought back to the port go to a different terminal rather than where it originally arrived. This has resulted in thousands of chassis being repositioned around the port daily. With an eye on this year’s contract season with steamship lines, Augie Drufe, vice


president, Supply Chain at SharkNinja, stressed that it is critical for shippers to know early on what changes ocean carriers are identifying in their service strings. He was also a panel speaker at the RILA conference. One key reason is the International Maritime Organization (IMO) mandate that


calls for a significant reduction in the sulphur content of fuel oil used by ships, starting Jan. 1, 2020. Ports and terminals need to start stockpiling the low-sulphur fuel. Yet, not all seaports have the infrastructure to do so, or access to refiners and suppliers. To be compliant, steamship lines will pick and choose port rotations accordingly. Add to this, economic pressure on the lines to become compliant could lead to further


consolidation among steamship companies. Rick Gabrielson, CEO of RS Gabrielson & Associates, told attendees at this year’s


Georgia Foreign Trade Conference in Sea Island, GA, that steamship companies will need to spend big bucks to become compliant since countries worldwide will not allow ships to dump pollutants in their waters. The cost of becoming compliant by either employing ships that run on LNG or


installing scrubbers, is expensive. Gabrielson estimates it will cost between $50-60 billion annually for steamship lines to comply, a cost that carriers cannot absorb. Steamship line executives warn that such costs will be passed on to their shipper clients. “There are operational options for reducing costs, such as slow steaming, vessel


rationalization,” Gabrielson continued. “These may impact service levels.” In addition, he warned that diesel prices could rise 20-30%. “If this plays out, this has


huge consequences,” he said. Gabrielson particularly encouraged shippers to resist bunker all-in pricing. “Fuel


should be a pass-through cost, not a profit center for carriers.” These concerns combined with possibly more tariffs on imported Chinese goods will swing decisions regarding sourcing. Some American shippers already are considering


nearshoring options: Mexico and countries in Central and South America. “Such shiſts will have a big impact in steamship line negotiations with shippers,”


Garbrielson said. Overall, he also warned: “Shippers need to prepare leadership for negotiations.” Meanwhile, trade groups such as the American Association of Port Authorities


(AAPA), US Chamber of Commerce, and National Association of Manufacturers, are encouraging passage of the renegotiated United States, Mexico, Canada Agreement (USMCA), which replaces NAFTA. In testifying before the US House of Representatives Ways and Means Subcommittee on Trade on March 26, the AAPA stated concerns that potential trade sanctions imposed on Canada, Mexico or other trading partners like China, and reciprocal actions, could result in significant losses of good-paying U.S. trade-related jobs, including those in the seaport industry. “You [Congress] can help by approving the USMCA and encouraging the President to speed up negotiations with China,” AAPA’s rep said. No Editor’s Note can end without mention of other problems on the domestic front:


the truck driver shortage and America’s infrastructure. One bright spot, the load-to-driver ratio is improving, largely driven by demand.


Wages are improving, but not attracting large numbers of employees. US roads received a D rating in the most recent American Society of Civil Engineers


report. While both Republicans and Democrats have introduced plans for a $1 trillion investment in infrastructure, the two parties have so far failed to find common ground on any specific bill. Intermodal rail and short sea shipping can offer some relief. According to


Gabrielson, the time for short sea shipping has come. “If you believe that Mexico, Central and South America will grow as a gateway to the US, and the driver shortage will continue, I believe we will see different designs of powered vessels,” he said. Short rail options are also in demand and needed desperately. Garbrielson pointed


out that short rail gives shippers the option of delaying decisions regarding allocations. “Shipments can be treated like bulk orders and increase visibility,” he said. Meanwhile, with e-commerce taking a strong hold, programs to increase visibility and speed to market are literally flying off the shelf.


///NEWS


Freight Business Journal North America - FBJNA reaches out to the decision makers and influencers involved in international freight transport and logistics. FBJNA boasts the most informative and authoritative source of information with unrivalled in depth knowledge of the rapidly changing freight business environment. Our complimentary website www.fbjna. com provides the most up to date news and analysis from within the international shipping industry.


If you have any stories or letters which should be of interest or any feedback on FBJNA, please contact our editor Karen Thuermer - karen.thuermer@fbj-online.com


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Our next issue will include features on: Gulf Coast Ports update, Caribbean and Latin America trade, Project Cargo, Market Focus: Texas. For further details contact: Matt Weidner - T: + 1 610 486 6525 E: matt.weidner@fbj-online.com


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