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West Coast Cargo Glut by Alex Pulaski & Brent Hunsberger The Oregonian, January 2, 2005

While the Port of Portland hopes for overflow from busy California ports,
industry experts say its future could lie in niche markets such as autos

LOS ANGELES -- Shipping lines are breathing a little easier in Southern California these days after weathering an unexpected deluge of Asian imports.

In Los Angeles and Long Beach, Calif., America's ever-growing appetite for Chinese patio furniture and Japanese electronics created five months of indigestion when dockworkers, rail lines and truckers couldn't keep pace with ships transporting the goods.

Though a seasonal lull in volume and the addition of thousands of dockworkers cleared a backlog in late November, carriers are nervous that this year could bring more of the same.

To avoid delays that kept ships waiting as long as 10 days, some carriers have shifted service north to Oakland, Calif., and the Puget Sound. The Port of Portland -- stinging from the loss of two-thirds of its container cargo connections to Asia in recent months -- hopes to capitalize on Los Angeles' problems, too. But the Port may simply be too small, and too far upriver to capture much of the surge in business that has overwhelmed the two Southern California ports -- the nation's busiest.

"In my opinion, Portland has too many obstacles," said Mike Lingerfelt, president of California United Terminals, a terminal-management subsidiary of Hyundai Merchant Marine Co. "The Columbia River has a depth problem, and these ships are only getting bigger."

Instead, Lingerfelt and others in the industry suggest, Portland's growth may rest in expanding its strength in niche markets such as automobiles and bulk cargo.

Still, the Port of Portland hopes to regain ground from its recent service losses by wooing carriers and importers. Some shipping authorities say congestion in the neighboring Southern California ports and the area's rail system create opportunities for Portland and other West Coast ports trying to capture a share of the increasing Asian import trade.

"I fully expect big importers to demand more service into the Pacific Northwest because of the unused rail capacity," said Robin Lanier, executive director of the Waterfront Coalition, a group of shippers, importers and exporters based in Washington, D.C.

The question for Portland, Lanier said, is whether a city the size of Portland can wade into an arena driven by high-volume movement and consumption.

Part of the answer rests in Southern California, where 11.8 million standard containers -- enough to create a chain circling the globe nearly twice -- were loaded and unloaded last year. The two Los Angeles-area ports are struggling to keep pace with their own success.

Rising tide of cargo

On a typical afternoon in early December, trucker Mario Vatres of South Gate, Calif., sat for two hours in a line of trucks as they crawled along. He was one of dozens of truckers dropping off empty containers at California United Terminals in Long Beach. The lucky ones remained in line for another hour or more before driving off with full ones.

"That's just how it is here," Vatres said. "You wait and wait."

The waiting last summer and fall, however, reached unprecedented levels -- and created frustration not seen since a 12-day dockworker lockout in 2002.

Kevin Nicolello, senior operations manager of Total Terminals International, a subsidiary of Hanjin Shipping Co., said there were days last summer and fall when five ships waited on the water for a week or longer.

"It's frustrating to everybody because you wait and wait and then have to rush to unload," Nicolello said. "The whole supply chain gets stuck in this quagmire."

Meanwhile, because every day lost waiting costs shipping lines as much as $40,000, more than 100 ships were diverted from Southern California to other ports last year.

Problems began around the Fourth of July holiday.

The Pacific Maritime Association, which negotiates for dockworker labor on behalf of carriers, had planned for 4 percent growth in container volume last year. Instead, the number of containers funneled through Southern California jumped by 10 percent.

Much of the growth in container shipments in recent years -- Los Angeles/Long Beach traffic is up 44 percent since 1999 -- is from China. Recently, the United States has been importing $15 billion to $17 billion more in goods from China each month than it exports. Wal-Mart alone sourced $15 billion in merchandise from China in 2003.

Trade is so one-sided that it's created a premium on eastbound container movement. Rates vary, but the cost of shipping from Asia to the United States runs three to four times as much as transporting the same container back to Asia.

"We're sending back a lot of scrap paper and metal, but sometimes the carriers prefer to send it back empty so they can move and fill it more quickly," said Jesse Saldana, terminal services manager with California United.

As container volume picked up in July, additional dockworkers became harder to find. Maritime association officials had allowed their pool of fill-in laborers, or casuals, to drop to 3,500 -- down from 6,000 in 1998 -- and only began to refill that pool after last year's crisis became apparent.

"They started adding these casuals," said Sime Baran, a dock foreman. "These people are so green. They don't have a clue what's going on here. So you've got to hold their hands."

At the same time, train service could not keep pace with containers hitting the docks, and container yards started filling up.

"They just ran out of space," said Rick Lawler, a San Pedro, Calif., longshoreman. "They had cans piling up. How are you going to offload these bigger ships in the same space?"

A decade ago, the largest ships being built carried 5,000 standard containers. Now the largest vessels are 60 percent bigger, and ships designed for 2007 and later are expected to carry more than 12,000 standard containers.

Today's container ships are so large that they take five days to load and unload. They are too wide to pass through the Panama Canal -- narrowing the West Coast as the major access point to Asian trade -- and require $7 million cranes that dot Los Angeles' harbor like giant red and blue giraffes.

Scramble for space

As ships grow ever larger and container volume increases, the Southern California ports have been hard-pressed to keep up.

Though the two ports occupy 15,000 acres of land and water area, and stretch along 57 miles of waterfront, they have nearly run out of room for expansion.

To build Maersk Sealand's massive container terminal, which opened in 2002, the Port of Los Angeles filled in 484 harbor acres with dredge and landfill material. The cost: about $1 million an acre.

To make room for more containers, Southern California terminal operators are squeezing out other less profitable uses, such as unloading autos or importing fruit.

Until November, Hyundai's California United Terminals included a bustling warehouse for banana imports. The operation has been shifted to the Port of Hueneme, Calif.

"We used to get 5,000 tons of bananas a week," Saldana said. "That's all gone.

"We're going to tear this warehouse down and make it container land."

Even as terminals are battling for more space, the maritime association continues to train hundreds of dockworkers to prevent a shortage next year. Jim McKenna, the association's president and chief executive, said, "Labor is not going to be an issue that gets away from us again."

Carriers seem confident about getting their ships unloaded in 2005. What they are less sure about is whether rail lines and trucking firms can keep pace, said David Bennett, vice president of Pacific Coast sales for "K" Line America Inc.

"The question that needs to be asked now is, how we're going to address tremendous long-term congestion on the railroads," he said.

Portland's interest

Lingering doubts about how congested Southern California will become this year -- as well as security interests in the event one of the major West Coast ports was hit by a terrorist attack -- is causing carriers to consider expansion into the Pacific Northwest.

Sam Ruda, the Port of Portland's marine director, said a steady stream of carrier representatives visited Portland over the past three months to consider adding service.

Portland can't rival Southern California, which has steadily built on its dominant position as the U.S. gateway for Asian imports. Portland, meanwhile, has lost service so that carriers can add extra stops in China.

Every eight days, the neighboring Los Angeles ports move as many containers as Portland does in a year. But strong rail connections from Portland to the Midwest could tempt carriers and importers.

"It's all about the cargo, and eastbound cargo is going to drive this," Ruda said.

He said no carriers had been willing to commit to establishing Portland service, leaving the Port with only one trans-Pacific container carrier, down from three last summer.

Two obstacles facing the Port of Portland are beyond its control: a relatively small population to buy the goods being imported and the time needed to navigate the Columbia River. The Port hopes to eliminate a third hurdle -- the river's depth -- by proceeding this year with plans to dredge the Columbia to 43 feet. The depth would accommodate many vessels but not the largest container ships. In any case, the carriers that withdrew from Portland in 2004 said the river's depth was not a main cause.

Lingerfelt of the Hyundai subsidiary and other carrier executives remain skeptical that Portland will make significant progress in gaining container traffic from Southern California. Instead, they believe the Port could build on less profitable movement of automobiles and bulk cargo, such as timber and wheat.

"Nothing is going to happen for Portland with all the challenges it has," said one carrier executive, requesting anonymity.

But Eileen Murche, a marketing manager with the Port, thinks that a deal or two with large-scale importers could revive the Port's container trade. Murche was instrumental in Dollar Tree's decision to build a 650,000-square-foot distribution warehouse in Ridgefield, Wash., in 2003, bringing thousands of containers into Portland annually.

"We can't grow consumption here, but we can be a gateway," Murche said. "We think Portland can be the relief valve for Southern California congestion."

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