Indigestion in La-La land

Coast Guard Petty Officer Nicole Thompson can see Asia's trade surplus glowing on the computer screen in her post overlooking San Pedro Bay in Los Angeles, the busiest port in the United States.

White circles mark anchorages where ships wait at sea when surging imports choke the port, gateway for almost half the containers entering the US.

Last October, boats filled 40 of 49 anchorages for as long as 10 days, idling cargo, increasing costs and biting into profit at companies such as printer-maker Hewlett-Packard and clothing seller Liz Claiborne.

"This shouldn't happen in a 21st-century country, but it has," says Albert Pierce, 62, executive director of the Transpacific Stabilisation Agreement in Oakland, California, a shipping-company trade group.

It may happen again, as soon as next month, when the peak shipping season begins.

Already, companies including Nike, HP and Liz Claiborne are diverting shipments to other ports, using the Panama Canal or sending goods by air.

HP and other companies say they are not passing the cost on to customers. The result: "It squeezes margins," says Larry Rupp, 61, manager of worldwide logistics for Palo Alto-based HP. "It just puts additional pressure on us."

Shippers have warned companies they may reimpose an extra 10 per cent "congestion" fee on goods sent through the LA port.

The fee, rescinded in February, added about US$200 ($282) to the US$1800 average price of a container.

Until now, such fees have been more common in developing countries such as Bangladesh and Malaysia, says Mark Page, research director at Drewry Shipping Consultants in London.

Record imports driven by the US appetite for low-cost, Asian-made goods have overwhelmed the Los Angeles complex, comprising twin ports owned and operated by the adjacent cities of Los Angeles and Long Beach.

Consumer demand is rising. US retail sales increased 1.4 per cent last month, twice as much as expected and the most in seven months, as Americans spent more on cars, clothes and restaurant meals, the Commerce Department said.

The trade deficit with China rose 40 per cent in the first quarter from a year earlier, to US$42 billion, even after imports from the country slowed in March for a second month.

Last year, overflow at the Los Angeles complex diverted more than 100 ships carrying goods worth as much as US$4 billion.

The Port of Long Beach's November newsletter compared the scene to the World War II invasion of Normandy.

Port and shipping officials say they expect traffic to increase even more this year. Products bound for New York from Asia can save a week moving through the Port of Los Angeles compared with the 25-day trip via the Panama Canal.

Ships reach Los Angeles within 11 days and it takes another week to move shipments by truck or rail to the East Coast, assuming there are no delays.

"This chain is about to break," says Alan Lowenthal, a California senator whose district includes Long Beach. "It is embarrassing."

The crunch is expected to arrive with the peak transport season, from June to November, when companies prepare to stock store shelves before the holiday season.

With 150 giant orange- and green-coloured cranes and 61 cargo terminals spread along 92km of waterfront, the complex is the most advanced in the US.

Even so, it hasn't kept pace as imports surged 43 per cent in value to US$1.76 trillion from 1999 to the end of 2004.

The issue last year was too few port workers. This year, companies say, deliveries may be clogged by an influx of big ships capable of carrying as many as 10,000 containers - twice the size of the largest ships five years ago. They fear that will choke rail lines serving the complex.

Rupp says HP, the world's No. 2 personal-computer maker, has begun importing parts earlier to avoid backlogs, incurring extra inventory costs as it keeps them on hand longer.

"It's the last thing any manufacturer wants to do," he says. "If you don't pass it on, it comes out of your margin." 

Inbound freight costs are about 0.7 per cent of revenue for the average US company, says consulting firm PRTM of Waltham, Massachusetts.

Still, the increases come at a time when many importers are facing pricing pressure.

Real prices of consumer goods such as housewares, appliances and electronics have dropped 14 per cent during the past five years, the Bureau of Labour Statistics says.

Oregon-based Nike, the largest US maker of athletic shoes, is shipping more shoes from factories in China, Vietnam and Thailand to the Port of Seattle, one of six ports along the West Coast trying to lure business from Los Angeles.

Traffic has jumped 40 per cent at the Port of Seattle this year.

Government leaders are starting to appreciate the need to help remove bottlenecks that affect the whole country. In November, the Department of Transportation set up its first office at the port to help develop federal policies to prevent congestion.

A provision in President George W. Bush's proposed six-year, US$284 billion transportation bill would require states to set aside as much as 2 per cent of their highway money to upgrade roads around ports, airports and railyards.

The LA port has a bigger wish list. It includes federal help for a US$700 million project to build a six-lane bridge on the main highway through the port as well as a US$225 million contribution for a plan to extend a 30km rail line, called the Alameda Corridor, about 55km east.

Trucks hauling containers share space with cars on Interstate 710, a 1950s-era freeway that runs north from Long Beach and narrows to three lanes in some stretches.

In February, the American Automobile Association called it one of the 10 most congested US highways.

The US Customs Service says the 6100ha port complex receives about 45 per cent of all containers shipped to the US and one-third by value. Shipping volume at the twin ports will rise 13 per cent to 14.9 million containers this year over last year.

That growth of 1.7 million containers is more than the entire 2004 capacity of all but six other US ports.

The increase follows a 10.7 per cent jump last year to 13.2 million containers, three times the 4.3 million handled by the country's No. 2 gateway, the Port of New York and New Jersey.

Late last year, imports overwhelmed the port when too few workers were available to unload ships. Containers piled up on docks.

Shippers complained they couldn't get enough railcars from Union Pacific and Burlington Northern Santa Fe, the two biggest US railroads.

Art Wong, a spokesman for the Port of Long Beach, and Arley Baker, a spokesman for the Port of Los Angeles, say congestion may not be as bad as companies fear.

They point to several steps taken.

Since August, the largest dockworker union, the International Longshore and Warehouse Union, has hired 4500 part-time labourers to supplement a workforce of 8600 in the Los Angeles port complex.

Union Pacific is hiring workers at a record pace this year and will add 700 in the first half, mostly for the West Coast train service, and Burlington Northern is preparing for more traffic this year by adding 12 per cent of the double-stacked cars that carry containers.

Next month, the terminals where trucks and trains pick up containers will begin staying open on weekday evenings and weekends.

They will charge shippers a US$20 fee for transporting a container during the day, hoping the charge will discourage day-time congestion on roads.

"We learned a lot from 2004," a union spokesman says. "We're in a much better position."

Rupp isn't convinced. "The problem was too big to have been solved in six months," he says.

Doug Tilden, 56, chief executive of dockyard operator Marine Terminals, based in Oakland, says it's doubtful labour increases alone will prevent backlogs.

"Last year, the congestion was sitting on ships," he says.

"This year, we're going to move it on to the roads and rail."

Distinctly portly

The 6100ha Los Angeles-Long Beach port complex has 150 giant cranes and 61 cargo terminals spread along 92km of waterfront.

It receives about 45 per cent of all containers shipped to the US and one-third by value.

Shipping volume will rise 13 per cent to 14.9 million containers this year. That growth of 1.7 million containers is more than the entire 2004 capacity of all but six other US ports.

The 13.2 million containers handled last year was three times that handled by the No 2 gateway, the Port of New York and New Jersey.

Last year, congestion meant 100 ships carrying goods worth as much as US$4 billion had to be diverted.

This year, deliveries may be further clogged by an influx of big new ships capable of carrying as many as 10,000 containers - twice the size of the largest ships five years ago.

- BLOOMBERG