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Friday, Aug 12, 2022

Big Order to Fill

With less than a month before new global shipping alliances are set to go into effect, some L.A. businesses are bracing for potential cargo delays and logistical problems at local ports as many unknowns remain.

The ports of Los Angeles and Long Beach already have been hit with slowdowns in recent years thanks to earlier alliance rollouts, labor disputes, and the bankruptcy of a major shipping company.

“My big fear is delay. I just can’t continue to ship late to customers,” said Alex Rasheed, owner and president of downtown clothing importer Pacific Textile and Sourcing Inc.

The company, which was founded in 2002 and has 10 employees, imports men’s basic wear for clients including J.C. Penney Co., Macy’s Inc., and Wal-Mart Stores Inc.

Last year, Pacific Textile lost $100,000 when $2 million worth of cargo, about half of its monthly imports, was stranded for two months after the bankruptcy of Hanjin Shipping Co., he said.

The global shutdown of the shipping line’s operations caused containers to pile up at the Port of Long Beach and delayed deliveries worldwide.

Two new alliances, in which some of the world’s largest cargo movers are consolidating operations by sharing space on ships to cut costs, now have the potential to add to shippers’ headaches when they launch April 1. One of the alliances still hasn’t informed ports and the greater supply chain where and when it plans to unload cargo, and efficiently unloading a jumble of containers from several companies off a single ship has already proved a challenge for ports.

The two new partnerships are the Ocean Alliance, made up four carriers, including French and Chinese lines, and one known as The Alliance, with five members including three Japanese carriers, are set to go live next month. They will be two of three alliances worldwide after the 2015 launch of 2M by Denmark’s Maersk Line and Geneva-based Mediterranean Shipping Co.

“I call it the big bang of 2017,” David Arsenault, former chief executive of Hyundai Merchant Marine in the United States and now an independent consultant, told a crowd last week during the Trans Pacific Maritime conference in Long Beach. “We’ve had alliances form and come and go, but it’s all been staggered in the past. This is the first time we’re seeing all three go into effect at once.”

Rough waters

Shipping companies have been using such alliances to make up for an overcapacity of cargo space and plummeting rates in recent years. That shortfall has caused major carriers to post losses in the billions of dollars and was what drove Hanjin, once South Korea’s largest line, to bankruptcy.

“Shipping lines thought the future of the industry was in building bigger vessels, so these megaships were built. But while vessels grew, trade didn’t (after) the great recession,” said Michele Grubbs, vice president for Southern California with the Pacific Merchant Shipping Association, a trade organization that represents terminal and vessel owners.

As shipping capacity grew because of the larger vessels, companies could offer services at a lower cost. But the problem was that no single line could fill up a megaship.

“Alliances really formed to fill up space. It offers multiple carries a chance to fill up vessels,” said Grubbs.

Consultant Arsenault said the formation of alliances and cargo carriers’ problems aren’t over yet.

“Industry consolidation is happening at a faster rate than it ever happened before, and it is a sure sign and a clear red-flag indication of an industry that is not healthy and can’t continue to go on as business as usual,” he said.

While alliances seem to be the future of the shipping industry, the main concern at the moment is a lack of information about their operations.

As of last week, only one of the two new partnerships, Ocean Alliance, had shared scheduling information with ports on what terminals it would be calling at, according to port officials and shipping companies.

Uncertainty ahead

At the L.A.-Long Beach port complex, the largest in the country, a single hiccup can cause a ripple effect throughout the supply chain.

Rail and trucking schedules; availability of chassis, which are attachment trailers that fit on the back of trucks where containers are placed when cargo unloads from a ship; and other segments of the chain need to be coordinated with ship movement in order to move cargo efficiently to and from the ports.

There’s also the potential for mixed-up cargo. If a ship has goods from one of its alliance partners, but docks at its regular terminal, longshoremen and truckers need to be aware that multiple carriers’ cargo is coming in at that location.

Noel Hacegaba, chief commercial and operations officer for the Port of Long Beach, said there have been delays in the past as previous alliances took form.

“In anticipation of new shipping alliances, we are assessing readiness, identifying issues with port parties by reaching out to every segment of the supply chain. This includes shipping lines, terminal operators, labor, railroads, trucking companies, chassis leasing companies,” Hacegaba said.

A likely issue that might arise with the newest alliances, he said, is the availability of chassis. When alliances change, cargo shifts to other terminals, requiring chassis to be repositioned.

The ports share a fleet of 85,000 chassis, and while there isn’t necessarily a shortage, the challenge with the new alliances is that new vessels will be calling on terminals they haven’t called on before. Amid the uncertainty, an adequate supply of chassis can’t be planned for terminals, which might in turn result in cargo delays.

The Port of Los Angeles is also bracing for the rollout.

“We don’t really know what to expect as we wait on information from the alliances, but we are preparing as best we can,” said port spokesman Phillip Sanfield.

The lack of clarity has freight-forwarding companies anxiously waiting for updates so they can proceed with planning for their clients when shipments come in.

“We need to know which terminals they’ll be calling on so we can determine who’s got containers on particular routes. This helps us in making contracts,” said Kasra Ferasat, marketing director at American Export Lines, a freight-forwarding company headquartered in Willowbrook.

Freight-forwarding companies act as a go-between for their clients, many of whom are manufacturers and retailers that import goods from Asia. The freight forwarders pick up containers, book shipping lines, fill out legal forms, drop of containers at ports, and arrange for delivery, among other tasks.

Robert Krieger, president of Carson freight-forwarder Norman Krieger Inc., which handles cargo for Rasheed of Pacific Textile, noted that lack of information could cause delays in filling out customs entry and release forms at terminals, and information on whether goods needed to be examined, all of which could mean holding up delivery.

“Everyone should be nervous right now,” Krieger said.


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