5/16/05

Overwhelmed port chokes U.S. imports

The huge growth in shipping of containers into the U.S. means ships face long delays in Los Angeles

BY PETER ROBISON

LOS ANGELES - U.S. 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 U.S.

White circles mark anchorages where ships wait at sea when surging imports choke the port, gateway for almost half the containers entering the U.S. 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 Co. and clothing seller Liz Claiborne Inc.

"This shouldn't happen in a 21st century country, but it has," says Albert Pierce, 62, executive director of the Transpacific Stabilization 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 Inc., Hewlett Packard and Liz Claiborne are diverting shipments to other ports, using the Panama Canal or sending goods by air.

Hewlett Packard and other companies say they aren't passing the cost on to customers. The result: "It squeezes margins," says Larry Rupp, 61, manager of worldwide logistics for the Palo Alto, California based Hewlett-Packard. "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 L.A. port. The fee, rescinded in February, added about $200 US to the $1,800 US average price for each container. Until now, such fees have been more common in developing countries such as Bangladesh and Malaysia, says Mark Page, research director at London based Drewry Shipping Consultants Ltd.

Record imports driven by the U.S. 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 in April, 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 Friday in Washington. The trade deficit with China rose 40 per cent in the first quarter from a year earlier, to $42 billion, even after imports from the country slowed in March for a second month, the department said.

Last year, overflow at the Los Angeles complex diverted more than 100 ships carrying goods worth as much as $4 billion. The Port of Long Beach's November newsletter compared the scene to the Second World War 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 state 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-colored cranes and 61 cargo terminals spread along 92 kilometres of waterfront, the complex is the most advanced in the U.S. Even so, it hasn't kept pace as imports surged 43 per cent in value to $1.76 trillion from 1999 to the end of 2004, according to the U.S. Department of Commerce.

Last year, the issue was too few port workers. This year, companies say, deliveries may be 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. That, they fear, will choke rail lines serving the complex.

Hewlett Packard, 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, says Rupp.

"If you don't pass it on, it comes out of your margin," Rupp says. The company has had to slash prices of its PCs and printers. Profit at its printing unit, which accounts for more than two thirds of earnings, fell 3.6 percent last quarter and operating margins narrowed. The company, whose shares have declined 3.6 per cent this year to $20.15, said May 4 it would eliminate 1,900 jobs.

The port is seeking federal help for a $700 million project to build a six lane bridge on the main highway through the port as well as a $225 million US contribution for a plan to extend a 32 kilometre rail line, called the Alameda Corridor.

Bloomberg