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Commissioner Michael A. Khouri’s Prepared Remarks to the Journal of Commerce Port Performance Conference.

December 9, 2014

Good morning and thank you for the invitation to talk with you about current port performance issues, especially congestion problems on the West coast and, to some lesser extent, on the East coast.

As a standard preamble, my comments today reflect my personal views and opinions. I do not speak on behalf of the Federal Maritime Commission or the federal government administration.

As you know, the Commission recently completed a series of public forums on port congestion problems. The West coast and North Atlantic region meetings were held in LA and Baltimore in September. I chaired the South Atlantic meeting in October and the Gulf area ports meeting was held on November 3rd.

All were well attended by a full array of marine stakeholders and interest groups. The Commission is still working on the task of compiling the information from those meetings and the transcripts. So today, I will try to just summarize the issues – and there are many – as raised by each category of stakeholder or constituent. And before I begin, I want to emphasize that each constituent and each stakeholder is important to me, the Chairman and the full Commission. Every person in this room is invested in the mission of moving the nation’s import and export trades efficiently.

I will start simply and alphabetically, with Cargo interests and Shippers.

Beyond the obvious complaints of delay on cargo delivery - to the point that some cargo interests are becoming resigned to being "out of stock" for some holiday season items - some are expressing growing concerns about early spring season for patio and home outdoor stocks. On the export side, there are full throated complaints about lost sales into foreign markets, including containers loaded with perishable goods that are targeted for seasonal demands and that will be of minimal to no value in those destination countries if or when they are ultimately delivered.

The shippers also expressed frustration with poor communication channels with the liner operators, the ports, the truck operators and the chassis operators. A common refrain was not merely the lack of communication, but also the lack of clear contractual duties and responsibilities between all of these parties in the supply chain. A BCO complained that when he had delay problems, he called his steam ship line. That carrier directed him to the terminal or the truck line. He said – but I have my contract with you, not with that other party.

A common complaint was demurrage and terminal storage charges when a BCO is foreclosed from getting his container from the port due to internal port congestion. A related problem cited was delays caused by government inspections on import cargos.

Next, Chassis owners and operators

This stakeholder group has acknowledged that the transition from the ocean carrier centered model to the current state of several different business models in different regions of the country has moved more quickly than anticipated. On the Atlantic side, the Virginia Port Authority has pursued its chassis business model for several years, and John Reinhart can offer more informed comments there. New York – New Jersey is working on chassis business models. The South Atlantic ports have a slightly different approach. And the LA – Long Beach ports have one or more business models that are still developing.

The cost of chassis maintenance and the timely availability of mechanics was widely cited. Further comment centered on the expense of constant repositioning of chassis and again, focused on poor or untimely communication from liner operators and port operators as a causal factor. The location for chassis storage and for maintenance – on terminal, off terminal – was cited.

A comment in the form of question offered – we have the same number if not more chassis now than we had before the recession and container traffic drop off, so why and where are the problems now?

Next is Labor interests which falls into two categories – longshore and drayage drivers.

At the South Atlantic ports session, an ILA officer spoke about the challenges of providing a trained and skilled workforce 24/7 when the workflow is becoming increasingly sporadic. He noted that some positions require not just training but mandatory government certifications and credentials, such as TWIC cards. When there is a surge in volume there is not enough available labor and then during slack periods, the challenge is to keep the full labor pool available. With the West coast situation still in discussions, I will move on to truck labor.

There were many comments from a wide array of stakeholders that the current drayage situation is not viable in the long run. With long gate delays and hours of service regulations, truck owner/operators cannot achieve enough paid trips in a day or week to pay all of the bills. A final solution to the congestion problem would significantly improve that economic calculation, but in the nearby time frame, truck drivers are exiting the business for other work. Another comment observed that even if all drivers were paid by truck lines on an hourly or even salary basis – how would that result in one additional container moving into or out of a port?

The Port Authorities and terminal operators were the opening group at several of the regional meetings, but it would be both unfair and misleading to thereby suggest that there lays the root of the congestion issue. Commentary on contributing factors in port congestion were larger vessels that hit port with more boxes and take longer to unload together with these big vessels getting out of schedule and thereby bunching at ports. Also mentioned were the new vessel sharing alliances – and primarily at the Southern California terminals – where there is increased intra-port drayage moves, meaning, from one carrier’s proprietary terminal to another, thereby consuming more truck and chassis capacity, adding to intra-port congestion, and none of which is value added in terms of moving that container out of the PORT and on its way to the ultimate door destination.

Infrastructure issues were a constant theme, including berth and dock side issues, channel dredging and the long lead time for government permitting. A corollary issue expressed by several port directors was the complicated and difficult process of obtaining financing for all of a port’s infrastructure needs. Getting long term financing in conjunction with the long lead time in government permitting and further complicated by the local, state and federal legislative process was cited.

From a different prospective, a government academic commented that his studies indicate that, prior to making additional investment in infrastructure, we should focus on "processes" and pursue added productivity through more efficient use of current infrastructure.

When we read about projections of world trade doubling in fifteen years, then look back to observe that these port projects of every description can easily consume fifteen or more years, and then look at where we stand today in terms of port congestion – there may be reason for concern.

Moving to Rail Carriers, the two Eastern U.S. railroads participated in the Charleston forum. They discussed their congestion issues and choke points. Also mentioned was Super Storm Sandy and last winter’s impact on rail interface with ports in the Northeast. Both emphasized their company’s efforts in adding new car and locomotive capacity and bringing more train engineers through the training process and out onto the rails.

Truck owners and operators participated at all of the forums and offered a variety of comments and complaints. Taken as a whole, their comments focused on the poor health of the drayage truck industry. All cited long gate delays, low pay, driver shortages, government regulation – primarily hours of service, inability to generate enough turns per day, inefficiency inside of the terminal complex [examples – waiting for yard lifts to dig a container out of a stack]. Last, not least, were common themes concerning poor communication from and with the terminal, the cargo interest, chassis providers, and others and a general lack of professional respect for the truck drivers and the drayage community.

Closing out the alphabet list were the Vessel Common Carriers. Various carriers participated at all forums. While acknowledging that larger ships are coming into the US trade lanes and the surge each ship brings into a port, the scheduling and bunching issue was explained as weather related or other events out of the carrier’s control. Another causal factor cited for volume surges is the import versus export imbalance in the US trades.

Once again, the communication issue was raised by all carrier participants.

That is a fly over of the many problems that were placed out on the table in the regional meetings. Clearly, port congestion is a result of many issues and causal factors throughout the supply chain.

Mark, you want us to move into the various ideas for solutions that came out of the meetings, so I’ll close my remarks with an observation from Mark Twain – For every complicated problem, someone will come up with one single answer that is almost ALWAYS wrong. With that humorist’s warning, there were a lot of good ideas presented, all of them deserve consideration and many deserve prompt implementation.

Solutions and Ideas for improved Port Performance offered by Forum participants

Communication on a timely basis by, with, between all stakeholders

Improved forecasting by shippers, carriers, chassis providers, terminals, truck providers

Technology improvements, such as GPS equipped trucks and improved information on chassis availability

Extended terminal gate hours, through meal times and up to 24/7 operation

Predictability of gate hours

Truck appointment programs

Standardized truck turn time measurement and then making all of that data available to all members of the supply chain

Grey chassis pools

More chassis, new chassis injected into areas with high congestion

More container free time before storage fees kick in

Less container free time before storage fees begin

More free time on carrier charged demurrage

Less free time

Improve space utilization at terminals

Move chassis pools off of terminals

Minimize inefficient container stacking processes

Marshall containers with a single BCO’s cargo into one area and then allow a truck to pick up the first and easiest container. This is being tried now in LA/Long Beach

Carriers should speed up ships when they fall behind schedule

Reduce "ghost booking" in order to increase vessel schedule integrity

More infrastructure investment on the land side into and out of the port – the "last mile" in and out of the port. More local and state government coordination on this topic was suggested

Increase the federal fuel tax to fund highway projects for better port access

Terminal express lanes for empty containers

Terminal express lanes for trucks with minor roadability issues

Improve and expedite the US Customs clearance process

Improvement in the government permitting process for dredging and quay side construction

More rail availability both on dock and near dock to expedite container movement off site

Creation of CEO level task forces for each port region to bring together all supply chain stakeholders and pursue solutions that no single stakeholder could accomplish through its own efforts