Port Congestion: An Economic Threat

 

Port congestion is still very much with us. Not just at one or two ports. And not just on the West Coast.  Of the nation's 10 busiest ports by volume, it is estimated that at least seven face congestion regularly.  The causes are varied and complex -- labor disruptions, cargo surges from big ships, infrastructure needs, marine terminal productivity, and equipment shortages, among other causes. 

 

The result is chronic gridlock at many ports. Ships are stranded offshore for days, even weeks, waiting to unload. Containers are buried in enormous stacks in clogged terminal yards. Trucks wait in line for hours (up to eight or nine hours in some cases) to pick up a single container. And customers throughout the country experience shipment delays lasting weeks. The congestion and bottlenecks reverberate throughout the supply chain, becoming a significant trade barrier for both exports and imports with a corresponding negative impact on the economy.

 

The costs of this dysfunction are huge. As noted in a recent industry coalition letter to Senator Thune, exporters lose customers overseas. Perishable products are spoiled. Manufacturers are forced to slow down or stop production lines as just-in-time inventory becomes impossible to manage.  Retail goods are delayed or miss important selling seasons.

 

In addition to this broader impact, port congestion adds other more direct costs to the supply chain, such as exorbitant demurrage costs (discussed below) and higher inventory costs.  Faced with chronic delays and uncertain deliveries, many U.S. companies are forced to increase their inventory levels. For example, one company, Nike, has reported it spends $200 million annually to carry an extra 7 to 14 days of inventory because of the unreliable transportation caused by port congestion.

 

Specific Problems for Congress To Address

 

There are no quick-fix solutions. Several ports are working with terminal operators and shippers to develop innovative solutions to ease the congestion. Some of these ideas, such as an Uber-style technology platform in Los Angeles to facilitate truck transactions, offer promising new tools. But, while helpful, these improvements cannot solve the overall, multifaceted challenges facing maritime trade. Congress can and must play a role. When it comes to jobs and the economy, there is perhaps no more pressing issue than this.

 

Port Metrics:  We all know when ports are gridlocked. We can all point to anecdotal evidence about trucks backed up for miles at the terminals and ships anchored at sea unable to unload. Yet, there is a shocking lack of hard data on port congestion and efficiency. The "Port Transparency Act" (S. 1298), introduced by Senator John Thune (R-SD), attempts to remedy this. Based on the premise that "you can't manage what you can't measure," S. 1298 for the first time provides the tools needed to track performance measures uniformly over time at the various ports.  This port performance data will allow the kind of rigorous analysis so essential to ensuring the smooth flow of commerce. An amended version of S. 1298 was added to the Senate-passed Highway bill in July.  We urge Congress to pass this legislation.

 

Labor Disruptions:  Our experience on the West Coast over the past year is a stern reminder that labor disputes at a major port can bring commerce to a halt, threatening the economic health of the entire nation.  Two recently introduced Senate bills seek to provide better tools to prevent this from happening in the future.

The "Protecting Orderly and Responsible Transit of Shipments Act" (S. 1519), introduced by Senator Cory Gardner (R-CO), is designed to discourage labor disruptions and to incentivize quick resolution if a dispute does occur.  S. 1519 specifically allows use of Taft-Hartley to end work slowdowns at ports and would empower state governors to seek a federal injunction against slowdowns, strikes and lockouts.

 

The "Preventing Labor Union Slowdowns Act" (S. 1630), introduced by Senator James Risch (R-ID), makes intentional work slowdowns by maritime unions an unfair labor practice under federal labor law.  It exposes unions that engage in slowdowns to claims for monetary damages both from employers and injured parties, such as importers or exporters.

 

Infrastructure:  NCBFAA strongly supports the TIGER competitive grant program, which is an important funding source for freight projects, including port access and expansion and intermodal projects.  As we and others in the trade community said in a June 8, 2015 coalition letter to Senators Collins and Reed, "The annual TIGER process and its coordinated and collaborative planning requirements...has served as a catalyst in bringing freight stakeholders to the table -- along with additional funding....For example, since its inception in 2009, TIGER maritime projects have received over $500 million in federal funding while leveraging $700 million in additional funding"[from non-federal sources].  Therefore, we urge Congress to provide the $1.25 billion in FY 2016 funding proposed by the Administration for the TIGER program.

 

Demurrage:  Demurrage is a charge for the use of space, with fees applied after a specified period of "free time."  Demurrage was originally intended to encourage faster cargo movement so that terminals are not used for storage by shippers.  Yet, this concept has been turned on its head.  Typically, in a congested port, the situation arises where a shipper is ready and willing to pick up their cargo.  Yet, the trucker is turned away from the terminal because, for example, the container is buried in a stack too deep to be retrieved or because of a chassis shortage at the terminal.  Nevertheless, the terminal operator still charges a per diem penalty for demurrage for each day the container remains at the terminal -- even though the shipper is prevented from removing it. Once demurrage is assessed, the shipper has no choice but to pay, since the charges are due upfront on the day of pick-up. In this environment, demurrage fees are having an extraordinarily negative impact on the movement of ocean cargo.  One importer reports having paid over $100,000 in demurrage charges last year compared to $10,000 in the previous year. Perversely, instead of an incentive to keep cargo moving, demurrage has become a convenient revenue stream for gridlocked terminals.  Congress should press the Federal Maritime Commission to take prompt action in light of their recently concluded port congestion study.

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