MTOs: Logistics Favorite Whipping Boy

By Thomas Jelenić, Vice President, Pacific Merchant Shipping Association

At the end of 2018, no one was happy. The reports of congestion flowed from every industry media outlet that you can imagine. Reports of full warehouses, congested terminals, chassis shortages, and other issues plaguing the logistics industry at the end of the year demonstrated the difficulty of the challenge.

Everyone with a cargo problem pointed to San Pedro Bay marine terminal operators as the source. And why shouldn’t they? Described as terminally congested even during periods of lower volumes and free-flowing cargo, LA/LB port facilities are everyone’s knee-jerk whipping boy for cargo woes. So, it was easy when cargo dwell time started rising and truck turn-time increased that everyone’s attention turned to the ports. The headlines almost wrote themselves, facing a deluge of cargo trying to avoid (now postponed) end-of-year tariffs: more cargo, congested terminals, clearly it was the fault of poorly run terminals.

But a closer look reveals a far more nuanced situation. Volumes in November and December were actually lower than October, while November year-over-year numbers for San Pedro Bay were lower. Only December year-over-year numbers were higher, though still lower than two months earlier. The issue of congestion across the logistics chain is clearly not a matter of the capacity to handle current volumes. At the same time, the Journal of Commerce ran articles of Southern California warehouses at capacity, marine terminals running out of space to store containers, of cargo owners deploying “mobile storage” (known to the rest of us as containers-on-chassis), and of up to 30% of scheduled terminal appointments being missed.

Clearly, what was happening was not a “congestion” problem as we are so often wont to assume. Rather, it appears the logistics industry and, in turn, cargo owners were facing a systemic “storage” problem. As more cargo came ahead of the tariff deadline than was being consumed on retail shelves or on production lines, the supply chain turned into a storage chain. None of the tariff-beating cargo was pre-planned by the cargo owners who pushed it through the system – three months of consistently high volumes exhausted the system’s capacity to store it. From warehouses, to “mobile storage”, to marine terminals, to even vessels in the form of at least 29 extra loaders, any spot that could be found to stick cargo was used. The available data supports this conclusion. Despite lower cargo volumes in November and December than October, terminal dwell time is now higher and the Pool of Pools reported lengthy street dwell at 7+ days. PMSA has been reporting dwell time since May 2016. In that time, average dwell time only exceeded 3 days twice, back in 2016. The percent of containers remaining on-dock for more than 5 days averaged around 6% and has never been double digits. From October to December, the percent of containers remaining on-dock for more than 5 days was 11% or greater, peaking in November at 13.9% – marine terminals as warehouses.

Finally, end-of-year holidays during a normal slow time for the supply chain exacerbated these problems. Nonetheless, let us consider something unthinkable: these problems were largely unavoidable. However much every logistics stakeholder wishes that their counterparts manage their businesses in a more efficient manner that does not impose costs on them, inefficiency is not what the logistics industry fell victim to at the end of 2018. Rather, it was an industry desperately trying to respond to the needs of their customers who were making dramatic changes to their business as a means of managing global uncertainty caused by rapidly shifting trade policy. Even if they could (which they couldn’t), no rational business will deploy hundreds of millions of dollars’ worth of assets in anticipation that their customers might change their business practices because global trade policy may change almost instantly.

That does not mean that there is not room for improvement. The key question is how do you make each stakeholder properly value the capacity of other stakeholders. The industrial capacity of the logistics industry must be used optimally in order for the industry to be sustainable. Whether that capacity is terminal appointments, equipment, and labor; warehouse and dock space; or service hours of a truck driver; the right mechanisms must be found to ensure cargo flows efficiently. That includes cargo owners, who ultimately will need to pay the price when their short-term business practices change in a way that stretches the capacity of existing infrastructure. The industry can start addressing these issues holistically, where all participants in the supply chain change their operations to produce a better system or maybe we can just repeat the recriminations next year.