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Feb.09, 2015

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TRADING PLACES 102 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 9.2015 Peter Tirschwell KRYPTONITE FOR GLOBAL TRADE I F YO U M I S S E D what Moffat t & Nichol economist Walter Kemmsies told the SMC3 Jumpstart Confer- ence in January, his words bear repeating. As reported by JOC Group Senior Editor Bill Cassidy, Kemmsies said the biggest threat to global trade isn't protectionism, war, terrorism, disease or natural disaster. Instead, it's mounting con- gestion at ports around the world, a phenomenon that's been build- ing for years and burst out into the open in 2014. "That's my big fear for global trade," Kemmsies said. With a growing middle class throughout the developing world demanding a greater quantity and variety of consumer goods, the pressures are growing. The United Nations projects the middle class globally will more than double in size in the next 15 years, rising from about 2 billion today to 4.9 billion in 2030. "If we actually get that many people — almost 5 billion — in the global middle class, our industry is going to completely collapse. The congestion will be that severe," Kemmsies said. The idea that port congestion isn't just temporary is gaining cur- rency, despite the counterintuitive reality that global trade is likely to slow this year. There is a lengthy list of reasons for this, but they all add up to the same conclusion: The hardships U.S. shippers are experi - encing at West Coast ports, even if it's partly the result of longshore labor slowdowns, is just one example of a phenomenon playing out globally. No matter where you're importing or exporting, if it's moving in a marine container, you should be planning potentially weeks of additional lead time into your supply chain. According to veteran shipping executive Dan Gardner, shippers need to "recognize port delays for what they are: A permanent part of the ocean transport landscape that will not go away." That reality, he wrote recently, "should inspire BCOs to take a hard look at their inbound supply chain options and at a minimum, compel them to add at least three weeks to their lead-time." Last year served as a brutal reminder of how these factors can conspire to slow supply chains. On- time container ship performance on the Asia-North Europe trade lane dropped by 16.7 percentage points versus 2013 to 61.0 percent, accord- ing to Copenhagen-based SeaIntel Maritime Analysis. In the eastbound trans-Pacific, schedule reliability plummeted by 18.9 percentage points versus 2013 to 61.4 percent. Data we reported from INTTRA last year showed that container dwell times within terminals shot up worldwide. The point is that you have to look beyond temporary causes of conges- tion such as slowdowns tied to the West Coast longshore talks or the Manila mayor's much-criticized edict a year ago to restrict container movements to nighttime hours. Rather, it's the underlying issues, the problems not so easily fixed and not going away, that are raising the alarm that something bigger is afoot. It's the increasingly big ships that take much longer to load and unload, setting them behind in their schedules and leading them to miss berth windows at subsequent ports, exacerbating delays. It's the terminals built for ship sizes of an earlier era. It's landside infrastructure in developing markets that is decades behind in being able to facilitate truck movements to and from ports and deep into countries' hinterlands. It's fewer ports handling larger volumes. (Port of New York-New Jersey Director Rick Larrabee said in December that the port now handles 50 to 60 percent of a typi- cal ship's containers, versus 20 to 30 percent a few years ago.) It's alliances and growing trans- shipment as vessels get larger and direct sailings are reserved for the largest volume port pairs. The list goes on. This all falls within the wider context of trade facilitation, where there is also a growing recognition at a policy level that the system is falling behind the demands being put upon it. That thinking was behind the recent conclusion of the World Trade Organization's Trade Facilitation Agreement, which con- tains provisions for expediting the movement, release and clearance of goods, including goods in transit. The agreement sets out mea- sures for effective cooperation between customs and other authori- ties on trade facilitation and customs compliance issues, including techni- cal assistance. Although criticized as falling short of the potential of more ambitious items on the WTO agenda, like in agricultural trade or government procurement, it's an important step in addressing obsta- cles in goods movement. But while the WTO agreement will help address customs issues — a known creator of delays to containerized goods — there is no official initiative addressing port congestion. There is just the end - less cost pressure that carriers are under due to their commoditized rate structure that spills downhill in depriving terminals of needed investment, and lack of coordina - tion between carriers and terminals in improving productivity so as to keep the system moving at the pace it needs to. That's the ultimate objective, but it looks to be a long road to get there. JOC Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.

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