International Trade

Transportation at what cost?

We always seem to forget the effect operating cost has on the supply chain. With fuel and transport rates forever in flux and on our radar, we tend to overlook the less noticeable “costs of doing business” that are not always measured in dollar values. These manifest themselves in port delays and increased transit time. The time it takes to discharge a vessel is directly related to the amount of gangs and cranes you throw against that ship. Consider a New Panamax Vessel at 13,000 TEU, simply put if the discharge rate were 40 lifts per hour and 9,100 TEU (70% of capacity) were to discharge at a given port it would take 3.25 days to complete using 3 cranes, 2.5 with 4 and 2 days using 5 cranes and their supporting gangs. Most U.S. ports have not yet reached a rate of 40 lifts and since the old standard for handling 8,500 TEU vessels was 3 cranes, most terminals generally add one more for larger vessels. This equates to longer dwell time in port. As the number of cranes increases the associated manpower cost also increases. Bottom line, who do you think bears that expense? Seeking Alpha recently reported a shift in cargo volume at major seaports. Shifting volume puts a strain on capital resources. Long Beach, for example, sustained a -2.2% growth for 2016 YTD. With the phase 1 completion of Middle Harbor, a nine-year, $1.31 billion project, the terminal cannot sustain a loss in volume for long before it is forced to increase handling rates to OOCL and future tenants. The carriers will have to either pass along this increase or reduce underlying operating costs by reducing manpower and equipment. The shipper will pay for this either in increased ocean rates or in dwell time. There is no free ride here. Savannah, rebounding from a stellar growth of 11.7% last year, is currently reporting -4.9% growth YTD. The situation is slightly different here as the port directly controls terminal costs but the bottom line is the same, unchecked increases in manpower costs mean time or money to the consumer. Ocean carriers are currently seeking Peak Season increases of between $360 and $450 per TEU and High Cube. With profits undercut by the sluggish volume and pressure from consumers to keep costs down they will either have to be more selective in the types of higher revenue cargo they choose or reduce their operating cost by reducing service levels. Which costs are you willing to choose?
Matt Guasco
Matt Guasco


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