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Mar. 03, 2014

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TRADING PLACES 126 THE JOURNAL OF COMMERCE www.joc.com MARCH 3.2014 Peter Tirschwell HISTORY IN THE MAKING IF THERE'S A theme to this year's TPM Conference, it's that 2014 is the year of the game-changer in internat iona l log ist ics. The changes the industry is grappling with as we cong regate in Long Beach this week are profound and will define the main challenges confronting shippers, carriers, third-party logistics providers and others possibly for years. This is no ordinary year. The theme of congestion issues at U.S. seaports, which is certain to dominate discussion at TPM, is a game-changer. So is the forma - tion or expansion of the P3, G6 and CKYHE alliances. Lengthy truck queues outside terminals at Los Angeles-Long Beach, New York-New Jersey and Norfolk aren't just headlines on JOC.com that will go away when the next story comes along. Ship - pers complaining about needing four days to retrieve containers after having been unloaded from the ship isn't a one-off experience. These symptoms reveal the newest and perhaps toughest chal- lenge ports are facing in quite some time. The challenge boils down to ships getting bigger, the number of containers being unloaded and loaded within single port calls ris- ing, and several major U.S. terminals not making or unable to make the investment in technology and equip- ment to manage spiking volumes. Add to the mix a void in chas- sis availability at ports such as Los Angeles-Long Beach and New York- New Jersey because a workable model has yet to replace carriers' gradual withdrawal from providing that equipment. Put on top of that the possibility — suggested in strong January numbers — that container volumes are growing faster because of a recovering U.S. economy, and all of a sudden you have radically new and disruptive scenario for U.S. trade flows moving via container. Indeed, the problems we're see- ing today are showing up without a full-fledged U.S. recovery, feeding the ominous sense — not just at the ports but also in rail and trucking — that, due in part to underinvestment in infrastructure and transportation assets, any breakout on the upside will cripple the transportation sys- tem just as it's needed most to grease the wheels of recovery. A hint of this came last fall during Hurricane Sandy. As New York- New Jersey Port Director Richard Larrabee wrote in the JOC Annual Review and Outlook published in January, "It took four weeks to right the havoc that Sandy wrought on the supply chain, because there was not sufficient capacity in the exist- ing rail, truck and barge arteries to accommodate the relatively minor volume of a one-week disruption in the supply chain." At the ports, you can point to any number of problems that have led to today's broken system. Among them are that Los Angeles-Long Beach and New York-New Jersey are land- lord ports with multiple terminals that compete with each other for the business of carriers that will do any- thing and everything to save money. Cost control indeed is carri- ers' overwhelming focus right now across their businesses, includ- ing switching terminals based on a lower rate. Price-cutting among terminals deprives them of the resource to invest in the type of automaton available that could help manage the surge in containers the terminals are seeing. The problems can be f ixed. Europe, for example, isn't seeing these problems. "Solutions can be found because other ports in the world have similar or greater volumes without these kinds of difficulties," said Chris Koch, presi- dent and CEO of the World Shipping Council. "The organizational struc- ture and political dynamics of certain U.S. ports may be unique, but solutions should be able to be found." What we're seeing here is, in a real sense, all part of same story, the same big game-changer. It originates with the container lines, which as an industry are unable to maintain price discipline and for whom the elusive road to prof - its is now entirely and relentlessly through cost-cutting. The big ships pressuring sea- ports are deployed to reduce unit costs for carriers. The alliances are to allow the carriers to deploy only the largest and most cost-efficient ships. The problems stemming from chassis are due to carriers being unable to make chassis profitable. Carriers drive down terminal rates, depriving them of investment, by seeking the lowest-cost terminals. It's like the carrier industry is a black hole sucking everything in. And that's ultimately the real game-changer coming into great focus this year. The race among carriers to be the last standing, the survivors, by driving costs lower than the competition and thus out-surviving them when rates get battered and slowdowns hit the global economy, has entered a new phase. Carriers' drive to reduce costs is accelerating. No one, be it a terminal, port, shipper, NVO or trucker, will be left unaffected. That is a game-changer. JOC Peter Tirschwell is executive vice president/ chief content officer at JOC Group. Contact him at ptirschwell@joc.com and follow him at twitter.com/petertirschwell.

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