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July 21, 2014

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4 THE JOURNAL OF COMMERCE Editor's Letter ©2014 The Journal of Commerce — All Rights Reserved For more information, visit our Web site, EXECUTIVE EDITOR Chris Brooks 973.776.7818 MANAGING EDITOR Barbara Wyker 973.776.7817 SENIOR EDITORS Joseph Bonney, Finance and Economics 973.776.7809 William B. Cassidy, Trucking and Domestic Transportation 202.499.2285 Bill Mongelluzzo, Trans-Pacific 562.428.5999 Mark Szakonyi, Rail/Intermodal, Regulation, Policy 202.499.2295 Greg Knowler, Asia +852 3975.2647 SENIOR EDITOR, DIGITAL Harry G. Butler, 609.433.7215, EDITOR-AT-LARGE Peter T. Leach, Trans-Atlantic 212.755.0940 RESEARCH EDITOR Marsha Salisbury 973.776.7828 ECONOMIST Mario O. Moreno 973.776.7850 SPECIAL PROJECTS EDITOR Alessandra Gregory Barrett 860.248.5238 SPECIAL PROJECTS EDITOR, ASIA Annie Zhu +86 (21) 60396986 SENIOR DESIGNER Sue Abt, 973.776.7825, DESIGNER Bryan Boyd, 973.776.7827, WEB PRODUCER David Pulis, 973.776.7807, ASSOCIATE WEB EDITOR Grace M. Lavigne, 973.776.8506, ASSOCIATE WEB EDITOR Corianne Egan, 862.368.4054, PUBLISHER Tony Stein Georgia and Asia sales, 678.456.8530 SALES Cindy Cronin, Senior Account Manager Pacific Northwest, Midwest, Gulf, Canada sales, 954.551.8305 Zachary Gorman, Account Executive Northeast sales, Classifieds/Reprints/Copyrights 973.776.7820 Ria Van den Bogaert, Account Executive Europe, Middle East and Africa sales, +32 2 569 8905 For Magazine Subscription Customer Service: Domestic (Toll-Free): 877.675.4761 International: 847.763.4932 E-mail: 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105 973.776.8660 • 800.952.3839 CHIEF EXECUTIVE OFFICER, Gavin Carter CHIEF OPERATING OFFICER, Rhiannon James EXECUTIVE VICE PRESIDENT/CHIEF CONTENT OFFICER, Peter Tirschwell CHIEF FINANCIAL OFFICER, Ian Blackman VP, PUBLICATIONS, Amy Middlebrook VP, HUMAN RESOURCES, Cindy Mevorah GENERAL MANAGER, Julia Murphy DIRECTOR, PRODUCTION, Carmen Verenna SENIOR MARKETING MANAGER, Jesse Case Chris Brooks The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, July 21, 2014, Volume 15, Issue No. 15. The Journal of Commerce is published bi-weekly except the last week in December (printed 26 times per year) by JOC Group Inc. 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105. Subscription price: $344 a year. Periodicals postage paid at Newark, N.J., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, P.O. Box 1059, Skokie, IL 60076-8059. FOR MONTHS, WE'VE been asking how North American infrastructure at ports, rail heads and on the roads would hold up when imports grew at sustained levels beyond the low- single-digit levels seen through the first quarter of this year. Well, the returns are starting to come in, and the news is anything but good for beneficial cargo owners. When Canadian National Rail- way this month notif ied ocean carrier customers that it would issue equipment allocations at Port Metro Vancouver and Prince Rupert, Brit- ish Columbia, it was all but admitting that the ports, their terminals and the railroad couldn't keep up with the influx of U.S.-bound cargo shipped early to avoid potential disruption around the July 1 expiration of the U.S. West Coast longshore contract. The story is much the same at other ports: Chassis shortages, the arrival of mega-ships, bunching of ship arrivals and new regulations are creating headaches and lengthening delivery times on the back end of the inbound supply chain at the nation's largest ports, from Los Angeles-Long Beach on the West Coast to New York-New Jersey in the East. What's been missing in this potent mix, however, is the sort of sustained demand growth typical of a post-recession cycle. Notwith - standing 2010, when containerized U.S. imports jumped 14.4 percent in a post-recession buying frenzy, import growth has been reserved: up 2.7 per- cent in 2011, 2.7 percent in 2012 and 3.2 percent in 2013, according to PIERS, the data division of JOC Group — numbers that belie the sort of con- gestion we're seeing at some of North America's largest ports and terminals. But the pain shippers are feeling pales in comparison to what's coming, because for all the strength in many parts of the economy — automobile sales that are running at eight-year highs, manufacturing that's been growing for the better part of a year, strong home sales and improving unemployment figures — non-auto retail sales and consumer confidence have been slower to recover. PIERS, for example, already is seeing imports pick up the pace. In the first quarter, when the brutal winter sent the economy into retreat, imports grew 3.8 percent over the same period of 2013, and JOC Econo- mist Mario Moreno expects full-year growth of 6.1 percent, followed by 7 percent growth in 2015. The question now is at what growth point do the fractures show- ing at some North American ports become full-blown breaks. To be fair, the 14 percent increase in May volume at Vancouver, 23 percent at Prince Rupert (from a much lower base) and 10 percent at Los Angeles, according to PIERS data, would be enough to disrupt the most efficient of ports. One month does not a trend make. But double-digit growth at those ports — indeed, at many of North America's largest — was common through much of the early 2000s, and it won't be until this year that contain- erized imports surpass pre-recession levels, according to Moreno. Think about that: Ports and ter- minals are struggling to keep up with import volumes that have yet to match levels from six years ago. So it's not growth in volumes that should worry importers needing to get their goods to store shelves on time. It's how the supply chain operates that should. Until the industry fixes its chassis problem, marine terminals figure out how to efficiently clear goods arriv- ing on bigger ships making fewer calls, drayage carriers find more drivers, and railroads get more equip- ment where and when it's needed, the fractures in today's cargo networks will only widen — and the peak sea- son of shipper discontent that Senior Editor Mark Szakonyi describes on page 24 will last long beyond this fall. The question now is whether this is the new norm. JOC JULY 21.2014 BREAKING Bad

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