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Feb. 17, 2014

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10 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 17.2014 COVER STORY LI & FUNG Logistics isn't waiting for the worst-case scenario. The logistics division of Hong Kong-based sourcing giant Li & Fung — and other cargo owners like it who ship through the U.S. West Coast — will be watching closely over the next four months as the International Longshore and Ware- house Union and employers engage in tough negotiations on a new labor contract. With memories of disruption during last year's negotiations on the East Coast — and of the 10-day lockout that crippled West Coast ports more than a decade ago — still raw, shippers are already looking into rout- ing alternatives that would reduce the risk of getting their goods to destination during the period that is traditionally their busiest shipping season. "We are already starting to plan alterna- tives because we are convinced there will a stoppage of some sort," Paul McGuire, senior vice president at Li & Fung Logistics, told attendees of the Cargo Logistics Canada Expo & Conference in Vancouver, British Columbia, last month. "Hopefully, it won't be as serious as 2002, but better to plan for the worst and hope for the best." Routing through the Panama Canal to the U.S. East Coast is one alternative, McGuire said, but with vessel capacities limited to little more than 5,000 20-foot-equivalent container units — less than half the size of ships serving, for example, Los Angeles-Long Beach — how strong an option is that for a company that counts among its customers retail giants Wal-Mart, Target and Kohl's? A more likely scenario is shifting to Canadian west coast ports such as Port Metro Vancouver, where the ILWU has jurisdiction but operates under a separate contract, or the Suez Canal route to the U.S. and Canadian east coast. "If there are problems on the West Coast, then we work to complete our supply chains via the East Coast or we will use the western Canadian ports," Mark Schweitzer, manag- ing director of intermodal and international container freight for Archer Daniels Midland, told the JOC late last year. "Our product lines are adaptable, and our Midwest locations allow for the ability to move our supply chains either East Coast or West Coast." Other shippers, while not saying so pub- licly, are preparing for disruption tied to the ILWU negotiations for a contract to replace the current one that expires on June 30. The collective agreement for Canadian ILWU longshore workers and foremen doesn't expire until March 2018. Perhaps no port is better positioned to capitalize on shipper concerns than Van- couver, Canada's largest port. While the Suez route is an increasingly attractive choice for importers shipping their goods from Asia — the world's largest ships can ply that canal with no concerns over the type of lock restric- tions that come with the Panama Canal — it comes with other downsides. Transit times are up to a week longer through Panama and Suez compared with direct service to Los Angeles-Long Beach, and only a handful of Atlantic ports — Halifax, Baltimore, Norfolk and a limited part of New York-New Jersey — can handle a fully loaded 10,000-TEU ship. Even without the cargo that could come its way during the ILWU talks this spring, Vancouver is planning for steady container traffic growth, albeit far from the double- digit increases seen at some Asian gateways. Key to the port's preparation is an unprecedented $717 million investment in non-port transportation infrastructure con- necting to the gateway's container, bulk and breakbulk terminals. Some of the 17 autho- rized grade-separation projects already are complete, said Katherine Bamford, the port's director of trade development. As a result, trucks are encountering fewer delays and will see even less congestion when the rest of the projects are finished this year, she said. Capacity on Canadian National Railway and Canadian Pacific Railway out of Van- couver ultimately will increase 30 to 100 percent, depending on the corridor. Both railroads operate transcontinental networks from Vancouver to the Canadian east coast and U.S. Midwest. The off-terminal investments are part of a $9 billion-plus investment in infrastructure in the region by railroads, terminals, the port, the federal and provincial government and municipal bodies. "Just about every sector is looking at ways to increase their capacity," said Doug Mills, Vancouver's senior account representative of trade development. The projects include the 2010 opening of a third berth at Deltaport, the port's largest container terminal; new bridges; Highway 1 upgrades; and the opening of the South Fra- ser Perimeter Road, a part of Highway 17 connecting to Deltaport. A $350 million proj- ect at Deltaport, the port's largest terminal, will boost capacity from 1.8 million TEUs to 2.4 million by year-end. An overpass to separate rail and road traffic, new track, reconfiguring of exist- ing track and more yard equipment will increase terminal capacity without having to expand the terminal footprint. Vancou- ver's three container terminals — Centerm, Deltaport and Vanterm — along with the multipurpose Fraser Surrey Docks, have total annual capacity of 3.7 million TEUs. Deltaport's 52-foot water depth and super- post-Panamax cranes can handle the largest ships calling North America. Aside from the increased capacity com- ing to Deltaport, the port is on track to add 2.4 million TEUs of capacity through the construction of a new terminal at Roberts Bank, adjacent to Deltaport, that is sched - uled to open in 2024. The preparations for container growth extend beyond infrastructure, Bamford said. To encourage productivity, the port gives a THE CANADA ALTERNATIVE With West Coast labor talks about to heat up, shippers aren't waiting to draft contingency plans. Is Vancouver ready? By Mark Szakonyi

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