The Fairview container port in Prince Rupert has not met expectations since opening last October. Business is now expected to pick up.
Interesting article. It would take an optimist, to to say that things are going great, when running at 10% of capacity.
From the article: “Because this is a brand new business model, it goes against the grain. We don’t have a local market. We’re way up north. The jury was out to see if the service was going to work.” I take this as meaning that other ports have a big advantage, because of the population density near the port, LA, for example. Don’t most containers ship right on through ports to their destinations anyway? Where do all the containers ship to? Distribution centers?
Many containers coming into LA and Long Beach move by truck to distribution centers in the LA Basin. As an example a load of computer monitors will go to a Samsung distribution center in Riverside where the load well broken up for shipments to distribution centers for Dell, Gateway, etc. If Dells distribution center is in Austin, TX a full container load of Samsung stuff will ride a truck on the highway or container on the BNSF/UP to central Texas.
I don’t recall the portion of import containers terminating in the LA Basin but it struck we as a very large volume. Perhaps someones esle has an idea for this number.
Of the 4.3 million containers that came off ships at Los Angeles/Long Beach in 2007, a very high percentage went no further than the L.A. Basin before disgorging their contents, because LA is a huge load center. A lot of people would like to know just how much of the contents were restuffed, but that number isn’t available and obtaining it would be difficult, expensive, and probably not very accurate because it gets deep into people’s business models. Best guess is less than 5%, though that percentage is expected starting now to rise rapidly due to the run-up in the price of diesel fuel.
RWM
How does the run-up in the price of diesel fuel relate to an increase in restuffing containers?
Norris:
Has to do with the distribution model. Here are some typical models (DC means Distribution Center) for inland distribution:
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load 40’ box → ship → U.S. port → truck to inland DC → empty box, sort, load 53’ van → truck to store. Total of one lift (ship to yard tractor).
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load 40’ box → ship → U.S. port → rail 40’ box to inland ramp → dray to D.C. → empty box, sort, load 53’ van → truck to store. Total of 3 lifts (ship to yard tractor, yard tractor to train, train to yard tractor).
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load 40’ box → ship → U.S. port → truck to portside D.C. → restuff in 53’ box → dray to ramp → rail to inland ramp → dray to store. Also total of 3 lifts.
Models 2 and 3 have the lowest fuel burn because freight is moving over most of the inland miles by rail instead of truck. Model 1 has the highest fuel burn, but has the lowest DC costs because you can build the DC on cheap land in a cheap-labor town, probably with tax incentives to sweeten the deal even further. Lifts cost money and each rehandle step introduces dwell time and additional unreliability. In an environment where fuel is cheap, Model 1 is very attractive. When fuel doubles and triples in price, the model becomes ugly. Model 3 also turns the 40’ box the fastest, and uses the more efficient 53’ box.
RWM
Is the system flexible enough, that changing from model #1 above to model #2 or #3 is simply a matter of changing your methods, or, is there a big investment in new infrastructure required first?
As long as you don’t mind walking away from a few 1.5 million square foot DCs, repaying tax incentives, buying expensive new land in a port or at a logistics center in a big inland city, building new DCs, finding new and more expensive employees, relocating your managers, relocating your truck drivers … no, it’s not a problem at all.
Oh, and also going to the railroad and finding out what you’ll have to bid for space on capacity-short main lines and at inland ramps after you blew them off a few years ago while other IM shippers locked up the space.
RWM
Is there any movement to back up the consolidation of “store loads” to the foreign ports? Although that would have the US inland movement in 40’s rather than the more transportation efficient 53’s, it would expand choices for US port of entry. The business model would not be confined to having the freight come in through the port nearest a fixed DC operation.
Are they neccesarily confined to the nearest port, ot to the most cost effective port/rai shipping? The reason I ask, is Prince Rupert seems to be pushing itself as the latter?
This would entail accurate prediction of each store’s inventory needs 30-45 days out instead of 2-3 days out. The transportation systems of Asia aren’t arranged to do this. The preponderance of the manufacturing is tightly packed around ports making space costly for inventory consolidation and distribution. Each store’s inventory needs are drawn from manufacturing scattered all the way from Korea to Singapore.
Target has already moved to a “four corners” DC model in the U.S. to minimize its exposure to service disruptions at any one port and to reduce overland transportation costs. All-water movement of containers to east and gulf coast ports has grown significantly in the past year while west coast container volumes have been flat or declined slightly. There’s fairly broad consensus this is not the beginning of a long-term market-share shift but rather an exploitation of slack capacity and opportunity at the east and gulf coast ports. While gulf and east coast ports are much closer to the preponderance of the U.S. population, the all-water voyage is considerably longer in time and commensurately more costly in fuel, and since fuel is now more than 50% of the operating costs of a ship, ocean rates are more sensitive than rail rates to the price of oil. In short, there are many costs that have to be added up before it is known which model and route to use, and since the costs change daily it keeps a lot of us employed
I overlooked the transit time as an element of the model. Interesting move by Target, but volume does allow more options.
Overall, what changes are coming about in the container business, on account of the current (& future) fuel/transportation cost increases? It appears that the Prince Rupert facility was built. with a belief that the market is/would be changing, although it’s not clear how they thought it would be changing.
ps : Who was Prince Rupert?
I’m not sure anyone quite knows yet because it’s not known just how far the runup in oil costs will go before supply/demand reaches an equilibrium and prices stabilize.
I don’t know what beliefs they had and I wouldn’t want to guess. What is obvious to everyone in the logistics business is that if growth in containerized traffic to the North American west coast continued in the future to grow at anything like it has in the past 15 years, accomodating that growth at the existing West Coast ports would require very expensive investment in port and rail infrastructure, and with the exception of the minor container ports (Portland, Pt. Hueneme, Ventura) that empty land is not available at moderate cost and the financial and political cost of acquiring land on which to enlarge the infrastructure was going to be very expensive. When capacity runs short, shippers bid up the price (same thing that’s happening with oil!) and that presumably would create an opportunity for new ports that could build infrastructure at low costs.
The drawback to this logic is that spare or cheaply obtained capacity is available at greenfield or underutilized ports for a good reason – either they are backed by small (or no) load center, or they’re a long way from inland markets, or they’re out of circuit for container ships, or not well-connected to the rail network, or all of the above. Volume attracts volume, and building enough of a volume base to create efficiency of scale when starting from
Have you read Dr. Leachman’s study for SCAG?
Yes.
I think the biggest reason why they’ve started work on new, wider canal locks for the Panama Canal is the ability to accommodate much larger container ships. This will allow US East Coast ports to take advantage of these larger ships without the hassle of using container ships that meet the Panamax size limit.
As such, we waste less time having to unload the ship and transporting the containers to the eastern USA on doublestack container trains.
All-water transit times from Asia to the East Coast North America (ECNA) via the enlarged Panama Canal will still be significantly longer (about twice as long to New York City) than the combined water/rail time via U.S. or Canadian West Coast ports, counting from the minute the ship leaves the dock in Asia to the minute the box reaches its consignee’s dock on rubber tires. Moreover, ECNA ports are not capable of accepting the Super-Post-Panamax (10,500 TEU) vessels, the maximum size vessel the new locks will accept, and will require additional dredging, heavy revisions and enlargements to port facilities to accept the larger ships, major increase in railroad infrastructure, and in the case of the most important ECNA port, New York-New Jersey, raising the Bayonne Bridge at a cost of $600 million.
The big growth market for the enlarged Panama Canal is Asia-East Coast South America (ECSA) container trade, and bulk shipping between Asia and ECSA. As the ship originates further south in Asia, transit times to ECNA become less via the Suez Canal than the Panama Canal; the break-even point to New York City is the port of Laem Chabang, Thailand – shipments originating to the west of that point have lower transit times through the Suez Canal.
RWM
Just curious- how many trains would be made up from a 10,500 TEU ship?
Depends on train length and what kind of equipment it uses – well cars are not all equal in length because some can accept up to 53’ domestic boxes while others can only accept up to 40’ steamship boxes. If the train uses only well cars that are 40’ capable (which gives greater box density per train length), those cars, if five-well, are 247’ long An 8,000-foot train, after deducting for four locomotives, would have 31 five-well cars or 620 TEU. A 10,000-foot train after deducting for five locomotives would have 39 five-well cars or 780 TEU. So, for a 10,500 TEU ship, it takes 17 8,000-foot trains or 13.5 10,000-foot trains.
For a sort of average rule-of-thumb for double-stack trains considering domestics and internationals, and all the different equipment types floating around, 500 TEU is a nominal number.
RWM