Post by portofconfusion on Oct 28, 2008 15:12:41 GMT -5
The Journal of Commerce
US West Coast Intermodal Route Threatened
10/28/2008
By Peter T. Leach
After years of dominating the United States maritime trade, the intermodal route connecting the major West Coast ports with interior regions is coming under threat, according to a logistics white paper published by Drewry Supply Chain Advisors.
While the recent decline of containerized imports through West Coast ports looks like the natural result of the U.S. economic slowdown, the white paper argues that these changes are structural and long-term.
The white paper, "U.S. Intermodal Today and Tomorrow," says that several factors have combined to undermine the position of America's Pacific Coast ports, not least of which is the complacency of the U.S. railroads.
For many destinations in the eastern U.S., the route via the West Coast ports is now much more expensive than the route via East Coast and Gulf Coast ports.
Users of the U.S. rail system have faced a dramatic reduction in the total size of the system, even though railroads have increased their investments in recent years. Numerous bankruptcies and mergers have left just two major U.S. Western railroads and two major Eastern railroads.
"Faced with a tightening market and rising demand, the railroads have chosen to up their prices rather than invest in significant more capacity, in the mistaken belief that they had a captive market," said Philip Damas, director of Drewry Supply Chain Advisors.
Drewry Supply Chain Advisors, a division of Drewry Shipping Consultants, analyzed the end-to-end transport costs of containers shipped to and from U.S. interior points via the West Coast and East or Gulf Coast, and the expected decline in vessel-related costs after the expansion of the Panama Canal is completed in 2014-15.
The intermodal rail route will face strong competition on several fronts, most notably through the expansion of the Panama Canal but also through the development of the Suez Canal as a route for cargo from Southeast Asia. The opening of a third set of locks on the Panama Canal will remove an infrastructure constraint and create more transit capacity for container ships using the all-water route linking Asia and the U.S.
Economic forces and infrastructure improvements are combining to favor the growth of Gulf and East Coast port routes for Asian trade. The swing away from the West Coast is likely to intensify in the coming decade, particularly for intermodal cargoes to and from the eastern U.S. states.
"Intermodal costs are certain to keep rising, while all-water costs will continue to fall, which means that the 'land-bridge' route will become less economic than the all-water route except for very time-sensitive goods," Damas said.
In addition, shippers will increasingly take the effect of fuel into account. Sea freight is considerably more fuel efficient per ton-mile than rail, so the natural conclusion is that all-water services will consolidate their advantage as fuel prices rise.
"The changes we are seeing in patterns of trade are fundamental," the report stated. "While the present downturn and the recession that might follow will hurt everybody, the ports of the U.S. West Coast will not recover so easily because their decline is part of a deeper malaise."
US West Coast Intermodal Route Threatened
10/28/2008
By Peter T. Leach
After years of dominating the United States maritime trade, the intermodal route connecting the major West Coast ports with interior regions is coming under threat, according to a logistics white paper published by Drewry Supply Chain Advisors.
While the recent decline of containerized imports through West Coast ports looks like the natural result of the U.S. economic slowdown, the white paper argues that these changes are structural and long-term.
The white paper, "U.S. Intermodal Today and Tomorrow," says that several factors have combined to undermine the position of America's Pacific Coast ports, not least of which is the complacency of the U.S. railroads.
For many destinations in the eastern U.S., the route via the West Coast ports is now much more expensive than the route via East Coast and Gulf Coast ports.
Users of the U.S. rail system have faced a dramatic reduction in the total size of the system, even though railroads have increased their investments in recent years. Numerous bankruptcies and mergers have left just two major U.S. Western railroads and two major Eastern railroads.
"Faced with a tightening market and rising demand, the railroads have chosen to up their prices rather than invest in significant more capacity, in the mistaken belief that they had a captive market," said Philip Damas, director of Drewry Supply Chain Advisors.
Drewry Supply Chain Advisors, a division of Drewry Shipping Consultants, analyzed the end-to-end transport costs of containers shipped to and from U.S. interior points via the West Coast and East or Gulf Coast, and the expected decline in vessel-related costs after the expansion of the Panama Canal is completed in 2014-15.
The intermodal rail route will face strong competition on several fronts, most notably through the expansion of the Panama Canal but also through the development of the Suez Canal as a route for cargo from Southeast Asia. The opening of a third set of locks on the Panama Canal will remove an infrastructure constraint and create more transit capacity for container ships using the all-water route linking Asia and the U.S.
Economic forces and infrastructure improvements are combining to favor the growth of Gulf and East Coast port routes for Asian trade. The swing away from the West Coast is likely to intensify in the coming decade, particularly for intermodal cargoes to and from the eastern U.S. states.
"Intermodal costs are certain to keep rising, while all-water costs will continue to fall, which means that the 'land-bridge' route will become less economic than the all-water route except for very time-sensitive goods," Damas said.
In addition, shippers will increasingly take the effect of fuel into account. Sea freight is considerably more fuel efficient per ton-mile than rail, so the natural conclusion is that all-water services will consolidate their advantage as fuel prices rise.
"The changes we are seeing in patterns of trade are fundamental," the report stated. "While the present downturn and the recession that might follow will hurt everybody, the ports of the U.S. West Coast will not recover so easily because their decline is part of a deeper malaise."
