Congestion? Headache? The Flu? No. It's the Port of LA.
on Nov 25, 2014
Although retailers cry foul about labor, the real issue is business process change. What can and is being done about port congestion?
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I have been hearing about LA/Long Beach port congestion issues for a decade or more. Greater minds than mine surely have weighed in on the issue. Each group blames another for the issues: The National Retail Federation sends pleas to governors and the President, blaming the longshoremen.1 Truck companies blame the lack of chassis. Truck drivers blame the trucking companies for the lack of decent benefits.2 Port operators blame bigger ships. Ocean carriers blame the ports and, in fact, expect to charge the port if there are delays. And of course, those consumers—us—keep buying more stuff—lots of stuff—being stuffed though this one port.
Supply Chain 101
So what’s being done about it? Talk. And talk is cheap, as they say. So, then, what can be done about it?
Let’s start with the goal: What we are after is throughput.3 And how do we get it? Supply Chain 101 to the rescue. Students of the theory of constraints (TOC) know these issues very well.
Chassis: For those unfamiliar with this issue, although it’s messy on the ground, the issue is pretty simple to understand. Visualize pallets and cartons being delivered to your dock door. Your carts and forklifts all zoom to the dock and move your freight to the next stage—the warehouse, maybe to an upacking station and so on. Now imagine what would happen if the warehouse or store manager said, “I don’t want to own/manage the forklifts any more. I want somebody else to buy these from me and move the inventory to the next stage. Come on my property and take this over.” In essence, this is what is happening with chassis. Ocean carriers used to be involved, not just in unloading the freight, but often, with ensuring that containers could be placed on chassis which they often owned. Now, a third party truck driver is directed to just grab a chassis and move the freight—to a railhead, external warehouse and so on. They come back with the chassis and then repeat the process (turns). Drivers and motor carriers like to do a lot of turns in one day—more revenue per asset. Now the ocean carriers have divested themselves of the chassis, requiring a change in process and information flow.
The complexity here is that a lot of companies are in the mix now: ocean carriers and ground (motor) carriers need to coordinate the move. They may do this through a third party freight forwarder/customs broker who represents the shipper or importer and knows ‘where next’ the freight needs to go. Then the new chassis owners have to lease these to the motor carriers; the port operators have equipment to move containers to holding locations (and, one would assume, they know where this is).4 Thus multiple parties and processes need to converge. This challenge is being addressed. (We’ll come back to that shortly.)
Gates: There are too few entrances and limited roadways in and out of the port. And the paperwork and security check-ins at the gates add to the backup.
Labor: Of course, having the personnel to keep the process flowing is part of the equation. It includes not only the longshoremen, but also truck drivers, security personnel, back office administration from the freight forwarder and so on.
The volume of product: For 20 years the US has been increasing its trade with Asia. So it should be no surprise that volumes are up.
Variability: Cyclical and changing demand creates variability. So theseason—Christmas—is no surprise.
The queue is behind the bottleneck and it is indicative of the volume and wait times at locations that do not have the capacity to handle the volume. Now imagine hundreds of shippers’ containers all converging on one small spot every day, and you can get an idea of how long the queue can get.
Since the bottleneck dictates the absolute rate at which the systems can move regardless of the so-called capacity, that is what needs to be addressed here. It is often called the drum in TOC parlance (the cadence for the rest of the system) and it is too slow. (They ain’t got rhythm, in LA of all places!)
Bottlenecks can be offset by increasing capacity which can also be accomplished by utilizing what you have a lot better, buying more equipment, or optimizing. LA needs to do them all. However, they can address their short term needs (the next three years) by increasing the rhythm through better policy, management, and technology. Building wider entrances, i.e., more gates and roads, is a very long term issue.
Cash: No throughput—no revenue. Today everyone thinks in terms of lowest rates vs. the value of velocity. Those two views of cash should disabuse enterprises of the theory that the lowest possible payment to service providers is always the best choice. Time to market delays mean more cost and fewer sales. Each day’s delay is a loss to retailers, with administrative costs, fines, and cash tied up. So speeding up should mean more value, i.e., more revenue. Thus, I might be willing to pay more for the service.
For the logistics community—port operations and carriers—there is also lost revenue, since their turns go down. They are allocating resources with no throughput. Asset owners (the container and chassis companies) will increase fees if their assets are not returned in a timely way. However, increasing fees does not necessarily change behavior. Working capital is tied up. And the port delays may have long-term ramifications such as shippers and ocean carriers choosing new routes—forever. Blaming labor will not get that business back.
This becomes an issue for local motor carriers as well. Fewer turns mean less revenue. What’s the trade-off? Low pay and loose drivers? Even though drivers tend to prefer local jobs over long haul, a local job may not be enough to offset the frustration and the undependable compensation. If you want reliability as part of your value proposition, then you must reflect that in the driver compensation.
These logjams can be broken and bottlenecks reduced. We are not recommending only throwing money into the mix, since additional fees and fines do not seem to modify behavior. But an enlightened view of the cash velocity and value as discussed above might help.
Information Cycle Time:
Locating and coordinating shipments, motor carriers and chassis. In LA, the leasing companies have signed an agreement with International Assets Systems, a company that has been in the drayage business worldwide. They can see across enterprises—freight forwarders, ocean carriers, motor carriers and chassis owners and make a match. This allows rapid coordination across freight forwarders, motor carriers, and the chassis companies to get the job done. As this new system kicks in, this can eliminate one of the bottleneck issues in the port.
Precision in ETA. Estimated arrival times just don’t cut it. They are wrong. And the port is a big blindside for the players. Firms like TransVoyant, Savi, and others can provide shipment locating accuracy as well as context awareness.
If the managers of the port of LA do not know who Jonah is, this is probably part of the source of the problem. Many supply chain leaders have a copy of The Goal sitting on their book shelf. Personally, I have read it about seven times. No other supply chain book—and I am a voracious reader—has even come close to its level. Why? Because within its pages it addresses not only the physical supply chain, but the people and how they think and work together (and this is where we meet Jonah), and offers an approach to problem solving.
Changing mindsets is harder than almost anything. Yet when confronted with a crisis, this is exactly what has to be done. I was lucky to have two mentors in my career who taught me about these concepts and how to successfully apply them in complex, thorny situations. Port congestion is the kind of problem we would have loved to have been parachuted in to solve. Alas, our time has gone by.
It’s not luck that will solve the seemingly intractable problem of bottlenecks (that plagues many industries and companies), but systematically addressing the processes and following the money, and seeing how they do or don’t support the goal. John Slangerup (Port of Long Beach) and Gene Seroka (Port of Los Angeles) and other port managers who have these issues won’t have the benefit of my mentors. But they can apply the wisdom contained within the pages or go out and get copies of The Goal.
1 In fact, over the last several months, and as of this writing, there has been no work stoppage by the International Longshoremen’s Union. -- Return to article text above