During the peak holiday shipping season last year, in early October, 94 international cargo ships sat in the nation's largest seaport complex in Southern California-but only slightly more than half were being worked at the terminals. Forty other ships were sitting idly at anchor awaiting crews to offload their cargo.

"An absolute nightmare," is how Mike Dugan, president of Western Overseas Corp., a national customs broker and freight forwarder with headquarters in Long Beach., California, remembers the scene. "It was very, very hard on our staff because they got the screaming phone calls from our customers. They could see the ships parked out there, but they couldn't get their products."

The vessel backlog, which surfaced in late June and grew progressively worse before tapering off around Thanksgiving, posed a daily challenge and a stark warning of what awaits global shippers in the future if bold steps are not taken to break through the bottleneck on the U.S. West Coast. Now heading into another peak season in 2005, industry officials generally agree on the cause of the backlog last year.

"Transpacific trade grew faster and was more intense than anyone was estimating," explains Richard Steinke, executive director of the Port of Long Beach, where containerized cargo volumes surged by 24 percent-or a million container units-in 2004. While forecasts had been in 3 percent range, West Coast cargo volumes grew three and four times."

Labor demand significantly increased, too. "When the peak came, there just were not enough people," adds Jim McKenna, head of the Pacific Maritime Association, which consists of shipping lines, marine terminals and stevedores. A big factor was that PMA's pool of "casual" or supplemental part-time workers had dwindled from 6,500 workers in 2000 to 3,700 in 2004. Without enough casuals to supplement the 6,000-member strong longshore union, shipping lines were unable to assemble gangs to offload ships. "There were times when we had four or five ships sitting at anchor and no ships at berth because you couldn't get labor to unload them," said Carolyn Martin, director of customer service at the 250-acre International Transportation Service Terminal (ITS) in Long Beach.

Nor was the PMA the only organization caught shorthanded. The railroads were devastatingly blindsided by unanticipated demand for their services. The Union Pacific and BNSF Railway, the major railroads serving Southern California, experienced congestion at their regional rail yards while the UP was also hampered by a shortage of labor, equipment and mainline trackage.

A telling story illustrates how badly the logistics system backs up when one of its components, in this case the railroad, proves inadequate. "We saw rail problems early on in 2004," recalls Martin. "We could see it coming, and it hit hard." In late July, for example, a ship carrying the equivalent of 5,000 twenty-foot cargo containers arrived with 1,000 of those containers scheduled to be loaded onto rail cars for delivery beyond the region. Congestion at rail yards however, prevented moving all but 200 of them.

The remaining 800 containers were stacked inside the terminal, setting off what Martin described as a "domino effect." As terminals became more congested, it took longer for dockworkers to dig through the stacked containers when local truck drivers arrived to pick up cargo. Delayed at the truck gates and within the terminals, the drivers made fewer "turns" each day. This created a cut into the truckers' incomes, just as diesel fuel prices were escalating. Perhaps not unrelated, many owner-operators dropped out of the industry, leaving it with what officials now fear is a critical shortage of drivers.

Peak season 2005

Chastened by last year's experience, port people are already worried about 2005. Industry sources project 13.7 percent coastwise growth, with major volume increases anticipated in both Long Beach and Los Angeles, and in Oakland, Tacoma and Seattle.

With January cargo volumes already having set records in Long Beach, and with industry officials projecting double-digit growth for the West Coast, shippers fear that the shortage of drivers, combined with a shortage of rail capacity, could translate into even worse delays and choke-points.

There are, however, reasons to hope for improvement.

Since last summer, the PMA has hired and trained 4,500 more part-time casual workers, McKenna said, with another 1,000 able to be hired as needed this year. And with upgrades, the size of the union work force will be 7,800 in contrast to last year's 6,000. Based on projected coastwise growth of 13.7 percent, McKenna and others in the industry do not believe that labor will be the primary factor that determines port congestion in 2005. "This year," he predicts, the culprit will be "infrastructure, infrastructure, infrastructure."

One positive response to the infrastructure problem is coming from port officials, who are testing a new program that will ultimately extend marine terminal operations to 24-hours a day to push more cargo through. A new program being designed by a non-profit entity called PierPass (organized by the marine terminal operators) will open the truck gates at marine terminals on a 'round-the-clock basis, with the staged program beginning June 1. In order to pay for the night labor, PierPass will establish a peak-hour "traffic mitigation fee" ($20 per 20 foot container, $40 per 40 foot container) for shippers who pick-up or deliver cargo at marine terminals during daytime hours of 3 a.m. to 5 p.m. Those fees, which must cover the projected $160 million annual cost of keeping terminals open at night, may double at the end of the five-week initiation period if warranted.

Bruce Wargo, general manager of PierPass has great hopes for evening operations, which he expects to be popular with low margin exporters-such as those that ship wastepaper-and with high-volume importers who own distribution centers that already stay open at night. "If at the end of the first year, we have 25 to 30 percent of the daily volume moving off-peak, we will declare victory," he said.

Seaport officials hope that PierPass will also ease freeway congestion. Currently, the 710 freeway in Long Beach, whose six lanes have not been widened since its original construction decades ago, serves as the main north-south corridor leading into and out of the LA-LB port complex. The freeway serves truckers making regional deliveries, as well as those who are draying cargo to Union Pacific and BNSF rail yards near East Los Angeles.

Over 20,000 port-related trucks use the 710 freeway daily, a fourth of the daytime traffic volume, which is compounded by the sheer size of the tractor-trailers that haul everything from petroleum products to wallboard and 45-foot containers. This port-driven traffic overpowers the southern portion of the freeway during the business day, with back-ups common and traffic often slowed to below 30 miles per hour.

To ease congestion, both the Long Beach and Los Angeles ports are encouraging their terminals to make greater use of on-dock rail, where containers are loaded directly onto trains. The port of Los Angeles also has agreed to negotiate with the BNSF for the construction of a second intermodal container transfer facility, able to transfer 1 million containers from trucks to train each year.

Another infrastructure that has forced more trucks onto the freeways is the inland construction of mammoth half-million and million-square-foot warehouses in San Bernardino and Riverside Counties. Constructed to facilitate nationwide distribution by enabling importers to make last-minute distribution decisions after cargo arrives in the United States, this traffic (some 20,000 containers per week) along the 50- to 70-mile corridor to the "Inland Empire" further compounds freeway congestion. To push some of that cargo off of the freeways and onto rail cars, the Alameda Corridor Transportation Authority (ACTA) will launch a pilot project in September to study the feasibility of a shuttle train from the ports to the Inland Empire. During the six-month project, a single train will run five days a week from the ports to a rail yard in the city of Colton, some 70 miles from the docks, carrying 100 import containers daily.

Ultimately, the pilot project will tell ACTA whether it is feasible to move cargo to distribution centers by shuttle train, before ACTA invests funds into a full-fledged shuttle project, says John Doherty, ACTA CEO. Ironically, perhaps, existing rail congestion itself figured prominently in last fall's backlogs at Southern California ports. To alleviate this, rail officials point to projects on the drawing boards to alleviate the situation.

At BNSF Railway, the company spent $1.9 billion last year on new equipment, employees and track-including seven additional miles of track in San Bernardino-and plans to spend even more this year on capital improvements and 2,300 new employees. Procedural changes, which will reduce the length of free time that a container can stay in a rail transfer facility from 48 hours to 24 hours, will reduce congestion, according to spokeswoman Lena Kent.

The Union Pacific Railroad freely admits that the company had neither the locomotives nor the employees to handle the cargo volumes that passed through Southern California last year. "It was a struggle, there was no question about that, but we came out pretty well as we entered the end of the season, which stretched into November and December," said John Bromley, UP's director of public affairs.

UP has hired 5,500 employees system-wide since last fall, and should hire another 700 conductors during the first half of this year, he said. Some 700 locomotives were added to UP's system last year, and 315 more will be added this year. Single-track lines is also an issue, but by year's end Bromley says 40 percent of the road will be double-tracked, with that number increasing to 60 percent by 2007.

"That will go a long way towards giving us the capacity to meet the growth," he said. Whether the industry can wait two or three years for additional rail improvements, however, is the big question. "My biggest concern this year is with the railroads," says the Port of Long Beach's Steinke.

Trucking capacity is also an issue

Bob Curry, president of Cal Cartage Co. in Wilmington, California, says that he was leaving cargo on the docks in mid-February because he did not have enough drivers to pick it up. "(The situation) is as bad as I have ever seen it, and I don't see it getting better until there is a dramatic increase in rates," he said, adding that his company has hired two full-time recruiters to find new drivers.

"The problem is, the recruiters are not bringing that many drivers in," he said.

With drivers making as little as $65 to $75 for a roundtrip to the rail yards in downtown Los Angeles, Curry says, "They could make more hauling dirt." The average truck driver, according to Patty Senecal of Transport Express in Southern California, clears $23,000 to $30,000 a year, after working 10 to 12 hours a day, five or six days a week. Although port and terminal officials hope that extended hours at the terminals will allow drivers to make more turns and earn more money each day, Senecal remains skeptical. She says the industry will have to be willing to pay the drivers a night differential to influence some to work the extra hours, and she doubts if any drivers will work past 10 p.m.

"How good-or bad-peak season 2005 will be has yet to be seen. Terminal officials indicate that they have been meeting with major shippers since early in the year to discuss ways to move their cargo more efficiently. "I think it is going to be a challenging year," says Martin of ITS. "2005 is a year of change. None of us can do business the way we did last year. The volumes are simply too high."

Sidebar: How Toyota Handled the Crunch

When you are in charge of distributing Asian-made auto parts throughout North America, ship delays in Southern California can disrupt supply chains and customers in three different countries.

Tony Minyon, national logistics manager for Toyota, faced that challenge last fall when backlogs were delaying shipments as long as four days. Minyon says he generally orders a greater inventory of after-market auto parts prior to fall, when bad weather can delay deliveries to many sections of the United States, Canada and Mexico. But when ships started backing up last year, he added "extra days" of inventory to his orders.

In addition, he shipped supplemental inventory via air, just in case the ocean cargo did not arrive in time to replenish supplies. "It is hard to explain to a customer why we can't get a turn signal knob because the cargo is caught up at the terminal in Southern California," he said. "Instead of making customers wait for the normal supply chain to replenish the inventory, we are going to air freight to our customer so they do not feel the pain, or as much of the pain."

Some importers, and shipping lines themselves, diverted cargo to other ports, rather than wait in line in Southern California. In total, 127 ships were diverted to ports ranging from Manzanillo, Mexico to San Diego, Oakland, Seattle and Tacoma, said Captain Richard McKenna, deputy executive director of the Marine Exchange, a vessel tracking service in Southern California.

The diversions helped to push 2004 cargo volumes to record levels in Oakland, Seattle and Tacoma, port officials report. Yet, all three ports indicate that the primary factor in their growth was the overall increase in imports through the West Coast.

The three ports have built new terminals, or have made significant expansions to existing terminals during the past decade, and all three indicate that they have the capacity to accommodate significant growth in the years ahead.

Nevertheless, diversions were not a consideration for Minyon, who ships all Asian-made auto parts to Ontario, California for distribution throughout North America. "If we diverted cargo, we would have to bring it back to Ontario, which would add time and money," he said. "At some time, if the delay reaches a certain point, it would be cheaper and faster to divert. But we were not there last year."