This year’s peak shipping season will likely go down as one of the most lackluster in recent years. Not surprisingly, the nation’s retailers have reported dismal back-to-school sales and holiday sales aren’t expected to be much different. At the same time, shippers are being hit with a bevy of new fees—higher fuel surcharges, environmental and infrastructure fees on containerized shipments—at a most inopportune time. Shipping lines, too, are seeing a drop in profits and have scrambled to adjust capacity on trade lanes and even slow down vessel speeds to help trim costs. While the present situation is decidedly bleak, the long-term outlook is hopeful.

Treading water on the West Coast

The major box ports along the U.S. West Coast have encountered increased competition from seaports along the East Coast in the past few years, but because imports were generally up across the board, there was plenty for everyone. Furthermore, West Coast ports had an edge in transit times from Asia and could accommodate post-Panamax vessels.

But, several key developments are beginning to change the picture.

The first is the longshoremen’s labor union. The 2008 contract negotiations and resulting agreement went fairly smoothly this year. And while most everyone breathed a sigh of relief that they were spared from any damaging slowdowns or work stoppages, experts say the new contract lacks the necessary provisions to help make West Coast ports more able to compete in the changing marketplace. For one, the effort by employers to include two 10-hour work shifts per day to improve loading and off-loading of the new 8,000-TEU vessels was scuttled. Employers also had to accept the International Longshore and Warehouse Union’s so-called “unit” coffee breaks that shut down marine terminals for 15 to 30 minutes every morning and afternoon. A seemingly small concession, but one that speaks volumes as to the willingness on behalf of the union to accept that the West Coast will one day no longer have a stranglehold on Asian imports and everyone in the supply chain will be required to improve productivity in order to remain competitive.

In fact, competition is not only starting to come from East Coast seaports, but Canada and Mexico too. Last year, China Ocean Shipping Company (COSCO) began calling the Port of Prince Rupert in British Columbia. The port is closer to Asia than any other West Coast port by three days, boasts the deepest natural harbor in North America, and has plenty of room to expand. Rail service is being provided by Canadian National from Prince Rupert to key markets, such as Chicago and Memphis. During the first half of this year, the port handled 42,555 TEUs.

In July, three of the four CKYH alliance members—COSCO, Yang Ming, and Hanjin—added a second weekly string to the port. The second service also uses 8,200-TEU vessels, rather than the 5,400-TEU vessels deployed on the initial service. Future plans call for quadrupling the capacity of the container terminal to 2 million TEUs by 2012 to meet growing demand, and work on phase two will begin early next year, say port officials.

Meanwhile, Mexican President Felipe Calderon announced in late August that the government would begin taking bids to develop a $4.88 billion port complex at Punta Colonet, which is located 150 miles south of San Diego in Baja California. The project also includes development of a new airport, highways, and a rail link to the U.S., all intended to provide U.S. shippers with an alternative gateway for Asian imports.

It’s expected that the port will become operational approximately three years after the contracts are awarded and will have a handling capacity of 6 million TEUs annually. Like the Port of Prince Rupert, the Port of Punta Colonet will have plenty of room to expand from its initial 205-acre footprint.

Furthermore, the Mexican government is also planning to expand the Port of Veracruz, the second-largest container terminal in that country.

Not to be forgotten is the ongoing construction taking place at the Panama Canal. Work on expanding the canal started last year and is expected to be completed in 2014, and includes building a new lane for vessel traffic and a new set of locks, which will double capacity and allow for longer and wider ships.

Shippers are also bracing for added fees. Effective October 1, the ports of Los Angeles and Long Beach will start charging $35 per TEU for containers that are hauled by “older” trucks that don’t meet the new emission standards of the ports’ Clean Air Action Plan. The goal is to replace 16,800 trucks over the next five years with cleaner models, while simultaneously making it easier for the ports to meet stricter environmental standards that are required before further expansion and development can take place.

It’s important to note that shippers have generally been accepting of this fee, as they understand the environmental benefits and compromises that must be made before the ports can expand. Port officials from around the country say it’s a good thing, because it’s likely that other ports will have to implement similar fees in the near future.

Another fee—$30 per TEU for the ports of Los Angeles, Long Beach, and Oakland—is also intended to improve air quality and improve congestion. (Note: legislation containing the fee was being held up on California Governor Schwarzenegger’s desk pending passage of a state budget as World Trade went to press). Moreover, a $15 per TEU fee will be implemented on January 1 to help fund infrastructure projects at LA-LB.

Again, while shippers have so far been taking the fees in stride, it certainly is harder to do so when fuel costs, both for bunker and diesel, are also on the rise and sales are down.

The long-term looks better

Fortunately, U.S. exports are helping to save the day, at least for West Coast ports. According to the Pacific Maritime Association, exports jumped 18.5 percent in July compared to July 2007, while containerized exports during the first seven months of the year were up 17.4 percent over the same period last year.

Not only are containerized exports on the rise, there are plenty of agricultural shipments and project cargo shipments helping to take up the slack. However, exporters are finding a number of challenges in getting their goods to overseas markets, namely a shortage of equipment in the form of containers and vessel space. The nation’s inland points, which are a major source for commodity exports, are typically far from the consumer products oriented distribution centers, which means exporters in the U.S. interior must sometimes wait weeks to get an empty container. In addition, because shipping lines have cut capacity to the U.S. due to slowing imports, there is naturally less capacity for outbound cargo. And, much of the outbound cargo is going to places other than China, which makes repositioning the containers all the more difficult for shipping lines.

Nonetheless, executives who have been around long enough are quick to point out that business is cyclical and furthermore, the long-term forecast calls for trade volumes to return to 7 or 8 percent growth rates in the next few years. The most optimistic of the bunch say that when healthier volumes do come back, the ports will have better infrastructure in place and will be operating in a much more environmentally friendly manner. They also expect that more efficient port operations will more than offset the current round of fees that shippers are being forced to absorb. wt