Playing It Safe: Early Retail Orders Spur Port Volume

NEW YORK — Brands and retailers relying on Asian manufacturing are moving to get their holiday merchandise into the country earlier, fueling a summer surge in container traffic at the nation’s ports.

According to the National Retail Federation’s monthly Port Tracker report, the nation’s ports are already operating at peak-season levels. August container traffic is forecast to be almost as high as that projected for October, which traditionally has the highest volume. Despite the increase, port, truck and rail systems are said to be running smoothly, and no large-scale disruptions are anticipated.

“This continued growth in volume will challenge the providers’ abilities to perform, but we expect shippers will make it through the peak season without significant congestion,” said the report.

Paul Bingham, an economist with data analysis firm Global Insight, which produces Port Tracker, said the increasing traffic levels are a natural result of the move toward Asian manufacturing.

“If you shifted your plant from Mexico to Asia…before, it came by truck,” said Bingham. “Now you’re moving it via container.”

While rising traffic levels have been expected, Bingham noted that retailers’ willingness to carry inventory earlier this year has been a surprise.

“We hadn’t seen this spreading of the peak,” said Bingham.

It’s a sign of better planning aimed at reducing exposure to risk, according to Bingham. While a spike in container traffic translates into more business for freight carriers, it also puts more pressure on an already taxed system. The impact of labor shortages, a union strike, lockouts or the more common train derailment — all of which have occurred in the past five years — is magnified during the peak season. Retailers are looking for ways to mitigate this risk. Large chains are taking advantage of their distribution centers as a means to get the goods into the country first, said Bingham. Determining where those goods get shipped is a secondary concern.

Stretching shipments out over several months works to the benefit of freight carriers, as well, and Bingham believes some are offering incentives to create a more consistent flow of goods.

“Carriers might be more willing to give a slight deal, and it may be as little as giving some preferential treatment if you stage it so you have consistent volume instead of crushing them in October,” said Bingham. “The railroads, as well, they would like to know they don’t have to build capacity for just one month a year.”

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The lack of congestion and the introduction of larger ships running from Asia to the West Coast have given brands and retailers renewed confidence in California’s ports. The Ports of Los Angeles and Long Beach, the nation’s largest port system, have regained market share that had been lost when importers opted to bear the added cost of shipping their goods through ports in Seattle; Tacoma, Wash., and even New York to avoid California port issues.

“Seattle and Tacoma have lost West Coast market share to California ports this year, and the West Coast growth has grown faster than the East Coast ports so far this year,” said the report. “This pattern is expected to continue through December.”

Nate Herman, director of international trade at the American Apparel & Footwear Association, pointed out that other industries such as furniture, toys and cars have also moved to Asian manufacturing, putting further pressure on retailers to ship goods earlier. However, he believes that some are erring on the side of caution this year.

“I don’t think [the peak season] will be pushed too much farther back [into the summer],” said Herman. “The whole reason companies moved away from holding inventory was because it was a huge drain on resources.”

If no major disruptions occur during the peak shipping season, Herman believes many importers might return to having their goods shipped later in the season next year.

A proposal being considered by the California general assembly for a new container tax aimed at controlling pollution could also reverse the gains California ports are making this year, said Herman.

Bill Clark, president of the American Institute for Shippers’ Associations, believes rising container traffic, especially during the peak season, puts the squeeze on smaller businesses.

“Capacity is going to get tighter, and that’s going to drive prices higher,” said Clark. “For the small and medium shippers, it means higher costs and longer transit times.”

While congestion remains low, those following the industry agree that the port and rail systems are operating at near capacity.

“The system is running very tight; there’s no slack,” said Bingham, adding that a major derailment could cause “cascading problems.” That said, Bingham also noted that the destruction caused by Hurricanes Rita and Katrina wasn’t enough to significantly disrupt rail systems.