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Shipping Issues and Uncertainty Upset Logistics Landscape

Nate Herman, senior vice president for supply chain at the American Apparel & Footwear Association, noted that one of the biggest changes in the shipping industry has been the creation of three major ocean carrier alliances, with most major shipping groups joining one of them.

Hanjin Shipping’s bankruptcy last year also served to disrupt service for many brands.

“We have labor negotiations going on for the East Coast and West Coast ports,” Herman said at the AAFA Sourcing Conference in New York Thursday. “The contracts don’t expire until 2018 and 2019, but we’re hoping that they make some progress now and what happens now will affect how your cargo moves through those ports.”

“Frankly, we also have things that are literally coming out of left field,” Herman continued. “Because of the diplomatic dispute that sprung up last week, now any product that moves through the Middle East is running into problems because of the dispute with Qatar. Now you have major container lines saying they’re not even going to go anywhere near Qatar. Qatar is a major hub for ocean and air cargo in the Middle East, so it’s really hard to avoid going through Qatar.”

Moderating a panel dubbed “The Logistics Quagmire,” Herman asked several experts in the field how they deal with “all this uncertainty.”

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Kevin Holian, vice president of global operations at New Balance Inc., said,” Almost every mode of transportation we deal with, whether it’s ocean, air, small parcel, ground transportation, even rail, all have common factors around uncertainly and variability. I think most logistics people spend most of their day trying to manage that variability.”

Management of that variability is a two-fold task, he said: it involves risks for the company and services for the client.

“Logistics is a little bit like plumbing in your house,” Holian said. “As long as it’s working well…you don’t tend to worry about it or care about it. But the moment that stops working properly, it escalates to probably become perhaps the most important issue in your home and certainly in your business.”

Ken O’Brien, chief operating officer for Gemini Shippers Group, said the company tries to help its clients build a supply chain that can accept the risk problems to avoid severity in terms of delays or other setbacks.

“Some people need speed, but most people need the agility to be able to react to a problem,” O’Brien said.

John Kazmac, director of sales for APL Logistics, said by using date analytics more extensively, APL has been able to help shippers achieve greater efficiency in shipping time, costs and planning.

Ken Uriu, business development manager for import cargo at the Port of Long Beach, said the Trump administration has promised about $1 trillion in funding for infrastructure and the ports and others are wondering where this money will go.

“We’re hoping it will help our connectors, which are the roads and bridges outside our port,” Uriu said.

The Port of Long Beach has spent $4 billion over the last 10 years on infrastructure, he noted, raising bridges, deepening channels and improving terminals to handle the big ships that are coming into its gateways.

O’Brien said the alliances bring a “convenience factor” to shipping, and expand the breadth of services they can offer. It also allows “the big ship economics” to occur. On the flip side, there’s a greater lack of control when dealing with large groups versus individual carriers.

The last several years has seen the rise of megaships, built for greater cost efficiencies and to have fewer ships on the water, and with the expansion of the Panama Canal to allow these ships through, these major container vessels originating in Asia have the ability to enter East Coast ports.

This month, Kawasaki Kisen Kaisha Ltd., Mitsui O.S.K. Lines Ltd. and Nippon Yusen Kabushiki Kaisha finalized and named their alliance the Ocean Network Express.

Last year, the Ocean Alliance, comprised of China’s COSCO Shipping, France’s CMA CGM, Taiwan’s Fra Evergreen Marine and Hong Kong’s Orient Overseas Container Line Ltd. was created, along with THE Alliance, an agreement between five major container shipping companies—Hapag-Lloyd, K Line, Mitsui O.S.K. Lines, NYK Line and Yang Ming.

‘The biggest thing we do is split our contracts across the alliances in order to be able to maximize service availability and spread the risks across the carrier base,” Holian said of the alliances.

Uriu said they had been “creating some confusion” in port operations, which has partially been solved by the move toward universal chassis.

As for the port labor negotiations, Uriu said the the Pacific Maritime Association the International Longshore and Warehouse Union have said it would be great to extend the contract three years beyond 2019, but it still has to go to vote.

O’Brien said on the East Coast, the International Longshoremen’s Association and the U.S. Maritime Alliance have at least identified the issues they don’t agree on—automation, maintenance contracts and local agreements.

“At least there’s consensus on the things they agree on and the ones they have to work on, which is better than the last time,” O’Brien added.