Delays, Collisions & Strikes: A Thorn in the US Port System

The old adage of ‘Time is Money’ is often thrown around with great abandon but when the cost to businesses reaches USD 1 billion per day due to ten day strikes and delays on the US West Coast in 2002 then this old phrase written by Benjamin Franklin, a founding father of the United States no less, rings a little more true with those companies who are effected.

The key issue here is the state of the US ports system and its ability to handle the expected increase in chemical exports that are on the horizon due to the shale gas phenomenon. Once again, overnight we saw that the Houston Ship Channel is closed due to a collision involving two vessels, last month is was closed due to fog and last year it was closed due to an oil spill resulting from yet another collision. The impact this has on charterers and owner’s logistics can be extremely disruptive and can potentially cost both sides a lot of money. With the current closure there are roughly 80 Specialised Products vessels in and around the Channel either at anchor or on berth. The problems the Port of Houston faces are further exacerbated with the impending opening of the Panama Canal expansion project in 2016. However, Houston is not alone in these problems. Other ports particularly on the west coast are facing regular threats of strike action over contract disputes which can often drag on and on, as we are seeing with USW strikes at the moment which have halted more than a dozen refinery operations. The threat to the US port system is so severe that chemicals sector officials joined 100 other industry groups last year and urged the White House to intercede in negotiations warning that a fresh shutdown in US West ports could cost as much USD 2 billion per day. The Federal Government did step in and a new five year agreement was reached on 20th February of this year between the union and Port Owners for 29 ports on the US West Coast. This is important as with several projects on the US west coast due to come online in the not too distant future, particularly on the methanol side, the agreement will allow port operations and therefore exports to flow to Asia without issue. At least in theory anyway. Commenting on this the sub-committee chair of the Senate Commerce Committee Deborah Fischer said “A shutdown of America’s West Coast ports, even for a short period of time, would have a devastating economic consequences…(it) would disrupt 405,000 jobs, reduce US GDP by almost USD 50 billion and cost the US economy USD 2.5 billion per day”. So successful dispute resolution is one thing but significant infrastructure investment is also required to handle the predicted increase in activity in these crucial areas. Turning back to the Port of Houston we see that the authority is embarking on a ‘Capital Improvement Project’. In 2015 it plans to spend USD 275 million which includes terminal, railway, channel development, renovations and technological improvements. However, the key question is whether this is enough?

Erring on the side of caution particularly with the current short to medium term uncertainty of the crude oil markets there is the possibility that some shale gas related projects could be delayed thus giving the ports some breathing space. However, no projects appear to have been delayed or cancelled as of yet and so it is not clear whether such investment is enough. For the Specialised Products markets, delays, collisions and strikes are nothing new, particularly if we look at other countries – India has another one looming now, but they are unhelpful and unavoidable in some cases. Delays do tighten space availability and thus spot freight rates can firm but on the other hand such is the contractual nature of our markets then there can be a knock on effect for owners operating at the higher end who have complicated rotations and schedules—thus it should be remembered that delays can hurt owners bottom line as well as charterers. However, any potential to avoid such issues through investment and proactive dispute resolution will go some way to create more efficient supply chains.

SP blog 25 March

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