Will Prince Rupert be but a back up port?

While talk grows of adding on to the Fairview container port with a phase 2, 3, 4 or more, even before phase one is finished, a cautious wind apparently blows from the east.

Two major Canadian newspapers today have published articles about the tide of trade from China to North America, and what may be the best way to service that trade.

George Stalk, who has seen the potential of the Rupert port in the past, but questioned the ability to deliver it, is part of the Boston Consulting Group and his organization is at the heart of the two stories making news today.

His group has studied the congestion problems at West Coast ports due to the sudden wave of Chinese trade and their recommendation, published in today’s Globe and Mail, is that “companies should look at alternatives, including using air freight instead of ships to move goods and relocating factories to Mexico, Canada or the United States.”

As for the beach head here on the North coast, Stalk suggests that it may only serve as a back up solution, due mainly to the lengthy process in expanding the port and the length that goods still have to travel to reach the larger markets of North America: “The report flagged a new container port at Prince Rupert, B.C., as one solution to North American gridlock, but said Prince Rupert is likely to remain a backup port because of a lengthy development process and the fact that goods coming through there must still travel a long way to reach their destination.”

Over at the National Post, Mr. Stalk was having his words divined in terms of a Mexican solution to the ports problems, one that apparently isn’t as steeped in controversial problems as North American ports. "The second longterm [solution] is someone's going to fix the port situation."

Mr. Stalk said he expects that the major expansion on this side of the Pacific Ocean will likely come from Mexico, because Canada's port expansion is hindered by environmental permitting, native land rights claims, and divisive labour relations.”

His comments were provided as part of his organizations larger picture of global trade from Asia and how North American industry will best compete and streamline the process. Stalk’s comments seem to be at odds with the local ideas on how best to develop the Rupert gateway and considering the controversial nature of the project at the moment, Mr. Stalk’s concerns seem to gain some weight.

His thoughts on the North American trade process will be of great interest to the local proponents of containerization, in a business where time seems to be an important aspect of development, the process doesn’t need any kind of alarm bells to be ringing, yet that seems to be exactly what Stalk has done.

We provide both articles below for your comprehensive study:

Asia trade chokes West Coast ports
Scott Deveau
Financial Post
Thursday, May 10, 2007

Demand at North America's West Coast ports will outstrip capacity by 2010, which means businesses need to start considering other options when looking at the attractiveness of outsourcing to Asia, a new report suggests.

Demand at West Coast ports is growing at a rate of roughly 1.5 million containers a year -- or the equivalent of the annual capacity of the Port of Vancouver. The capacity increase from the first phase of expansion at Prince Rupert, B.C.'s port this fall will offset that annual growth by only about half, with the addition of 750,000 containers a year.

"This trend we've had towards the globalization of manufacturing, where goods are made in Asia primarily and bought in Western Europe and the U.S., is not going to change until someone comes to grips with this global infrastructure supply and demand imbalance," said George Stalk, senior vice-president of The Boston Consulting Group and co-author of the new report, Surviving the China Rip Tide.

"You can begin to point to the phenomena with all these ships sitting offshore. It's hard to hide what the problem is here."

China plans to build nearly 100 container-loading berths in the next few years, while there are only five slated to be built along North America's West Coast -- including the two at Prince Rupert. While not all the new Chinese containers will be headed to North America, the current demand at West Coast ports is already pushing railways and truckers to near capacity, Mr. Stalk said.

The delays at the ports are not only starting to increase costs of outsourcing to Asia through increased demurrage and storage fees, but also through the costs associated with not having products on the shelves when customers want them and the writedowns on those products when they arrive too late to be sold.

The report recommends companies factor this in when they consider how much they will save by moving operations to Asia. For some, it may mean that they spend more on ensuring goods get to North America in a timely manner. For others it may mean keeping operations in North America.

Some businesses have already recognized that uncertainty in their supply chain from Asia was beginning to hurt their bottom lines, and have gone to what seems like extraordinary measures to ensure the timely delivery of goods.

Hudson Bay Co. decided to begin shipping seasonal goods from China -- from barbecues to lawn furniture -- through the Panama Canal to the Port of Halifax after delays in Vancouver were exacerbated by a trucking strike a few years ago. While the trip to Halifax adds 37 days and considerable expense, it provides the retailer with the certainty that its seasonal goods will be there when consumers want them. It is more cost effective for the retailer.

Other manufacturers, from fashion retailer American Apparel Inc. to Canadian boot manufacturer Kodiak Group Inc., have moved part of their operations back to North America because it allows them more flexibility and efficiency in their supply chain.

Most orders to Asia have to be made in large volumes to make them cost effective, Mr. Stalk said. But for producers of highly profitable products with a volatile demand bringing operations back to North America or spending more money to ensure more efficient and predictable operations, such as air freight, may be a better alternative to the ports, he said.

"We're going to see two things happen over the long term. We're going to see less manufacturing going to China and more of it staying home or come back," Mr. Stalk said. "The second longterm [solution] is someone's going to fix the port situation."

Mr. Stalk said he expects that the major expansion on this side of the Pacific Ocean will likely come from Mexico, because Canada's port expansion is hindered by environmental permitting, native land rights claims, and divisive labour relations.

scdeveau@nationalpost.com
© National Post 2007

SHIPPING: GLOBAL TRADE
Companies urged to rethink sourcing from China
WENDY STUECK
May 10, 2007

VANCOUVER -- Congestion at North America's West Coast ports and at major European ports means companies should rethink plans to buy key goods from China or stop basing operations there, says a report from Boston Consulting Group.

With the bottlenecks getting worse, companies should look at alternatives, including using air freight instead of ships to move goods and relocating factories to Mexico, Canada or the United States.

It typically costs from five to eight times as much to ship goods by air as it does by ocean freight, says George Stalk, a vice-president at Boston Consulting Group in Toronto. But that extra expense may be worth it if it means having the right amount of goods on store shelves or in warehouses at the right time, he says.

"Or it's worth paying extra money to have manufacturing on shore."

Air freight, he adds, is likely not a viable alternative for low-margin, low-volatility products such as men's T-shirts, but might make sense for higher-cost, higher-margin products -such as electronic goods - for which ocean-shipping costs are only a small portion of the shelf price.
The report - Surviving the China Rip Tide: How to Profit from the Supply Chain Bottleneck - says companies rushed into China to take advantage of low production costs and inexpensive ocean shipping.

But over the past few years, gridlock has hit the world's major ports, the reports says, forcing companies to place orders earlier and carry more inventory. In coming years, companies able to squeeze time out of long-distance supply chains will have an edge over their competitors, the report says. The best way to do that, the report adds, might be to bring manufacturing back to North America to make the production cycle more predictable.

Congestion and backlogs have been an issue at West Coast ports, including in Vancouver, said Chris Badger, vice-president of operations and customer development at the Port of Vancouver.
But he disagreed with the report's conclusion that companies that squeeze time out of supply chains will have an edge in the market. Reliability, he said, will be the most important factor when it comes to moving goods along supply chains that have become global instead of regional in nature.

The Port of Vancouver has several expansion programs under way, and has made reliability a cornerstone of its marketing and planning programs, Mr. Badger said.

Hundreds of containers piled up on Vancouver docks this winter as a result of storms and a strike at CN Rail.

The report flagged a new container port at Prince Rupert, B.C., as one solution to North American gridlock, but said Prince Rupert is likely to remain a backup port because of a lengthy development process and the fact that goods coming through there must still travel a long way to reach their destination.