As I mentioned in my Journal of Commerce article, “Reducing the Transport Risk in US Manufacturing Supply Chains”, many midwest manufacturers are looking for alternative import approaches to bring raw materials closer to their plants. They want to protect their operations, the supply chain and their customers as they are frustrated with final mile delays, breaks in production, inconsistent product flows to customers when using East Coast ports to manage freight moving into the U.S. Increased costs compound the issue and are felt by manufacturers and end customers.
For example, a Green Bay CPG manufacturer realized they needed a new solution after continuous last-mile rail delays from the East Coast created significant supply chain disruptions. Ten boxcars would be scheduled to be available to the manufacturer; some weeks they would receive two, other weeks eight. Because boxcar availability was unpredictable, and deferrals were not communicated proactively by the rail, it hindered the manufacturer’s ability to effectively service their customers. And, it created cost inefficiency. As a result, dedicated logistics managers had to diligently monitor rail reports, then scramble to arrange expedited product delivery due to transit delays and deferrals. Meanwhile, production lines stopped, shipments to customers were delayed, and the manufacturer incurred more than $250,000 in expedites to limit disruption time. Click here to read my Journal of Commerce article to see how manufacturers are impacted by reduced rail service performance.
Service Performance Issues Are Not Limited to Rail...Port Congestion on the East Coast Is Keeping Manufacturers From Getting the Resources They Need….
I recently had conversations with lumber, pulp, and wood buyers that would ship to the East Coast and then use trucks for final miles. They were universally frustrated with the inability to get the raw materials they needed on time as trucks are often delayed for hours waiting to enter the port to pick up their freight. Port congestion and unmet infrastructure demands is leading to shipment delays and unnecessary costs. This gridlock, as well as additional security requirements, has forced some motor carriers to refuse to service port origins or destinations at all.
While ports like New York, Baltimore and others along the East Coast are testing new systems and processes to reduce congestion, they are faced with record volumes. This is exacerbating the issue and making matters worse for Midwest manufacturer as they face delays and disruptions to operations, the supply chain, and customers.
In Addition to Weak Service Performance, New Customer Unfriendly Policies Are Increasing Costs & Squeezing Margins
One of our manufacturing clients, who previously saw less than $10,000 in accessorial charges from rail companies, is now faced with more than $100,000 in demurrage fees. Demurrage was put in place to prevent railcars from being held too long; however, the rails are stepping up penalties and cost while not improving their own service. Now, instead of giving 48 hours before assessing demurrage or storage charges, all of the railroads have cut free time in half. In addition, ‘credit’ days from quick unloading used to offset demurrage costs. With the shorter time window, those days no longer exist.
In a recent American Shipper article, CSX mentioned that the main drivers for the rail industry tariffs was to give customers an incentive to manage their pipelines more efficiently and to turn cars faster. The railroads claim they want to improve operational performance, network fluidity, capacity, and provide a more efficient service to customers. However, with limited competition, there is little incentive for them do so. Herman Haksteen, President of the Private Railcar Food and Beverage Association mentioned, “the railroads continue to drive their own efficiency and profitability goals and are simply passing on more costs to their customers, either directly through rates and demurrage and accessorial charges or through inefficiencies they are creating at the shippers’ and receivers’ expense.” Some manufacturers, like International Paper, have absorbed the cost of having staff dedicated to auditing and disputing unfair charges. In the case of International Paper, those costs totaled two million dollars in 2018 alone. Click here to read the American Shipper article and see how manufacturers are facing 10X accessorial charges than previous years.
An Alternative Process That Removes the Challenges in Final Mile Shipping from the East Coast
Another option exists for Midwest shippers. If Wisconsin and Minnesota manufacturers moved their port of entry from the East Coast to Green Bay through use of the St. Lawrence Seaway, reliance on truck and rail for final mile transportation would be minimized. Holding inventory in the Midwest instead of on the East Coast mitigates risk to supply chains increasing customer service and allowing for lower cost transportation options for final mile movements.
The port of Green Bay does not have congestion issues and carriers are able to quickly load. In addition, warehouse capacity exists at the port minimizing product handling and cost.