For those engaged in international trade development, the topic of the economic impact of a port trucking strike quickly arises when there is a severe disruption to port services because there are both local and national economic impacts. The March 2014 port trucking strike at the Port of Vancouver was no exception. Port Metro Vancouver indicated that the strike was affecting the movement of approximately $885 million worth of shipments each week, or $126 million per day. In some media articles, this figure has been cited as the cost of the strike and, in turn, implied the magnitude of the impact on those reliant on global supply chains that used the Vancouver gateway.
Practically speaking, estimates of the actual costs of a disruption in port services depend on the scope of the impact – local, provincial or national – and the length of the disruption. For example, if traffic from the Port of Vancouver is diverted to the Port of Prince Rupert, the effect on the local economy may be very significant; however, the extent that the economic activity is shifted from Vancouver to Prince Rupert the impact on the provincial economy would be relatively minor. For short-term disruptions, additional costs are primarily related to delays in cargo shipments; for longer interruptions, shifts in cargo routing as a result of supply chain management decisions may have significant distributional and cumulative effects.
In 2006, the US Congressional Budget Office estimated the impact of a one-week shutdown of container traffic through the Ports of Los Angeles and Long Beach at US$65 million to US$150 million per day, based on a daily trade value of US$500 million. Using this ratio of economic impact to trade value, the cost of the Vancouver trucking strike would be between $16 million to $38 million per day. Some media reports have suggested the cost of a similar disruption in 2005 was $75 million per day to the BC economy.
Economic Impact of a Port Trucking Strike in the Container Sector
Based on the particular circumstances at the Port of Vancouver, direct costs of the current dispute fall into three main groups:
1. Companies and workers directly involved in container logistics in the Lower Mainland, including the truckers themselves, warehouse and distribution centres, container terminals and longshore labour and other related enterprises.
• Truckers receive no income while their services are withdrawn. To the extent that containers have to be cleared by truck from the terminals following the restoration of service, a portion of these lost earnings will be recovered.
• Lower numbers of longshore workers will be dispatched to the terminals while service is disrupted. Again, a portion of these lost earnings may be recovered when service resumes.
• The container terminal operators may see reduced revenues as containers are diverted to other ports. On March 13, TSI Terminals declared Force Majeure for containers for local delivery in the Lower Mainland, which means this traffic is likely to be diverted to the Ports of Seattle or Tacoma. The impact on terminal revenues may be partially offset by additional charges for demurrage (container storage) for containers stuck on the docks.
• Import distribution and transload centres are dependent on truck movements to receive and ship cargo and are likely to shut down as traffic dries up.
Containerized imports through the Port of Vancouver consist primarily of consumer goods. Direct costs to importers will include:
• Additional inventory holding costs for products in transit.
• Demurrage charges for containers stranded at the terminals. Current demurrage charges at PMV terminals are $120 per TEU (twenty-foot equivalent) per day, or $240 per day for a 40-foot container for the first 5 days after the end of the free time (five days for TSI Terminals). The charge rises to $175 per TEU for the next five days and $227.50 after the first ten days. These charges are significantly higher in Vancouver than at other West Coast ports; for example, comparable demurrage costs at the Port of Los Angeles are only US$26.68 per 40-foot container per day for the first five days after the free time has expired. The Globe and Mail in their article Toll rises as Vancouver port strike drags have reported on how demurrage charges at PMV are impacting BC firms. The Canadian International Freight Forwarders Association (CIFFA) estimates that with thousands of containers stuck at the terminals over the course of the 28-day strike, the total fees being levied by the PMV terminal operators could exceed $20 million.
• Costs of rerouting cargo via alternative modes (i.e. rail) or other ports.
• Costs of lost sales, particularly for seasonal merchandise that are delayed past the prime sales period.
Some portion of these costs may be passed on to consumers through higher prices.
3. Exporters. Forest products (lumber, pulp, and paper) account for over 50% of outbound containerized traffic at Port Metro Vancouver, followed by specialty crops that accounted for an additional 17% in 2013. Direct costs to exporters include:
• Additional inventory holding costs for a product in transit.
• Costs of rerouting cargo via alternative modes (i.e. rail) or other ports. Theoretically, BC exporters could truck their products to alternative intermodal centres (Prince George, Edmonton or Calgary) for transloading and delivery to the port terminals by rail; however costs are likely to be prohibitive, and the railways may have insufficient capacity to accommodate the additional traffic.
• Costs of lost sales due to delays in shipments.
• An extended disruption of drayage services may lead to a shutdown of production at interior forest products mills.
Almost all forest products destined for offshore markets are transloaded in the Lower Mainland and warehouses are dependent on local drayage for delivery of empty containers and transportation of loaded containers to the port terminals. Eventually, Lower Mainland transload warehouses fill with products that cannot be delivered to the container terminals. The railways then become unable to transport product from the mills to the warehouses. This has already occurred in the current dispute; on March 12 CN announced it would be dramatically scaling back its forestry shipments to the port until the strike is resolved due to a backlog at transload facilities in Vancouver. As Mills run out of on-site storage space shutdowns are likely. Forest products exporters may be able to divert a portion of their traffic to “breakbulk” vessels; however, this option often requires a longer term commitment in order to secure capacity.
Exporters such as the forest products industry that compete in global markets are often unable to pass on additional costs to their customers.
In the long run, there could be significant costs to the local economy if shippers decide to transfer business to other ports on a permanent basis to avoid future disruptions.
Special thanks to Phil Davies of Davies Transportation Consulting for this post.