The reshoring of manufactured goods from Asia to North America is bound to take some import business away from U.S. ports. But there are other developing threats to the continued dominance of gateways like Los Angeles-Long Beach - specifically, a couple of upstarts to the north and south.

It's not a new story. Back in the 1980s, the Port of Montreal was busy snatching cargo from U.S. East and Gulf Coast ports, thanks to shippers looking to escape the grip of the International Longshoremen's Association. (At the time, the ILA was claiming for itself the right to strip and stuff all multi-shipper containers originating within a 50-mile radius of ports with which the union held contracts.) With the advent of intermodal trains, Montreal became an important conduit for freight moving in and out of the U.S. Midwest.

More recently, the Port of Vancouver, B.C. has emerged as a credible alternative to U.S. rivals Seattle and Tacoma, all three of which tout their proximity to Asia and substantial intermodal resources in selling themselves as gateways to the North American interior.

Now comes the Port of Prince Rupert, B.C., which is even more removed than Vancouver from a large population center that could support a thriving facility for local cargo. The town of Prince Rupert is home to just 15,000 people, and 95 percent of the containers that pass through the port are loaded onto trains for movement deep into the hinterland. The port serves U.S. points as distant as New Orleans, according to Jean-Jacques Ruest, executive vice president and chief marketing officer of the Canadian National Railway.

Ruest should know. His railroad, with its reach across Canada and into the U.S., is the primary reason why Prince Rupert has been able to market itself as a handler of international containers. It boasts a transit time to Chicago of 100 hours. On the water side, the port claims the distinction of offering the shortest trade route to Northeast Asia.

From the very start, its marketing strategy targeted all of North America, said Don Krusel, president and chief executive officer of the Prince Rupert Port Authority. Speaking at a panel at the annual meeting in Anaheim, Calif., of the National Industrial Transportation League, he said the port makes no distinction between the U.S. and Canada as potential sources of cargo. (Both Prince Rupert and Vancouver are also pushing their capability to handle export coal, a commodity that most U.S. terminals are shying away from these days, due to environmental concerns.) Ruest added that the Canadian facilities are benefiting from the decision of many shippers to spread their business among multiple gateways, as a means of mitigating risk.

Prince Rupert, which opened its first container terminal just five years ago, has a long way to go before seriously challenging a U.S. megaport. Still, volumes have been on the rise. Container activity was up 52.6 percent in August, for a year-to-date total of nearly 369,000 twenty-foot equivalent units (TEUs).

Similar plans are being hatched to the south, at the Port of Lazaro Cardenas, Mexico. We've been hearing about this one for at least 20 years. Planners have long dreamed of the location as an alternative both to U.S. intermodal rail service and the Panama Canal. Now, with serious talk of a manufacturing shift from China to Mexico, Lazaro Cardenas could finally be on the verge of realizing that dream.

With a little help, ironically, from a U.S. railroad. Lazaro Cardenas is the southernmost point on the Kansas City Southern's system. Brian Bowers, senior vice president of intermodal and automotive with KCS, said the port houses the only container terminal on the Pacific Coast with thousands of hectares of adjacent land still available for expansion. (Space is at a premium at most established ports, which tend to be located in the midst of busy residential or commercial areas.) In addition, Lazaro Cardenas boasts a natural deep channel that can accommodate "anything that's floating today."

Since 2008, Bowers said, KCS has invested more than $300m on developing the cross-border corridor between Houston and Lazaro Cardenas. And more growth is in the cards. Hutchinson, the current terminal operator, plans to add five cranes in 2013, with an additional container facility due to go into operation in 2015, and a new intermodal terminal in about a year.

Bowers said shippers are beginning to look at Lazaro Cardenas as "a real option" to U.S. ports and intermodal routes. They are gradually moving some cargoes into Texas and the southeastern U.S., with an eye toward diversifying their routings. "As the number of direct services increases, and vessel capacity is upgraded, I think you'll see a steady growth in material flowing through Lazaro Cardenas," he said.

The dominant U.S. ports, of course, won't give up market share without a fight. J. Christopher Lyle, executive director of the Port of Long Beach, noted that his port and neighboring Los Angeles together handle some 15 million TEUs a year. Around half of all import cargo from Asia comes through the Los Angeles Basin, with 75 percent of that total moving on to interior points, on some 60 units trains a week. "Over the years," said Lyle, "we've invested to make sure our gateway is able to handle that kind of volume."

Los Angeles and Long Beach always seem to be running out of space for new terminals, but Lyle claimed that his port is currently operating at just 50 percent of its potential capacity. It also has in reserve Pier S, 160 acres of vacant land on Terminal Island described by Lyle as "the last greenfield terminal site in Southern California."

Nevertheless, U.S. interests are worried about those fledgling rivals. Concerned that the Harbor Maintenance Tax might act as a disincentive to shippers routing through U.S. ports, Congress prompted the Federal Maritime Commission to conduct a study on the matter. The commission concluded that the HMT was just one of many possible factors that could lead to the diversion of cargoes through Canadian and Mexican ports. At the same time, the study said it was perfectly legal for carriers to utilize those alternatives for containers bound for U.S. destinations.

The battle will continue, but U.S. ports can't be complacent about the challenge posed by Canadian and Mexican gateways, no matter how small they might seem. If there's anything we've learned about modern-day supply chains, it's that they can shift direction virtually overnight.

- Robert J. Bowman, SupplyChainBrain

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