Bill Mongelluzzo, July 7, 2014, JOC.com
West Coast ports will spend the coming year in much the same way they spent the past year: preparing for big ships operated by big carrier alliances.
In some ways, ports on North America’s west coast are ahead of their competitors in the East. The major container gateways of Port Metro Vancouver and Prince Rupert, British Columbia; Seattle-Tacoma; Oakland and Los Angeles-Long Beach already are benefiting from the deep harbors and strong intermodal rail connections required in this era of big ships. Some major East Coast gateways are still engaged in developing those costly projects.
Being big-ship ready, however, involves more than having deep water, on-dock railyards and intermodal connectors to the transcontinental rail networks. The ports today are investing in taller, heavier super-post-Panamax cranes that can reach across 22 rows of containers on a vessel. They are rebuilding and strengthening wharves that were designed to handle much smaller cranes.
West Coast ports also are adjusting to the reality that carriers, through alliances and vessel-sharing arrangements, are concentrating their vessel calls at fewer ports and terminals. Shipping lines seek density. Pushing more freight through fewer ports allows the carriers to use the capacity of their big ships more effectively and achieve the economies of scale inherent in the mega-ships.
These savings are compelling. Compared to a Panamax vessel with a capacity of 4,800 20-foot container units, an 8,000-TEU ship offers a 47 percent lower slot cost, and a 14,000-TEU ship has a 60 percent lower slot cost, John Wheeler, liner representative of the South Carolina Ports Authority, told the JOC’s TPM Conference in Long Beach in March.
This new reality means there will be winners among ports and marine terminals. There will also be gateways that continue to experience growing container volumes each year, but lose market share on the coast.
Los Angeles-Long Beach offers a large local population and a robust network of intermodal services to the eastern half of the country. Carriers are pricing their Pacific Southwest services aggressively to incentivize the shipment of discretionary freight through Southern California.
Statistics produced by the JOC comparing the market share of ports on the Pacific Coast of North America in the first quarters of 2012 through 2014 show that the Los Angeles-Long Beach gateway increased its share to 61.4 percent this year from 58.6 percent in the first quarter of 2012, while the market share of the other U.S. and Canadian gateways declined moderately.
Portland, because of the limitations of its location as a river port with a 43-foot depth, is a diversified port that handles a variety of bulk, breakbulk and containerized cargoes, but is not destined to be a load-center port for containers.
Each gateway must adjust its investment strategy so it is aligned with future growth prospects. Long Beach and Los Angeles each are investing $700 million to almost $1 billion a year to continue to expand the nation’s largest port complex.
The other Pacific Coast ports are also, proportionally, spending large amounts of money to consolidate terminals and expand intermodal connectors to handle big ships and surges of intermodal freight moving through their gateways.
In Oakland, for example, APL and Total Terminals International couldn’t make money with their relatively small facilities, so they exited the terminal-operating business. SSA Marine in 2013 took over the operation of those adjacent facilities and now has one large, rectangular terminal covering 350 acres that can better handle today’s mega-ships.
The ports of Seattle and Tacoma together have nine terminals ranging from 41 acres to 196 acres. The Federal Maritime Commission this year approved the ports’ plans to discuss greater cooperation and consolidation of facilities. While a merger of the two competing ports isn’t in the cards, consolidation of adjacent terminals could result where it makes sense.
As this exercise began, Port of Seattle Executive Director Tay Yoshitani said he couldn’t predict the outcome, but he’s confident that a few years from now, the port landscape in the Pacific Northwest will look different than it does now.
All of the West Coast ports face the challenge of aligning their capital spending with the growth that is likely to occur in their individual gateways. Ten years ago, annual growth of at least 5 percent was a given, and spurts of as much as 10 percent growth were possible. The 2008-09 recession and the apparent end of significant outsourcing of manufacturing to China have changed the equation.
West Coast ports in 2013 experienced another year of modest 2 percent growth, according to statistics published on the Pacific Maritime Association’s website. In the first four months of 2014, total container volume moving through U.S. West Coast ports increased 3 percent compared to the same period in 2013.
Port Metro Vancouver, Canada’s largest port, recorded strong 5 percent growth in 2013, but container volume was up a more modest 2.2 percent in the first five months of this year.
Container volume at Prince Rupert, located 500 miles north of Vancouver, declined 5 percent in 2013, its first drop since the Fairview container terminal opened in late 2007. Prince Rupert started 2014 with continued losses, but a strong May helped pull the port into positive territory, with year-to-date growth of 3.8 percent.
All of the U.S. West Coast ports are dealing with excess marine terminal capacity, putting downward pressure on rates the terminals charge. Carriers and carrier alliances are leveraging their growing container volumes to negotiate lower rates.
This leveraging is expected to continue even though Chinese regulators in June turned down the request of the world’s three largest container lines — Maersk Line, CMA CGM and Mediterranean Shipping Co. — to operate the P3 Network in the main east-west trades. The three lines are expected to cooperate in looser vessel-sharing agreements that don’t have the centralized control the P3 was designed to have.
In Oakland and Seattle-Tacoma, terminal operators say they’re grappling with 50 percent or lower terminal utilization rates. In Los Angeles-Long Beach, terminals say overcapacity is about 30 percent. As a result, ports and terminal operators up and down the coast must invest strategically in fewer but larger, more efficient container terminals.
Automation will enhance the terminals’ ability to improve vessel, yard and gate productivity, and to increase throughput per-acre to better utilize existing acreage. The Middle Harbor terminal under construction in Long Beach will be the most automated terminal in the U.S. The first phase will be completed next year and full build-out of the $1.3 billion, 305-acre terminal will be completed in 2019, Al Mora, the port’s acting executive director, told a June 23 conference sponsored by FuturePorts.
Middle Harbor will feature automated guided vehicles and automated stacking cranes to move containers throughout the yard. In Los Angeles, the TraPac terminal reconstruction project will feature ground transportation that includes the automated movement of containers to its on-dock railyard.
Other terminals in Los Angeles-Long Beach are expected to introduce various degrees of automation as required to handle increased container volumes. Although most of the automation in the near term on the West Coast will take place in Southern California, terminals in other gateways must be prepared to consider various degrees of automation as container volumes increase.
All of the major container gateways on the North American west coast also must consider softer productivity enhancements such as increasing hours of operation and investing in more cranes and other equipment to efficiently handle the cargo surges mega-ships generate.
Los Angeles-Long Beach learned this lesson eight years ago when gate congestion resulted in the formation of PierPass to manage a formal program of night and weekend gates. Most of the 13 container terminals in the port complex now operate four or five extra gates each week. About 55 percent of the truck traffic arrives and departs during night and weekend shifts.
Vancouver this year also has struggled with long truck lines and excessive turn times, and the container terminals there are launching a pilot project of extended gate hours. Other West Coast ports extend their hours on an ad hoc basis as needed during busy periods.
Terminals also are adjusting to the increased equipment requirements that come with turning big ships in a timely manner. JOC Group Port Productivity Data released on June 23 ranked five terminals in Los Angeles-Long Beach among the Top 10 container terminals in the Americas in terms of total container moves per vessel per hour in 2013.
Industry experts who design marine terminals and terminal operating systems said there have been no significant improvements this past year in cargo-handling technology, so the gains recorded by the most productive U.S. terminals appear to result from working more cranes against the mega-ships.
West Coast ports must explore every option available to improve productivity because they are engaged in intense competition with each other, and with East Coast ports, for market share. East Coast ports since last year have been handling weekly services of 8,000- to 9,000-TEU vessels on all-water services from Asia via the Suez Canal. Completion of the Panama Canal expansion project in 2016 will intensify competition even more.
Even if West Coast ports address all of the demands they face for improved infrastructure and greater productivity, however, they also must work with their stakeholders, including labor, to be reliable gateways.
Stefan Minder, vice president, West area, at Switzerland-based logistics provider Kuehne + Nagel, told the FuturePorts conference that cargo interests choose ports based on a number of factors, including strategic location, infrastructure, proximity to markets, frequency of ocean and rail services, and productivity, but the most important quality is stability of operations.
His message extended beyond the current contract negotiations between the International Longshore and Warehouse Union and waterfront employers. Cargo interests want a predictable, consistent cargo-handling environment free from work stoppages and slowdowns.