Bigger ships bring many challenges, as well as benefits.
Speaking at the California Maritime Leadership Forum earlier this year, Jock O’Connell, an international trade advisor at Beacon Economics, told his audience that the container shipping industry reminded him of “the old movies that some of us grew up with during the 1950s and the post-atomic scares and creatures that existed out in the Pacific. There are monsters out there.”
While a step down from the containerships on Far East-to-North Europe routes, BlueWater Reporting says the average size of containerships in the Asia-U.S. Pacific Southwest trade has grown from 5,878 TEUs at the beginning of 2010 to 7,611 TEUs today. In the trade between Asia and the U.S. Northeast the average size has grown from 4,769 TEUs to 6,287s TEUs over the same period.
Averages can be deceiving. There are some much larger ships plying those trade lanes. The biggest ship calling Pacific Southwest ports from Asia now has a capacity of 13,386 TEUs and on the Asia-to-Northeast U.S. lane the largest carries 9,339 TEUs. (In comparison in the Asia-North Europe trade the average size of vessels is 11,769 TEUs and the largest 19,224 TEUs.)
“In general I think it’s fair to say that the big ships are here and they’re here to stay and they will continue to grow,” said Noel Hacegaba, chief commercial officer for the Port of Long Beach, where 10,000-to-13,000 TEU ships now regularly call.
Big ships are attractive because they can lower the operating costs substantially. One study found a 23 percent drop per container slot when comparing a 12,500-TEU ship to a 4,000-TEU ship.
He noted OOCL, which is developing a new terminal in Long Beach’s Middle Harbor, has built a facility that could accommodate a 20,000-TEU vessel. OOCL is building ships that size, but he said the carrier has not detailed how it will deploy them.
“There will be a big ramp up in the transpacific this year. The process is inevitable given the number of ultra-large ships of 14,000-20,000 TEUs being delivered,” said H.J. Tan, an executive consultant with industry information service Alphaliner.
At the beginning of the year Alphaliner said there were 21 ships with more than 18,000 TEUs of capacity slated for delivery in 2015 and 30 with capacities of 13,300 to 17,999 TEUs, and 13 with capacities of 10,000 to 13,300 TEUs. More ships have been ordered since then, including six 20,150-TEU ships from Samsung Heavy Industries for use by Japan’s MOL.
As the very largest ships go into the Asia-North Europe and Asia-Mediterranean trades this year, Tan expects 8,000-13,000 TEU ships will be cascaded into the U.S. West Coast trade.
“The Middle East would also take some of these cascades, but not South America where growth is moribund,” he added.
Paul Bingham, an economist and consultant with Hackett Associates, agreed that “the dynamics haven’t changed significantly enough to make the transpacific lose its role as No. 2 in the world of rank order of density of ship traffic. So the logical No. 2 route, once you pull them out of Asia-Europe, is going to be the transpacific.”
It’s not clear what the effect of moving larger ships into the transpacific trade will mean to shippers, both in terms of rates or quality of service.
Drewry Maritime Research said in its Container Insight Weekly for February that “weak head-haul demand during the latter stages of 2014 should not detract from the prospect that volumes in 2015 are likely to be strong as America’s economy continues to improve.”
The Transpacific Stabilization Agreement has recommended its 15 carrier members seek to conclude contract rates for the year, beginning May 1, at or above $2,000 per FEU to the West Coast and $3,800 per FEU to the East Coast.
Drewry said in February that given the strength of the head-haul rate market that a targeted minimum of $3,800 “may not be wishful thinking.”
However, the spot freight rate between Shanghai and U.S. East Coast ports published by the Shanghai Containerized Freight Index had come off recent highs of more than $5,000 per FEU to $4,569 per FEU on March 13.
Jim Blaeser, an associate at AlixPartners and former American Shipper publisher, said several forecasters believe global shipping demand will increase 5 to 7 percent in the next few years, far below the double-digit growth the industry has seen for many decades. His firm cited figures from Alphaliner and Citi Research that indicate a continuation of the widening gap between container shipping supply and demand globally.
However, he noted carriers are getting better at managing capacity in over-supplied markets by using techniques such as slow steaming.
Because the Far East is much closer to the West Coast than North Europe, carriers will no doubt be careful how they calibrate the repositioning of ships into the transpacific so as not to create overcapacity and drive down rates. One string between East Asia and Europe commonly uses 11 ships. While services from Asia to the U.S. East Coast may have just as many ships as a North Europe string, services between Asia and the West Coast may require only five to seven.
While carriers may be able to reduce the number of strings they offer, for example, by combining two 7,000-TEU strings into a single 14,000-TEU string, they also run the risk of losing business if they don’t offer frequent enough sailings. The ability to give shippers a wide menu of services while using bigger ships is, of course, one of the oft-cited advantages of alliances and other sorts of space-sharing agreements.
Richard Larrabee, director of the Port Commerce Division at the Port Authority of New York and New Jersey, said a wide selection of services, as well as good frequency, is one of the advantages large ports can offer shippers.
Bingham said the size of ships U.S. ports can handle is increasingly determined not by channel depth or berth length, but terminals’ ability to work ships.
Tan believes there will “not be 15,000-TEU ships in the U.S.—these sizes are simply infeasible. I expect 13,000-14,000 TEU to be the limit for U.S. ports.”
“The ocean carriers have been able to exploit advances in naval architecture and engineering to build larger and larger vessels in their almost endless quest for greater economies of scale. And it seems to me they have done so almost irrespective of what is going on or what the capabilities are on the landside,” O’Connell said.
Major West Coast container ports, with the exception of Prince Rupert, have little room for expansion, he said.
U.S. ports are tightly regulated and their ability to keep up with what’s going on in the maritime-side face many constraints.
O’Connell said this challenge is not unique to the United States—ports in Europe, such as Rotterdam, Hamburg and Antwerp, also find that serving very large containerships is challenging.
He said port directors are talking about “taking a more active role in the management rather than being causal bystanders that collect rent and provide basic infrastructure,” and bringing together stakeholders, “who have more of a history of animosity than cooperation.”
Bigger ships, delivering more cargo on a single vessel call “has challenged us, there is no question about it,” Larrabee said, noting those challenges become magnified whenever ships get off schedule.
In New York and New Jersey, a rise in exports creates challenges when shippers bring their containers into a port in anticipation of a particular sailing and then the ship does not arrive on time. “That cargo sits on the dock much longer than it normally would, taking up space,” Larrabee said.
The challenges the port has faced to date, he said, are “a precursor to what happens after the Bayonne Bridge is raised and we get a steadier stream of much larger vessels.”
The long and difficult labor negotiations between the International Longshore and Warehouse Union and employers in 2014-15 were blamed for much of the congestion in West Coast ports and may have obscured the real capabilities of these ports to handle larger ships, but Hacegaba said operational issues such as a lack of chassis and interoperability among these equipment providers are also thought to be a major factor.
A gray chassis pool has been created by the three major chassis providers in the ports of Los Angeles and Long Beach—TRAC, Direct ChassisLink and Flexi-Van– and the Port of Long Beach is discussing obtaining a fleet of 3,000 chassis that could be used to supplement supply at its terminals during periods of peak demand. TRAC opened a new market pool in the Pacific Northwest that will include DCLI equipment.
Larrabee said the Port of New York and New Jersey’s Council on Port Productivity is working toward rolling out a gray pool of its own by July 1.
In addition to making chassis from different owners interchangeable, gray pools have the potential to improve the use of workers to maintain and repair equipment, so that more are in working order.
Terminals in Los Angeles, Long Beach, and Oakland are looking at how shippers with large numbers of containers, or those destined for the same location, can use block stowage and a process called “peel-off” or “free flow” to evacuate containers from terminals quickly.
Chris Lytle, executive director of the Port of Oakland, said these innovations help not just the big shippers, but the smaller ones, too. If the big shipper’s containers are segregated, that means a terminal will spend less time hunting for the small shipper’s cargo, he explained.
Another idea is to remove loaded containers and store them on chassis for short periods, so that drayage drivers can become more productive.
There is also discussion of offering service for the drayage industry similar to the taxi-service Uber, by a company called Cargomatic.
Lytle believes some carriers could offer a distinctive product to shippers if they would call Oakland first with their inbound ships for Asia, because cargo could be more quickly unloaded and trucked to local manufacturers and retailers or put on intermodal trains that could offer faster transit times. Oakland, he noted, is closer to many Asia cities than Los Angeles/Long Beach via the all-circle route.
Generally, Larrabee said, “the entire supply chain needs to do a better job of talking to one another.” He added the port council in the Port of New York and New Jersey is working on developing a community system that would improve the flow and access to information, and thus improve predictability. Such a system would be a precursor to any sort of truck management system or appointment system that terminals might develop, he said.
While some terminals are improving hardware for handling containers with dual-hoist ship-to-shore cranes, rail-mounted gantries, and automated-guided vehicles, Andy Barrons, senior vice president of Navis, said an advanced terminal-operating system “is an essential enabler for operational productivity and part of the overall solution to reducing port stay and managing throughput.”
When handling cargo from large ships, “the industry will need to look at changing traditional business processes and use technology to collaborate more, and take a look at the whole system from a carrier and terminal perspective,” he said.
This article was published in the April 2015 issue of American Shipper.