The Big Ship Race – Is Bigger Better?

By Kathy A. Smith

Continuous infrastructure improvements are critical to a port’s success in today’s marketplace. Ports are facing possible diminished profits as they continue to prepare for larger ships while shipping lines are consolidating partnerships, making ports compete even more to handle larger capacities of cargo and cruise passengers. But that hasn’t stopped the flow of capital improvement projects. In fact, U.S. ports are expected to spend $46 billion in port improvements by 2017.

A June 2014 paper titled Big Ships, Big Challenges: The Impact of Mega Container Vessels on U.S. Port Authorities authored by Dr. Noel Hacegaba, acting deputy executive director and chief operating officer of the Port of Long Beach, California, outlines in detail the advantages and disadvantages this trend will have on U.S. ports and global ports as well.

The paper says that while it’s no secret that economies of scale are being utilized to the maximum advantage by the shipping lines and cargo owners, the rapid building and operating larger ships, the move doesn’t necessarily equate with bigger bottom lines for ports. Neither does this mean port loyalty will remain the same.

Although shipping alliances have been around for years, burgeoning and bigger shipping company collaborations are a fiscally sound way for the lines to manage cargo, but they’re also taking advantage of the fact that many American ports, in particular, currently have excess capacity – a move that is putting pressure on ports to offer better rates than their competitors, which, in turn, can drive rates down.

But what choice do ports have in the wake of this new trend?

Gene Seroka, executive director for the Port of Los Angeles says, “The evolution of larger ships and theemergence of carrier mega alliances are game-changing developments for ports. Ports that have had the ability and foresight to invest in significant infrastructure development to handle larger ships are in a strong position to take advantage of these trends.”

The Port of L.A. anticipates spending approximately $1.1 billion on its capital improvement program over the next five years. In the current budget, about $281 million will be dedicated to this. Nearing completion is the Berth 200 rail yard, which will improve rail efficiency and eliminate 2,300 daily truck trips on local freeways. A major terminal expansion project at TraPac is underway, as is a series of transportation improvement projects to improve port access, reduce traffic and improve safety.

The p offers nine major container terminals and four dockside intermodal rail yards, which have direct access to the 20-mileAlameda Corridor express railway that connects the port to rail hubs in downtown Los Angeles.

“In June, we had our first 13,000 TEU ship call at the Port of L.A.,” says Seroka. “We’ve deepened our main channel, increased berth and backland space, reconfigured terminals and improved rail connections and several of our terminal operators have been raising their cranes to accommodate larger vessels.”

The Port of Long Beach services the newest, largest cargo ships currently in service, including dry and liquid bulk ships and container vessels to 14,000 TEUs, and it’s working to accommodate even larger ships with innovative efficiency-enhancing projects.

“The bigger ships do increase competition because it means fewer ship calls, but this is the trend in the industry, and it will not be long before even bigger ships are built and put into service,” says Chief Executive Jon Slangerup. “We expect to see the port remain extremely competitive in attracting bigger ships to Long Beach.”

The port is in the middle of a multibillion-dollar capital improvement program to increase its capacity and productivity to handle more cargo, while reducing its environmental impact. “Our Middle Harbor project, for example, will be not only be the world’s greenest terminal, utilizing the most electric-powered cargo-handling equipment, it will be one of the largest,” explains Slangerup. “When complete, the Middle Harbor Terminal – which will be able to handle 18,000-TEU ships – will be able to move more cargo than all but three entire ports in the United States – and one of those is the Port of Long Beach.”

Infrastructure developments totaling more than $4 billion also include a new iconic bridge that will be higher and wider than one it is replacing and expanded on-dock rail capacity initiatives, as well as an initiative to pool truck chassis use that will save time and space for truckers and terminal operators.

The overall impact of bigger ships at the Port of Prince Rupert, the second largest port on Canada’s West Coast, is a positive one. The port, which is the closest North American West Coast port to Asian markets, boasts a naturally deep, ice-free harbor and berths, which allow it to easily handle the largest ships in the industry and process their cargo immediately with highly-efficient on-dock rail facilities. Recently, the port welcomed the 13,000-TEU COSCO Fortune, the largest container ship to ever visit a Canadian West Coast port according to Don Krusel, Prince Rupert Port Authority president and CEO.

“We handle every commercial freighter consistently, regardless of size,”he says.“B.C. Coast Pilots board the vessels at the Triple Island Pilot Station and tugs escort inbound container ships in conjunction with the Port Authority’s patrol boat.” A fourth container crane was added in August 2013 at Fairview Terminal to increase load/unload times. All harbor operations are monitored 24/7 from the Port Authority’s Port Security Operations Centre.

The proposed expansion of the Port of Prince Rupert’s Fairview Container Terminal will bring the total capacity to 1.2m TEUs per annum. The expansion is now in its detailed engineering phase. The addition of a project cargo handling facility on Ridley Island, will further diversify Prince Rupert’s port complex.

In 2013, Port Metro Vancouver, British Columbia, Canada’s largest port, moved 2.8 million TEUs, and independent forecasts show that container traffic is expected to more than double over the next 10 to 15 years to accommodate growing demand for Canadian imports and exports. “Even with recent and current improvements at Port Metro Vancouver’s terminals (Deltaport), and planned investments at the Fairview Terminal in Prince Rupert and Centerm, the west coast of Canada will still need more container capacity by the early 2020s,” according to spokesperson Jonathan Parker-Jervis.

The Roberts Bank Terminal 2 Project is a proposed new three-berth container terminal at Roberts Bank in Delta that would provide additional capacity of 2.4 million TEUs per year to meet forecast demand until 2030. The proposed project is now in a formal environmental assessment and will be reviewed by a federal independent review panel. The proposed project has also been designed to accommodate the largest container ships in existence, including the newest Maersk Triple E class.

The Deltaport Terminal, Road and Rail Improvement Project is a combination of terminal, road and rail enhancements, which include a new overpass on the Deltaport causeway that will increase Deltaport’s container capacity by 600,000 TEUs.

The Roberts Bank Rail Corridor Program is a $300 million initiative that includes one road network improvement and eight overpasses in Delta, Surrey, the City of Langley and the Township of Langley. The overpasses will separate road and rail traffic, improving safety, easing community connections and minimizing train whistling.

“Twelve funding partners, including local, regional, provincial and federal governments, as well as Port Metro Vancouver and private industry, are funding the project. Port Metro Vancouver and its tenants and stakeholders are contributing $50 million,” adds Parker-Jervis.

Additionally, the Centerm container terminal, operated by DP World, is one of three primary container terminals located within the Vancouver Gateway, handling approximately one-fifth of the port’s annual container cargo. A proposed expansion project which is to be built in cooperation with DP World, is expected to cost at least $250 million, with construction expected to begin in late 2016. In June of this year, the port introduced more logistics efficiency with container trucks by outfitting them with GPS transponders. Port Metro Vancouver is the first port in North America to outfit 100 percent of the local drayage trucks, under its Truck Licence System (TLS), which allows access to container terminals with GPS units.

Georgia’s deepwater ports in Savannah or Brunswick focus strictly on commercial cargo in the bulk, break bulk and containerized categories. Containers are handled at Georgia Ports Authority’s Garden City Terminal in Savannah. The Port of Savannah, which offers nearly 10,000 linear feet of dock space, is the only U.S. port currently serving all 11 weekly Suez-class services calling on the East Coast.

The size and scope of the Garden City Terminal allows the port to handle the larger container ships efficiently and with great speed. “Our crews can move boxes quickly because of an infrastructure network that includes 25 ship-to-shore (nine Post-Panamax and 16 Super-Post Panamax) cranes and 116 rubber-tired gantry cranes working in tandem on our 1,200-acre facility to handle large influxes in cargo,” says Curtis Foltz, executive director of the Georgia Ports Authority (GPA). “In turn, our port is supported by two on-terminal Class I railroads and access to Interstates 95 and 16 within six miles. These assets avoid congestion and ensure expedited delivery of goods across the Southeast.”

TheGPA has committed to a 10-year capital expenditure plan of $1.4 billion that will increase the capacity of the Garden City Terminal to 6.5 million TEUs per year. Construction will soon begin on the Savannah Harbor Expansion Project, which includes deepening the Savannah River to 47 feet, to accommodate additional numbers of large vessels expected after the Panama Canal expansion.

“Lower prices per container slot on post-Panamax ships will save U.S. companies shipping goods through Savannah 20 to 40 percent on transportation,” says Foltz. “This translates into lower costs for the export of goods such as forest products made in the Southeast and grain crops from the Midwest.”

Recent GPA capital purchases include four super post-Panamax cranes last year and four additional super post-Panamax cranes due to arrive in 2015.

“In addition, the state of Georgia will soon complete the last 3.1 miles of road construction to allow direct highway access to Interstates 95 and 16,” adds Foltz. “In recent years, the GPA has invested heavily in building out our two on-terminal Class I railroad facilities, and in its 10-year plan, has the ability to significantly increase the current capacity.”

The Port Authority of New York & New Jersey, along with its port partners, have collectively spent approximately $5.5 billion dollars preparing for bigger ships. That number will increase as a further $1.3 billion will be spent on raising the Bayonne Bridge – the air draft inside the bridge will increase from 151 feet to 215 feet. Additionally, the deepening of the port’s channels to 50 feet is nearly complete and projects are underway to increase container and cargo-handling equipment and modernize gates.

“Shipowners are definitely taking advantage of reducing their per-cost slot to move a container as they steadily increase the size of vessels,” says Richard M. Larrabee, director of port commerce. “Clearly there is an efficiency gain by that bigger ship. And from an environmental standpoint, I don’t think there is any question that this is good news for ports.”

“Despite our air draft restrictions and to some extent, our channel restrictions, we’re getting ships through the Suez Canal that exceed 9,000 TEUs,” he continues. “The largest one we brought in was 9,300 TEUs.”

Larrabee refers to what he believes is a misnomer – the notion that the Panama Canal is a bottleneck for the bigger ships. “In our case, it’s getting the air draft issue dredging done, but what we’ve found is that now we face having ships with as many as 5,000 to 6,000 containers that are being transferred in a port call instead of 2,500 to 3,000, so our system now has to adjust to not necessarily more cargo but more cargo coming all at once.”

Port productivity is a major focus as not only is the port bracing for bigger ships, but port partners are working together to find better ways to manage extreme weather conditions, labor shortages and the ever-present chassis problem. As a result, last December, the port put together a Port Performance Task Force, which published a list of 23 recommendations to improve the port’s efficiencies, productivity and reliability going forward.

“We believe that we have to add some predictability to the system, such as an advanced notification system, so that the terminal can be better prepared when that truck gets there to load a container and get it out as quickly as possible,” explains Larrabee. “We’ve got the right number of chassis at the port, but the business model is not working. A trucker could come to into a facility and want a particular chassis from a company they’ve worked with before, but if that company is not available, he might not want to use them. The idea of a chassis pool is the direction we’re going. It will create better utilization of the truck, the equipment and the terminal’s resources.”

Will the advent of larger ships eventually see capacity and demand even out? Not likely, especially since as shipowners decide to buy bigger ships, they don’t decommission older ones, as Larrabee points out. “The old adage of trying to do more with less is probably not going to work for much longer,” he says. “However, the bottom line is we want the bigger ships and their cargo here. We’re doing everything we have to in order to prepare for them, and together with our port partners, we’re committing the financial resources and are very focused on improving productivity and reliability.”

According to Dr. Hacegaba’s paper, nearly half of the ships being ordered today are more than 12,000 TEUs, and it’s not out of the question that the market will see 22,000 TEU ships coming onto the scene before 2020.

“Carriers will seek to deploy the most efficient vessels suitable to serve volume demand in a particular market or trade lane,” says Anne Marie Kappel, vice president of the World Shipping Council.“Containerships have been getting bigger for decades because larger ships are more efficient. They will be able to handle the projected growth in America’s foreign trade. And their efficiencies benefit American importers and exporters.”

A benefit, yes, if ports can rise to the occasion and make money in the process.

Cost per-slot on larger vessels is reduced so dramatically that it can mean savings in the millions per round-trip voyage. The caveat being that these mega vessels must sail at full capacity, hence the advent of more shipping line partnerships, the Big Ships, Big Challenges paperalso states. This can mean changing vessel rotations from port to port – again changing the loyalty dynamic – plus the need for faster service is a problem facing ports worldwide. This has lead to some ports creating alliances of their own in order to figure out the best way to respond to the pressures mega ships are bringing.

At the end of the day, port authorities must seriously weigh costly capital investments over the long term against the potential profits in a politically and commercially-tense atmosphere. Whatever the costs, it’s imperative to the lines that own bigger ships that besides expanding operations to accommodate their vessels, ports must step up productivity and efficiency to meet market demand.

“It’s also important that ports create an efficiency model that shows shared gains for its stakeholders,” adds the Port of L.A.’s Seroka. “Understanding and adapting to customer needs is more important than ever as we prepare for the next era of shipping.”

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