By Lori Musser
Fiercely competitive at most times, seaports have been known to mine each other’s cargo and passengers, tenants and terminal operators, and even employees. They do come together to learn and to share best practices in some functional areas, and to speak in unison to legislators and regulators. What they rarely do, however, is cooperate on matters that improve productivity, efficiency or performance.
And why not? Lack of success in prior partnership efforts? Anti-trust laws, political will, conflicting constituency benefits? Any number of considerations can thwart an inter-port cooperation effort, according to Steve Fisher, executive director of the American Great Lakes Ports Association.
Definition of Success
Fisher said the key to productive port collaborations may lie in the definitions — in what constitutes success to each player. Each port articulates success in its own unique way, rallying around the consistent themes of economic impacts (especially jobs), profits, return on investment, throughput and serving community needs.
Because ports differ in operational models (landlord vs. operating), locations, lines of business and responsibilities, their level of success is difficult to compare, and no standalone metric across all lines of business can properly gauge performance. So, even when port partnerships pass muster from business development, customer service and political angles, they can be doomed simply because of a lack of robust benchmarking and feedback.
This is a concern. At press time, the race in Washington to define port performance was in full swing, with a deadline imposed by the FAST Act. Metrics continue to be a sticking point. No port wants to be obliged to report metrics that don’t speak to their business.
Nevertheless, in order for U.S. ports to secure federal commitment to systemic supply chain policy, prioritization and funding, there remains a need to prove to taxpayers that ports are managed well.
The Proof Is in the Pudding
There are very few examples of ports cooperating in a way that directly boosts truck turn times, or container lifts per hour or other measurables. Certainly ports get together to network and share a voice geographically; alliances like the Florida Ports Council, the American Great Lakes Ports Association, and the Port Managers Association of the Caribbean meet regularly, some with a focus on education and networking, others with clear environmental, public outreach or legislative goals.
Within those geographic coalitions, cooperation sometimes rises to the next level. Toy Keller, vice president of programs and planning at the Florida Ports Council, recalled an incident a few years ago at a Florida Seaport Transportation and Economic Development (FSTED) Council meeting. FSTED is a public entity that carries out the state’s economic development mission through implementation of seaport capital improvement projects. At one particular meeting, a port was in dire need of funds for a specific project — infrastructure to clearly boost port performance. Members of the council, which comprised all 15 public seaport CEOs plus two state officials, acknowledged the elevated need and several ports went so far as to return a portion of their FSTED allotments, understanding that at a future point in time they might face a similar need.
Florida Cooperation Fetches Funding
To reach that level of cooperation requires a new way of thinking. Though not formally tied, Florida ports have frequently chosen to work together to the greater advantage of their state. Keller said, “They know that funding is more readily available for projects that bring new business to the state.” There has been a shift toward searching out the common good — the overlap between individual port goals and the good of the region or state — and aligning decision-making. “Seaports are selecting projects that improve supply chain efficiencies, enhance capacities, provide a positive return on investment, and produce economic benefits for the state and their regions,” according to Keller.
Cooperation of this nature makes Florida somewhat of a model for the nation, according to Steve Fisher of the American Great Lakes Ports Association.
Helping governing bodies recognize the urgency of building efficient and sufficient transportation capacity to satisfy consumer demands is a difficult task. Ports that create a partnership with, say, their state, as in the case of the Florida ports, can bring a fresh approach to project development that reflects the special characteristics of seaports: They are public entities, but must function as businesses to fulfill their public purpose. Like any business, they must demonstrate a service orientation and prompt response to customer demand, flexibility to meet changing market trends, and accountability to ensure sound investments. According to Keller, this approach is integral to the success of several seaport financing programs. It has accelerated the pace at which Florida’s ports have been able to build the facilities needed to compete with out-of-state ports and to build trade.
Competitive to a Fault
Although the greater good is usually better served by developing new markets than by filching cargo from a neighboring port or state, it can still happen; the East Coast happily picked up West Coast cargo during the labor and trucking issues of recent years. And ports have occasionally overbuilt infrastructure, with an eye on competitors’ cargo.
To prevent that, the focus must shift to one of regional, and, ultimately, nationwide efficiency, according to Mario Cordero, chairman of the Federal Maritime Commission (FMC) and a former port commissioner. He said, “We encourage port collaboration, particularly with regard to ports who are in the same geographic regions. In my view, the close proximity of some major ports require they work together for the greater good: the economy of that particular region.”
U.S. West Coast Collaboration
Back in 2009, on the heel of the recession, six U.S. West Coast ports and two railroads turned heads. Seattle, Tacoma, Portland, Oakland, Long Beach and Los Angeles, together with the BNSF Railway Company and Union Pacific Railroad, jointly launched a collaboration to sell the trade advantages of the U.S. western seaboard.
Marketing materials at the time featured fast Asia to U.S. transit times and quoted Omar Benjamin, then executive director of the Port of Oakland: “Today’s economic conditions have compelled all of us to take a closer look at how we conduct our business to discover new approaches that yield improved results. This is happening throughout the entire supply chain…Our mission is to further strengthen the U.S. West Coast ports’ position as the preferred gateway for Asia cargo to and from the Midwest and cities further east.”
The participation of the railroads wasn’t just lip service. The group foresaw the value of marketing their complete logistics package. Railway executives spoke of performance measures: capacity and service enhancements creating fast, reliable service to more markets, and a commitment to help shippers get more from their supply chains.
The collaboration was a measured response to a hard-hitting mix of recessionary impacts and global trade and transportation changes. More than a marketing effort, the group advocated for infrastructure investment and endorsed a national goods movement strategy.
Although metrics showing the success of the West Coast collaboration would be confused by the economic recovery and a jumble of concurrent changes in global trade and transportation, it was assuredly a precursor to the two current West Coast port alliances.
The Port Competition — Collaboration Continuum
Ports compete for business always. Fisher said that while ports rarely cooperate in a manner that spikes productivity metrics, they do find great value in sharing insights in ways that further their region or industry as a whole.
Fisher added that, unfortunately, many port partnerships have been curtailed, presumably because they haven’t borne fruit but also because of changes in management and governance. Cruise range associations are an exception to that rule. Cruise Canada New England, for example, which began in the 1980s as the New Atlantic Frontier with a handful of port calls, is now a well-established itinerary — it wrapped up the 2015 season with 2.44 million passengers on 1,554 ship calls, contributing an estimated $543 million in direct economic impact, according to the CCNE Alliance.
Like ocean carriers, U.S. port alliances that wish to delve deeper than general promotion typically require anti-trust approval from the FMC.
Each country faces a different regulatory and legislative environment, but in the U.S., recent alliance approvals confirm the FMC’s predisposition to encourage port cooperation.
The U.S. Shipping Act allows cooperation, and Cordero said that the FMC encourages work that helps to improve the efficiency of U.S. ports and supply chains. “It is imperative that the ports are at the table to successfully address the issues,” said Cordero.
The issue of productivity is a chief concern because, according to Cordero, “In 2015, 31.5 million loaded containers moved though our nation’s gateways. The forecast at end of the next decade, if you use a practical 5 percent growth estimate, would double the amount of loaded containers to 60 million.” He said fluidity of cargo movement is becoming paramount, especially moving trucks in and out of port gates.
“We have a major problem in this country addressing gate turn times,” said Cordero. In his opinion, the model port for gate efficiency is Port Metro Vancouver, but, “It is my hope that at one point we can cite a U.S. port as the model.” He added, “You can have the most state-of-the-art terminal, in terms of container moves — some reference automated terminals as an example — but if you don’t have efficiency out the gate, you don’t help the supply chain.”
“The logical conclusion is to fortify the water ports and the main gateways as they relate to containerization. It behooves these ports to work together to develop efficiencies, especially operational efficiencies,” said Cordero.
Restrictions exist, but Cordero said they are less about regulations and more about operational models: “At the end of the day, the operation of terminals [at landlord ports]is strictly in the hands of the private operators. That has to be recognized. The good news, from the perspective of the port authorities, is that today, landlords are far more active than a few years back. You are seeing them roll up their sleeves and address operational issues and efficiencies, in collaboration with the private terminal operators.”
The FMC is also concerned about supply chain impacts given restrictive port infrastructure funding. “Some ports have been very much challenged by lack of funding and by dredging required. In the summer of 2016, we are witnessing that challenge by the mere fact that the Panama Canal is completed … We’ll see how that plays out but the reality is many of our ports are not ready, not through their lack of initiative, but through whether or not we have appropriate funding,” said Cordero. He indicated his intent to continue to guide the FMC, under the auspices of anti-trust immunity, in facilitating port cooperation as a means to better accommodate the new shipping realities in a productive manner.
Cooperation Cultivates Productivity
Opportunities for inter-port cooperation exist. Just as ocean carriers charter slots or motor carriers pool chassis, ports can flout tradition and work together. Such decisions aren’t made lightly – there must be tangible benefit, even if they take some time to realize. And, there are always hurdles to address related to governance, stakeholder concerns and anti-trust.
Sometimes, a true collaboration of ports emerges, such as in the marketing of a cruise range or the new West Coast cargo blocks.
To capture cargo and passengers today, ports must increasingly work as part of a complete supply chain. It makes sense to work together if the ports are interchangeable in a user’s eyes, if the ports serve the same taxpayers and/or if the ports can improve their bottom lines while increasing benefits to end users and stakeholders.
The increasing availability of port-industry technology and data metrics might help to hone competition between ports, but, conversely, it can also serve as a launching point for inter-port dialogue, collaborative initiatives, joint marketing and performance enhancements.
Supply Chain Optimization via San Pedro Bay
In February 2015, the FMC approved an amendment to the ports of Long Beach and Los Angeles’ cooperation agreement that allows the neighboring ports to discuss new efficiencies and other improvements to enhance their business competitiveness, environmental sustainability and security. “That put us on the path of a joint port supply chain optimization exercise,” said Michael Christensen, senior executive of the Port of Long Beach’s resulting Supply Chain Optimization (SCO) group.
Seeking new efficiencies, the ports created working groups focusing, at first, on peak operations and terminal optimization to strengthen the competitiveness of the San Pedro Bay port complex and its economic benefits to the region. Working group participants are drawn from shipping lines, cargo owners, labor, railroads, trucking interests, equipment owners and other groups.
In a presentation before a Senate Subcommittee in July 2015, Christensen said, “Larger ships, coupled with a new level of vessel-sharing dynamics created by the carrier alliances, have created congestion issues at most ports because the existing container terminals and operating practices are simply not geared to handle the discharge of containers from these vessels.” According to Christensen, “Supply Chain Optimization is an effort to find and implement ways to make the supply chain run more efficiently, maximizing velocity and reliability of goods movement through the San Pedro Bay gateway.” He said the industry — accustomed to working in “silos” with minimal communication and information sharing — has responded enthusiastically and cooperatively.
The SCO umbrella includes terminal efficiency strategies (advanced terminal operations systems and software, modernized terminal infrastructure and equipment, “peel-off” operations and on-dock rail optimization). It includes drayage trucking improvements (an interoperable chassis “pool of pools” and state-of-the-art traffic information systems). And it has begun a dialogue about improvements in on-dock and near-dock rail operations, including short-haul rail, as a means of improving cargo velocity. New technology and data are expected to drive SCO change.
“We have been engaged for one year and two months, and have had about 50 working group sessions,” said Christensen. The SCO has focused on cleaner, more efficient, safer transportation, with operational goals for truck turn times, terminal dwell times, ship unloading performance and other key indicators. It is currently developing target metrics, but according to Christensen, isn’t at the stage where it can point out concrete improvements: “It is a very complex system. Measurable metrics-driven improvement data is scarce.” That is, in part, because some of the data is captured by individual, private companies.
The SCO does have plenty of anecdotal evidence for enhanced performance. For example, “There has been an uptick in the use of peel piles across the gateway,” according to Christensen. Peel piles are essentially a grouping of containers by destination, cargo owner or distribution center (DC). The premise is that if there are perhaps 50 containers destined for the same DC, they can be offloaded, grouped and then any of the 50 trucks arriving for pick up can take any of the containers, thus avoiding the normal hunt and peck.
Christensen said that there has been great progress. For example, the level of dialogue between terminal operators and motor carriers has been dialed up, and there is a new sense of urgency in implementing optimal terminal appointment systems. “They have even facilitated a test on advance notification — assigning a time slot for pick up prior to vessel arrival. These successes come largely from the working groups of stakeholders pushing hard,” according to Christensen.
Northwest Seaport Alliance Turns Heads
The Northwest Seaport Alliance was formed by the ports of Seattle and Tacoma as a marine cargo operating partnership.
Together, under a port development authority with the two ports as equal members, the ports manage their container, breakbulk, auto and select bulk terminals.
The unification of the two ports’ marine cargo terminal investments, operations, planning and marketing was planned to strengthen the Puget Sound gateway and attract more marine cargo, helping to better serve shippers and receivers throughout North America. The FMC agreed and, in mid-2015, approved.
The timing seemed to be perfect. The ports, located only 30 miles apart, were losing trade to ports in both Canada and Mexico. At the same time, the Panama Canal expansion was nearing completion, and 18,000-TEU vessels were beginning to enter the trans-Pacific trade.
Communications director for the alliance Tara Mattina said, “We competed for almost 100 years. We’ve traded shipping lines, but overall we were losing market share. We realized that what we had been doing wasn’t going to work in the future.”
Combined, the ports form the fourth-largest container gateway for shipping between Asia and major distribution points in the Midwest, Ohio Valley and the East Coast.
“The alliance allows us to leverage the strategic investments we make — instead of putting money into property to compete — we can now make the investments at a time when they make sense,” said Mattina.
The alliance operates a service center with connectivity to all stakeholders. Its performance metrics, put forward by stakeholders, revolve around efficiency and reliability as they impact the supply chain.
The gateway has made progress on-port and off-port. It has focused on first-mile, last-mile connectivity, and its efforts were recently rewarded with a heavy-haul corridor to optimize routing of a significant portion of their business.
On the eve of its first anniversary, Mattina said, “It is nice to report that the alliance is working.” For other port pairs looking to ally, Mattina offered these words: “Keep your eyes on the prize. It is difficult work to bring together two different ports, different cultures. Effective change management is critical. Keep at it.” There are important performance gains at stake.