Pacific Maritime Magazine - Marine Business for the Operations Sector

West Coast Ports Join Forces

 

Despite the loss of Hanjin and Hapag-Lloyd, Portland's automobile business, both import and export, continues to keep the port productive. Photo courtesy of the Port of Portland.

When the ports of Seattle and Tacoma announced last October that they were forming a strategic alliance under which they planned to unify the management of their marine cargo terminals and related functions, it wasn't just an aim at creating greater efficiency between the two Puget Sound seaports.

The proposed alliance is one of many efforts that many US West Coast ports, including those in Portland and Los Angeles, have taken recently to remain competitive in the evolving world of maritime trade.

Although one stated goal of the Seattle-Tacoma alliance was to strengthen the Puget Sound gateway and attract more marine cargo for the region, an underlying reason was that the ports felt that by pooling their efforts, they'd be better able to deal with competition from other sources, including the LA-Long Beach port complex and Port Metro Vancouver, which is Canada's largest seaport and the third-busiest in North America.

There is also future competition in the ongoing expansion of the Panama Canal, which is intended to double the capacity of the Panama Canal by next year. If and when the expansion is complete, it is expected to provide an avenue for larger ships coming from Asia to bypass the US West Coast in favor of docking at Gulf and East Coast ports that they can't currently visit due to the narrowness of the 100-year-old canal.

Ports from the Pacific Northwest to the Los Angeles Basin have been proactively taking steps – such as the Puget Sound ports deal – to prevent the erosion of business before it happens.

"The formation of this alliance is driven by the fact that it will help us in our competitive positioning," Port of Tacoma Chief Operating Officer Don Esterbrook told Pacific Maritime Magazine. "It allows us to ensure that we have highly functioning terminals and the infrastructure to support those terminals so that we can accommodate the ultra-large vessels as well as the mega (shipper) alliances."

"The landscape has gotten so competitive with all the gateways that you've got to provide the right product, as far as terminal infrastructure, provide reliable and consistent service delivery," he said. "Terminal expansion plans are being implemented on the East Coast as well as in Mexico, so there's no shortage of competing gateways."

Although the Puget Sound seaports' alliance is expected to go into effect later this year, it still had not been approved by either port's board of directors as of mid-April, nor had a final version of its language been sent to the Federal Maritime Commission for review.

"We're working towards that," Esterbrook said. "We anticipate final FMC approval sometime around August."

The proposed Seattle-Tacoma strategic alliance may be the boldest move made by West Coast ports in recent years to remain competitive, but it's just one of many.

The Port of Los Angeles, which has long been the kingpin of North American cargo throughput, is focusing on expansion and terminal improvements as a way to stay competitive. The port currently has multiple projects in the works, the biggest of which is its five-year, $510 million TraPac Container Terminal Expansion program.

As part of the expansion, the terminal's wharves are planned to be expanded to 4,600 linear feet, while water depth at berths is deepened to 144-147 feet. Also, new cranes are to be installed, 50 acres of backlands are being upgraded, road and gate improvements are being made, plus a new on-dock rail facility is being built.

TraPac, a unit of Japan-based Mitsui OSK Lines, is expected to complete the expansion in 2016.

Other projects in progress at the Port of LA include a berth-improvement project for Yusen Terminals Inc., aka YTI. Construction is scheduled to begin this summer on deepening and improving terminal facilities, allowing the terminal operator to accommodate next-generation vessels and increase cargo volume at its site. The $49 million project, which also involves additional on-dock rail yard capacity for YTI, is scheduled for a 2016 completion.

The port also has in progress an array of projects to improve freeway access to port facilities, eliminate traffic movement conflicts, improve existing non-standard elements and accommodate existing and future traffic conditions for port and bordering traffic.

The primary strategy of the $383 million program is the reduction and separation of port truck traffic from roadways heavily used by the general public.

"TraPac, transportation and YTI – those are the three biggies," Port of LA spokesman Phillip Sanfield explained to Pacific Maritime Magazine. "Currently, we're spending about $281 million (in capital improvement) in this current year."

Also in the pipeline are Yang Ming and Everport terminal projects, which are under environmental review at this point.

Yang Ming's plan is to enhance its terminal facilities and deepen its berth to accommodate 14,000-TEU vessels and increase cargo volume. As part of an agreement with the terminal operator, the Port of LA plans to invest $122 million in improvements at the terminal, including construction of a new 1,260-linear foot wharf at Berths 126-129, dredging to a depth of minus-53 feet at the newly constructed wharf, and expansion of an intermodal container transfer facility.

Everport's proposed $40 million project entails improving wharves at Berths 226-229 and increasing berth depth from minus-45 to minus-53 feet, as well as improving Berths 230-232 wharves to a minus-47 feet berth depth. The project also involves constructing an additional 1.5 acres of backland.

Both projects in the midst of environmental review are currently expected to be complete by the end of 2016.

"We need to stay competitive and become more efficient. We need to increase our efficiency to maintain and grow our market share," Sanfield said. "There's a lot of competition in the marketplace today, particularly after what happened in the last nine months where we had these congestion issues and we have at least temporarily lost some of our cargo to other ports."

One effect of the previously documented congestion issues is the diversion of some discretionary cargo from LA-Long Beach elsewhere. Earlier this year, the Port of New York-New Jersey announced that it had just had one of the busiest Januarys in its history, something it partially attributed to congestion and labor unrest at West Coast ports.

And in mid-March, NY-NJ had a 10,000-TEU ship call at the port for the first time in its history. Zim Integrated Shipping Co.'s 10,060-TEU Zim Tianjin docked at the GCT Bayonne terminal, then sailed to the Port of Savannah's terminal in Georgia, also a first for a 10,000-TEU vessel.

Both the NY-NJ and Savannah ports are undergoing renovations that are expected to be complete in 2016, the same year that the larger locks are scheduled to open at the Panama Canal.

LA spokesman Sanfield said his port is working hard to regain the cargo traffic it lost during the congestion issues that plagued the port in the last quarter of 2014 and the first quarter of this year.

"It's now more important than ever before that we clear the congestion and show our stakeholders and current and potential customers that we're serious about improving efficiency and cargo velocity at the Port of LA," he said. "We're confident that we can serve some of the longer-term congestion issues."

Aside from the labor issues, other causes of congestion at both LA and Long Beach have included increasingly larger ships calling regularly and carrying more and more containers, something in part caused by a trend toward alliances of several shipping lines teaming up to fully pack ships with cargo containers.

"We haven't commissioned our own studies, but we're certainly very engaged and keeping abreast of developments on the Panama Canal," Sanfield said. "We have been carefully monitoring that and talking to our customers, but only time will tell. That's why we're positioning ourselves and investing so that the largest ships that are calling in North America can do so efficiently here."

"We consider the Panama Canal a competitive threat just like we do Canada, the Pacific Northwest and Mexico," Sanfield said. There's a lot of competition out there and we take it all seriously."

At the Port of Portland, the sole international cargo facility, Terminal 6, took a couple of hard hits in recent months with the losses of its two primary direct call servicers, Hanjin Shipping and Hapag-Lloyd. The two, which made up 99 percent of the business at the terminal, each terminated their service to Portland over the span of a few weeks in March. Both implied at the time that labor unrest affecting terminal productivity was the major cause in the decision.

Portland has been struggling for years with labor issues that have drained productivity. In early February, ICTSI Oregon, which operates Terminal 6, said productivity at the facility had fallen "well below acceptable historical levels." In the final quarter of 2014, the International Longshore & Warehouse Union labor was producing only about 13.2 moves per hour, compared to 24.8 moves/hour in May 2012, a roughly 47 percent reduction, according to the terminal operator.

The labor issues are related to a jurisdiction battle between ICTSI, the ILWU and another union, the International Brotherhood of Electrical Workers, which date back to June 2012. The two unions have fought over disputed jobs involving the plugging/unplugging and monitoring of refrigerated containers at Terminal 6.

Longshore workers have walked off the job numerous times due to what the ILWU calls "multiple pay disputes and associated grievances" associated with the "mismanagement" of the terminal.

"Just to be clear, Hanjin did not leave because of lack of cargo, they left because of poor production on the ships," Port of Portland General Manager of Trade & Cargo Development Greg Borossay told Pacific Maritime Magazine.

Despite the labor drama, however, the port is moving forward with development efforts.

Pembina Marine Terminals, a subsidiary of Alberta, Canada-based Pembina Pipeline Corp., is proposing a $500 million propane export facility at Terminal 6.

"We're looking at a lease of 25-30 years or more for rail export of propane from Canada," Borossay said. "Their plan is to start operations sometime in 2018. The concept is to export propane for use primarily in China, but also in other overseas markets."

The project is estimated to generate up to 800 union construction jobs over two years, plus $30 million in annual spending for goods, services and labor.

Borossay said however, that if the project moves forward, it wouldn't necessarily represent a major shift away from how the terminal currently operates, because Terminal 6 already is a mixed-use facility: it contains a container terminal bookended by two auto handling facilities, American Honda and Auto Warehouse.

"We've been working with American Honda to use some of that land on the far east side for this (propane export) operation," he said. "So the footprint that would be required for Pembina would not be that great."

He also said that despite the loss of Hanjin and Hapag-Lloyd, Portland remains a thriving business in the maritime industry.

As part of the $510 million TraPac Container Terminal Expansion wharves at the Port of Los Angeles are planned to be expanded to 4,600 linear feet, while water depth at berths is deepened to 144-147 feet. Photo courtesy of the Port of Los Angles.

"For both bulk and container providers, it's really the access to our rail systems that drive most of our business," he said. "The automobile business, both import and export, are tied directly to the excellent rail service from both BNSF and UP (Union Pacific)."

"The other strong point is that, unlike the other markets on the West Coast, we've got a very strong export market," he said. "So Hanjin, for instance, did very well here for many, many years because for the cargo they brought in, they had a local export to put back on a ship."

Portland is considering focusing on refrigerated cargoes and auto parts distribution to stimulate future growth, but containerized cargo operations are expected to resume eventually.

"The local market as we define it – which is the state of Oregon, southern Idaho and up into Washington state about 25 miles – that local market is extremely robust; it's growing roughly 10 percent per year," Borossay said. "For Oregon shippers in particular, there are no other outlets that are real easy. The local market does want container service, and we think that eventually when the labor issues are worked out, then it will come back."

 
 

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