january 2016 2016 – an eventful year joc presentation-v2 latc.pdf · 2016 – an eventful year |...

2016 – AN EVENTFUL YEARLos Angeles-Long Beach at a Crossroads

JANUARY 2016

Bill Mongelluzzo, Senior Editor, JOC Group [email protected]

(562) 428-5999

@BillMongelluzzo

2016 – AN EVENTFUL YEAR | JANUARY 2016

The issues • 2015 — RIP

• Impact of labor issues on container volume

• The mega-ships have arrived

• 2016 —Year of the carrier mergers?

• Going forward, port productivity will rule

• Los Angeles-Long Beach leading the port industry into the future

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2015 — RIP


2015 Was an Eventful Year –For the Wrong Reasons

• West Coast ports began 2015 in the throes of the worst labor problems since the 2002 ILWU contract negotiations

• ILWU work slowdowns crippled the ports and caused severe congestion

• In Los Angeles-Long Beach, ILWU reduced by two-thirds the daily dispatch of yard crane operators

• Employers retaliated by slashing night and weekend work

• Ports went into total gridlock

• 28 container ships at anchor during the depths of the port congestion

• In terms of container volume, January and February almost didn’t happen

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Cargo Diversion Reared its Ugly Head

• West Coast ports, historically the gateway for 50-55% of U.S. containerized imports, dropped to 46% in January-February

• Cargo volumes in Vancouver and Prince Rupert exploded

• East and Gulf Coast ports enjoyed double-digit growth while West Coast ports languished

• ILWU work slowdowns ended with tentative agreement on Feb. 20

• West Coast ports began to claw their way back

• By summer, volumes had returned to normal

• Year-to-date through November West Coast down 3 percent from same period in 2014; LA-Long Beach 2 percent less than 2014

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The Mega-Ships have Arrived

• LA-Long Beach has been served by 13,000-14,000-TEU ships for several years now

• That’s one of the reasons why the Southern California gateway has experienced more congestion than most ports

• Term “Big Ship” took on a whole new meaning in December with the arrival in LA of the 15,000-TEU Maersk Edmonton

• Four days later, the 18,000-TEU CMA CGM Benjamin Franklin also docked at the APM Pier 400 terminal

• Carriers continue to order big ships. Why?

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Big ships and their impact on portsCost per TEU comparison

Scale is the way to cut costs


Carriers Ordering Big Ships at Unprecedented Pace

• 2010, the biggest ship in service was 14,000 TEUs

• Today, carriers taking delivery of 20,000-TEU ships

• By 2020, more than 100 vessels with capacities of greater than 18,000-TEUs will be in service in the major east-west trade lanes (McKinsey)

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Carriers Ordering Big Ships at Unprecedented Pace

• 2015 saw a new record for vessel deliveries – 212 containerships with total capacity of 1.7 million TEUs (Alphaliner)

• 32 of those ships have capacity of 10,000-TEUs or greater

• 20 of the ships 18,000 TEUs+

• 28 ranged from 13,800-17,900

• That means 80 ships that are too large for even the expanded Panama Canal entered service last year!

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Big ships and their impact on ports

• Big ships are good for West Coast ports

• Already have deep harbors; excellent intermodal connections to eastern half of country

• West Coast ports have made he billions of dollars needed to prepare for big ships

• But billions more needed for super post-Panamax cranes, automated stacking cranes, AGVs, etc.

• Most of all, ports must make process changes to handle cargo surges

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There is too much vessel capacity in global shipping!

• Container volumes in a slump

• Q3 2015 container throughput at top 30 global ports declined 0.9 percent (Alphaliner)

• Full-year growth in volume in 2015 globally estimated to be 0.8 percent

• Yet total capacity in global container fleet increasing 6-7% per year.

• As one would suspect, freight rates crashed in 2015 and should stay low

• In Asia-U.S. trades, spot rate to West Coast last month below $800/FEU

• East Coast AWS rate down to $1,600/FEU

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• So, where is the money for port improvements going to come from?

• Carriers are forcing down the per-lift rates they pay to terminal operators

• Ports must be careful not to increase their fees too high in competitive environment

• But improvements needed: Ports are straining to handle big ships. Congestion and long lines at MTO gates

• Inland infrastructure and intermodal connectors are likewise stressed

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Carriers could not stop the bleeding

• No matter what they did last year carriers couldn’t raise their rates

• Blank (void) sailings in Asia-Europe trade totaled 145, or 8 percent of all scheduled sailings

• Asia-Europe rates as low as $100/TEU

• Carriers filed for GRIs almost every month, to no avail. Increases lasted only one or two weeks

• Bunker fuel prices plunged to $140/ton from $547 in 2014, but carriers gave the savings to customers

• Only answer: CONSOLIDATION

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• We could see more carrier consolidation the next two years than ever before

• 2015: Hapag-Lloyd-CSAV and Hamburg Sud-CCNI

• 2016: CMA CGM in talks to purchase APL

• COSCO and China Shipping Container Line in merger discussions

• Koreans talking about merger of Hyundai and Hanjin

• Do Japan and Taiwan each need three container lines?

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Port Productivity WillRule The Day


Working the mega-ships requires a team effort

• Before the Benjamin Franklin arrived at Pier 400, APM had meetings with CMA CGM, labor, BCOs and other stakeholders

• Equipment was ready – up to nine cranes working simultaneously

• Ensured there would be a sufficient supply of labor for seven work shifts over three and one-half days

• Ensured sufficient truck capacity, chassis, etc.

• This effort must be repeated every week a mega-ship is in port

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Ports and terminals must invest big bucks for big ships

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• A big need for big cranes. APM has 14 cranes, but none tall enough to handle 18,000-TEU ship with containers 10 high on deck

• Will probably raise all cranes to167-foot height

• But wait! With four berths, can APM work up to 9 cranes against three or four ships at berth simultaneously?

• An 18,000-TEU ship at 90% utilization can generate 17,800 container moves per vessel call

• Where are all of those containers going to go as they are loaded on/off the ship?


Big investments in terminals ahead

• APM Pier 400, at 440 acres, is largest terminal in LA-Long Beach

• But if APM needs to do more to handle the big ships, what must the other 12 terminals in the port complex do?

• This also begs the question, what about the ports themselves in terms of roadway and intermodal rail connectors?

• LA-Long Beach has no choice but to invest – No other U.S. gateway comes close to Southern California in ability to handle big volumes and big ships

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ILWU-PMA CONTRACT


ILWU-PMA contract negotiations

“I believe in corporations; I believe in trade-unions. Both have come to stay, and are necessities in our present industrial system.

But where, in either the one or the other, there develops corruption or mere brutal indifference to rights of others, and short-sighted refusal to look beyond the moment’s gain, then the offender, whether union or corporation, must be fought, and if the public sentiment is calloused to the iniquity of either, by just so much the whole public is damaged.”

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President Roosevelt in McClure’s Magazine:


ILWU-PMA contract negotiations

• Work slowdowns did NOT have to happen this year

• 2014 contract was not a watershed contract like those in 2002 and 2008

• Everything the ILWU (local) leaders held out for was out of greed. Nothing was out of need.

• But that was then and this is now.

• One issue is for certain – current contract does not promote the level of productivity needed to handle big ships operated by big alliances

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Need for improved port productivity

• RELIABILITY is absolutely needed

• Even minor slowdowns and work stoppages can not be tolerated

• New three-member arbitration board in each port should keep maverick work stoppages to a minimum

• Yes, small, repetitive delays in cargo delivery add up and kill productivity, such as mandatory ILWU roadabilityinspections of chassis

• Are these inspections even legal?

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Need for improved port productivity

• Macro Issues (Everywhere in U.S.):

• Biggest problem: Each member of supply chain operates in silos

• Shipping lines, terminals, truckers, railroads, retailers, exporters don’t communicate with each other

• Shippers squeeze carriers on rates, carriers squeeze terminals, etc.

• Service requires compensatory pricing in all sectors of the supply chain

• How can ports/MTOs build necessary infrastructure if rates are too low?

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SOLUTIONS


Solutions • Macro Solutions (every port):

• Supply-chain partners must communicate. Starts with vessel stowage in Asia

• Creative operating solutions at MTOs: dray-offs, free-flow, short-haul rail

• Reduce or eliminate free storage of containers at terminals. Carriers can no longer absorb excess storage charges for large retailers.

• Port-wide trucker appointments? Ten of 13 terminals will have mandatory appointments this year!

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Solutions:West Coast specific

• ILWU work rules and practices developed in 1970s for smaller ships are outdated

• Asian terminals are most productive in world because they work close to 24/7

• Employers must staff up so gates are not closed for lunch breaks

• Hoot shift is anachronism. Need full night shift

• Arbitration in new contract: three-person panel with neutral member. Good!

• Senseless work slowdowns and maverick walk-offs must stop now.

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Solutions: Automation

• Automation of terminals is coming. Today’s terminals are not large enough, under manual operations, to accommodate surges from big ships

• Automation allows terminals to stack containers higher, wider, denser

• Automation = electricity (green)

• Automation is safer – no workers in cargo-handling area

• Automation significantly reduces labor costs (headcount reduced 40-50 percent

• Automation creates new positions for highly-trained workers

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Solutions: Automation

• LA-Long Beach leading the way in automation

• TraPac and Middle Harbor will be first two completely automated terminals in US.

• Densified operations will significantly increase handling capacity on existing footprint

• Middle Harbor: 3 million TEUs/year

• TraPac: more than 2 million TEUs/year

• Reduce labor costs

• Other terminals will have two choices: automate, or sell out to terminal operators willing to automate

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Solutions: LA-Long Beach

• 18,000-TEU ships are here, and more are coming to West Coast

• Carrier mergers will happen this year and next as carries seek leverage through size

• Consolidation in the terminal operating industry is also likely

• The ports are doing their part, investing in total about $8 billion

• If the ports and terminals continue to invest in modern plant and equipment and labor/employers improve productivity….

• BRING ON THE PANAMA CANAL!

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THANK YOU!

Bill Mongelluzzo

Senior Editor, JOC Group Inc.

[email protected]

(562) 428-5999

@BillMongelluzzo

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january 2016 2016 – an eventful year joc presentation-v2 latc.pdf · 2016 – an eventful year |...

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