Fighting for Asia Cargo

February 3, 2014

Supply chain executives are paid to anticipate change and be ready with a response. As importers and exporters examine the developments in the maritime industry and evaluate the impact they will have on their own supply chains, U.S. ports are recognizing some of the challenges they face to retain and grow their own cargo volumes.

The maritime industry is undergoing substantial changes — changes that are already having an impact and will continue to do so for years. The expansion of the Panama Canal (expected in 2015) is one change; another is the ongoing construction trend of larger vessels.

Anticipating increased business as a result of these changes, ports have ramped up expansions of their infrastructure, both on-dock and landside, and initiated dredging projects. The challenge for ports is to always foresee change and invest ahead of the newest ships with the largest capacity.

West Coast ports have, in fact, anticipated the larger ships coming for years. With ports on the Gulf and East Coast poised to attempt to take business away once the expanded Panama Canal is operational, West Coast ports are attempting to stay one step ahead of the competition.

Competition, however, is nothing new to ports on the U.S. West Coast, which have had to face off against port expansions in Mexico and Canada for decades.

Referring to the Panama Canal, Kathryn McDermott, deputy executive director of business development for Port of Los Angeles (POLA), sees the expansion as merely more competition and not necessarily game-changing.

“Shippers will have more choices,” she points out. “But we look at it more strategically and ask: If shippers have more choices, why should they pick us. They should pick us because of our facilities, connectivity and what we can do for them.”

Across the San Pedro Bay, Noel Hacegaba, acting deputy executive director of Port of Long Beach (POLB), believes the future is more about bigger ships and less about the expansion of the Panama Canal.

“After all, the Canal has been operating for 100 years,” he notes.

“The real game-changer is the trend toward bigger cargo ships,” he adds. “It is driving the rush by ports to dredge and modernize their facilities.”

Hacegaba points to the berthing of a 14,000 TEU (twenty-foot equivalent unit) vessel operated by CMA CGM at POLB late last year as the wave of the future.

“We’re already big-ship ready,” Hacegaba says. “We began to plan for these ships years ago. Many seaports east of the Panama Canal still need to upgrade their facilities to accommodate the ships of the future.”

Dominant in Asia Cargo

Seventy percent of cargo coming from Asia to the United States uses a West Coast port as the point of entry. Of that figure, 40 percent — the lion’s share of the lion’s share, according to Hacegaba — comes through San Pedro Bay Complex, which encompasses the ports of Long Beach/LA.

“We feel like the biggest reason to come to [Port of Los Angeles] is what we have to offer in terms of getting goods offloaded and onto the market,” McDermott insists.

Time-to-market is critical, and POLA has a distinct advantage over East Coast and Gulf Coast ports when it comes to goods manufactured in Asia. From Shanghai, for example, a ship arrives in Los Angeles in 13 days, and then goods arrive in Chicago, Dallas or Houston five days later. If that same ship went through the Panama Canal, the total sailing time alone would be 25 days.

“That’s a huge advantage we have in terms of time that can’t be offered by other gateways,” McDermott stresses.

The Ports of Los Angeles/Long Beach benefit from off-site logistical strengths, giving them increased advantages in the competition with Gulf and East Coast ports.

Union Pacific and BNSF Railway Co. have each double-tracked their rail infrastructure between Southern California and the Midwest, which has increased capacity.

Southern California is home to extensive warehouse and distribution and industrial park space. More than 1.5 billion square feet of industrial space in the region gives importers and exporters flexibility and capacity, Hacegaba says. In the five-county area in proximity to the ports, there is about 1 billion square feet of warehousing space for storage of cargo, either destined for other parts of the country or for the large Southern California consumer market.

Export Strength

While POLB and POLA play major roles in U.S. imports, the strength of Port of Portland historically has been as an export gateway. Cargo comes from Canada, and the U.S. Pacific Northwest, Upper Plains and Midwest destined for overseas markets.

“Our customers aren’t interested in going through an East or Gulf Coast port,” emphasizes Sebastian Degens, general manager, marine and terminal business development, Port of Portland. “We’ve worked hard with the railroads for the past 20 years (predating the Panama Canal project) to make sure our infrastructure is up to date to ensure cargo gets to its end point.”

Much of the cargo that arrives at Port of Portland is time-sensitive, such as soda ash for the glass industry and potash used in fertilizers.

“While cost efficiencies are important, getting the product to market in a timely and reliable fashion is important,” Degens maintains. “A lot of our customers have customers themselves. Those customers need the end product.”

Additionally, Port of Portland is one of the largest vehicle import gateways in the U.S.

In 2012, the port handled about 250,000 vehicles. Japan-based automaker Honda uses Port of Portland as the entry point of a land bridge to the U.S. East Coast. Conversely, Ford uses Port of Portland as an export gateway to China and South Korea for vehicles manufactured in North America. Both automakers find that it does not make logistical sense to carry their vehicles through the Panama Canal, Degens says.

Maintaining their Advantage

Despite their strengths, ports are working to ensure they do not lose their competitive edge or position.

Even though Degens says Portland’s customers are not interested in using a port on the East or Gulf Coast, that does not mean those ports cannot make a pitch for new business. Port of Portland’s conversation with its customers is ongoing.

“Even the best story isn’t compelling unless you tell it,” he stresses.

POLA will spend about $1.2 billion during the next five years in an effort to maintain its position as the choice entry point into the U.S. from Asia. The port is working to ensure that all its terminal facilities have at least one deep-water berth, and it is also expanding on-site rail infrastructure. The port already has 100 trains inbound and outbound each day, considerably more than any other port in the country, according to McDermott.

The port is proceeding with construction of the second automated terminal in the U.S. and first on the West Coast. It should be operational by the end of 2014.

“It is our first foray into looking at how to continue to make sure that our facilities are extremely efficient and competitive, especially with the large ships,” McDermott says.

POLB is in the midst of a decade-long, $4.5 billion capital improvement program to keep its competitive edge.

One project is replacement of the Gerald Desmond Bridge. About 15 to 20 percent of the nation’s imports cross the existing bridge daily. But it is aging and structurally deficient.

Construction is underway on a new bridge, with a targeted completion date of late 2016. The new bridge will be taller to allow larger vessels to pass underneath, and it will be wider, with three traffic lanes in each direction, for more efficient and productive traffic flows, Hacegaba says.

Another project has Long Beach combining two aging piers into one mega terminal –  Middle Harbor. When completed in 2019, it will be the fourth-largest port in the country – if it was a stand-alone facility. Middle Harbor’s capacity will be more than 3 million TEUs. For perspective, the combined annual volume at Long Beach’s six existing container terminals is about 6 million TEUs.

“Middle Harbor will be one of the most advanced container terminals in the world,” Hacegaba notes.

LA/Long Beach are undertaking a study to determine a more efficient means of deploying chassis to move cargo from one terminal to another.

“We are constantly looking at ways to improve the movement of goods,” Hacegaba emphasizes.

Efficiency is Important

Degens has heard the talk about shorter time-to-market using the Panama Canal. He believes the facts do not back up the claim.

“East and Gulf Coast ports have it wrong: shorter time-to-market is not through the Panama Canal,” he maintains. “All-water transportation takes time.”

So, while ports on the East and Gulf Coast continue to build out to handle what they hope is increased traffic through the Panama Canal, West Coast ports are working to ensure that shippers use them as their primary gateway to and from Asia.

“We’re the closest ports to the most important Asian markets — China, Japan, South Korea, Taiwan and others,” says Jim Maloney, maritime marketing manager for Port of San Francisco. “For shippers who want to get their cargo to the markets as quickly as possible, West Coast ports are the obvious choices.”

At the same time, taking costs out of the supply chain is critical to shippers. Cargo owners covet speed, reliability and efficiency.

“In order to maintain our competiveness, we have to show that cargo will move to its final destination quickly and more efficiently,” Hacegaba says.

POLB and POLA believe they have the assets to handle cargo efficiently, helping shippers reduce time-to-market. They continue to look for ways to improve on this in the future.

“We built facilities that were ahead of their time. Now, the time has come,” McDermott points out. “We’re handling the size of ships that can’t yet be handled anywhere else in the country. Eastern ports are doing a great job building their facilities to handle these ships; we already have the facilities.”

An efficient supply chain is paramount in a tight-margin economic environment. There needs to be a trust factor between shipper and port — that the cargo will be offloaded and headed to its destination in a reliable and timely manner.

 “There is an argument to be made for being cheap and quick,” Degens says. “But I can tell you that our clients are looking for a trusted, reliable relationship.” 

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