- THE MAGAZINE
Every year, over 800 ocean freight vessels, primarily containerships, make over 22,000 calls at U.S. ports, according to Washington, D.C.-based World Shipping Council. This equates to over 60 vessels a day.
These ocean carriers are pivotal, mission-critical links in the global supply chain connecting manufacturing (and crop-producing) countries to U.S. markets (and vice-versa) with the network support of freight forwarders, port personnel, intermodal (trucking and rail) companies and distribution centers.
Ocean transportation, which moves about two-thirds the value of America's international commerce according to the World Shipping Council, is still a good bargain despite rising fuel, labor and ancillary costs. According to a recent report, ocean carriers are carrying some $500 billion of annual trade at rates lower than they were a dozen years ago.
As global economies strengthen, robust double-digit growth in container trade over is expected to continue throughout this decade. Hamburg Süd, for example, reports steady growth in volumes over the past three years due to general overall growth in world trade and the expansion of export volumes from key markets like Latin America, Asia, and the Middle East notes Frank Larkin, senior vice president of Morristown, New Jersey-based Hamburg Süd, North America. But behind the scenes, this healthy world trade is testing the limits of transportation networks. "A major factor in U.S. trade is the lack of rapid development in the transportation infrastructure to meet the increasing container trade," says John Bowe, president of APL in the Americas, Oakland, California.
"The surge in volumes globally puts pressure on ports, terminals and intermodal systems and this impacts total transportation costs," says Larkin. Initiatives such as PierPass in the Los Angeles basin are helping to shift some port traffic to less congested night and weekend hours, Larkin notes, adding port congestion is really a worldwide problem. In order for this approach to be effective, notes APL's Bowe, "there's a high premium on well-planned relationships with rail and trucking partners across the supply chain."
He cites APL's strong relationship with Union Pacific Railroad as an example (APL is UP's largest operator of containers on the intermodal system). "Our relationship with UP and our trucking providers ensures we have guaranteed space and service in a tight market," Bowe notes.
Alliances and acquisitions offer ocean freight carriers options to achieve greater economies of scale while enabling them to offer customers a wider range of services. Few carriers, however, operate totally owned fleets, and the use of charter vessels provides operational flexibility, notes Larkin. "Chartering allows us to choose vessels best suited to changing market conditions as they are needed and release them when they are not," he says.
But even with this option, the surging economies of Asia and India have increased the demand for containerized vessels in recent years to the detriment of carriers by creating a lessor's market. "Daily lease fees for ships and the length of charters demanded have increased to levels never before seen in our industry," Larkin says. Carriers are forced into extremely high charter fees and multi-year lease terms to ensure tonnage. Although fees and terms are starting to ease with the massive shipbuilding programs underway, many carriers will have to operate over the next few years under conditions negotiated during the shortage peak. At the same time, carriers looking to build new vessels face higher costs because of escalating steel prices.
Lately, there has been widespread concern that the ocean component servicing U.S. global supply chains is being stretched thin and that demand threatens to severely test capacity. If so, the implications of this to world traders would be onerous in terms of availability, reliability and price. From a U.S. perspective, industry sources acknowledge the need for timely and significant investments in the sector. Information technology-with data flowing from the beginning of the supply chain to the end-is regarded as a pressing priority.
To find out what's really going on in the ocean freight carrier sector, we surveyed major lines to see how they're coping.
MatsonMatson Navigation Company (www.matson.com), Oakland, California, is a niche domestic carrier supporting the island economies of Hawaii and Guam. Matson has been servicing Hawaii since 1882 and provides about 70 percent of the island's goods. This means everything from foods and perishables to consumer goods to autos and construction materials. "We must handle all kinds of goods-unlike some international carriers that may specialize in certain commodities," says Jeff Hull, director of public relations.
Matson's fleet consists of 15 container ships and three barges, and it also charters a RO/RO (roll-on, roll-off) vessel. Its ships average about 2,600 TEUs-versus the new large international mega-carriers with 8,000-TEU capacity. "Our ships are designed to be filled and off-loaded quickly because frequency is a key part of our operation, as we have a ship departing almost every other day and arriving in Hawaii about every other day," Hull explains.
These frequency levels are important to Hawaii where the cost of land is extremely high. "Our customers can keep their distribution costs down without concern about the high cost of warehousing their goods on Hawaii," says Hull.
On the West Coast of the mainland, Matson operates dedicated terminals in Long Beach, Oakland and Seattle. "This enables us to work with customers shipping fresh produce, milk and perishable goods who need later cut-off times and a minimum amount of transit time," Hull says.
"One advantage we have is operating in a domestic trade, which is a relatively closed-loop system and we know the trucking community quite well," Hull says.
Looking toward the future, Matson will introduce a weekly China service beginning February 2006 from Shanghai and Ningbao to Long Beach, with five modern and fuel-efficient vessels (at a cost of about $100 million each). "We will offer the fastest transit time (11 days) from Shanghai to the L.A. basin and we are still in the process of developing that service and customer base," explains Hull. "This is an expansion for Matson into a new trade. It will be a route from Long Beach, Honolulu and Guam to the two Chinese cities. The advantage for us is it will be a round-trip voyage moving goods to Hawaii and Guam and then bringing cargo from China to the West Coast."
Hamburg SüdOver the past decade, Hamburg Süd (www.hamburg-sued.com) has significantly expanded its scale of global services through several strategic acquisitions. The Crowley American Transport acquisition allows Hamburg Süd to offer Central and east-coast South America services; the Transroll acquisition expands Europe and South America services; the Aliança acquisition offers Europe and east-coast North American linkages with east-coast South America in addition to an expanding cabotage service linking Brazil with other Mercosur countries; and the acquisition with Southseas Steamship Lines allows Hamburg Süd to offer West Coast services to the Pacific Islands.
Hamburg Süd pioneered containerized reefer shipping in the late 1960s between Australia/New Zealand and North America and recently commissioned six 3,800-TEU (with 800 reefer plugs) operating on the east-coast Inter-Americas trade route. It is enhancing operations with its Europe/east-coast South America service with new MONTE-class ships of 5,552 TEUs with 1,365 reefer plugs. "These new ships provide the largest reefer capacity per vessel of any containership operating in the world today and are the largest vessels ever to serve South America," Larkin says.
"We have an additional 16 ships on order in the 3,000- to 5,000-plus TEU range," continues Larkin, adding capacity to service significant new European and North American market demands for South American refrigerated cargoes (fresh and frozen produce, chicken, beef and seafood). "We are also adding state-of-the-art reefer equipment to serve an expanding global demand for temperature-sensitive cargoes."
Trade volumes for the carrier have been expanding over the past two to three years, especially in Asia and Latin America. Routes run trans-Pacific between west-coast South America and North America and key Asian ports - and from Asia to east-coast South America via South Africa. Hamburg Süd expanded its presence in the Mediterranean, including Turkey, and opened new trade services to and from India and Pakistan as well. Strengthening economies in the South Pacific led to enhanced growth in the carrier's long-standing trade routes between Australia, New Zealand and the Pacific Islands and both coasts of North America.
Port congestion in Latin America is a large problem for Hamburg Süd and, since many ports are hemmed in by surrounding urban centers, plans for port expansion to handle the surging trade growth are limited at best. "One option to increase the overall efficiency of ports and terminals could use techniques perfected in Asian ports such as increased stacking and 'round-the-clock operations," Larkin says.
CrowleyCrowley's liner services business unit, based in Jacksonville, Florida, operates a niche service in the north-to-south trade between the U.S. and Puerto Rico, the Caribbean islands, the Bahamas, Central America, the Dominican Republic, Haiti and Cuba. "We offer regularly scheduled liner operations for container cargo and trailer cargo," says John Hourihan, senior vice president and general manager, Latin America.
Crowley transports rolling stock such as cars, trucks and buses-as well as construction equipment. It also ships break-bulk, heavy-lift and over-dimensional items using its fleet of specialty vessels and equipment. It also offers special cargo handling of apparel, refrigerated and perishable goods and HAZMAT materials. Crowley Maritime Corporation's fleet consists of over 300 vessels, including RO/RO vessels and barges, LO/LO vessels, tankers, tugs and barges-and over 34,000 containers, trailers and other types of intermodal equipment.
One of the carrier's major commodities is apparel-shipping yarn, fabric and cut goods to Central America on the outbound and finished products on the inbound. Crowley operates two separate strings of three sailings a week to both Port Everglades, Florida, and to Gulfport, Mississippi. "We call our service 'Speed to Market' because our service frequency meets the demands of our customers," Hourihan says. Using Port Everglades-north of Miami congestion-facilitates intermodal operations. "The RO/RO vessels we use allow a quicker turn and more dependable schedule integrity, and we have an ease of operation getting in and out of our dedicated berths."
Another significant part of Crowley's business is focused on bringing refrigerated cargo-fruits, vegetables and frozen seafood-from Central America to the U.S.
Crowley looks to its 'Speed to Market' philosophy as a selling point to shippers. "We are only a three-day transit from Central America to U.S. markets, and we view Central America's proximity to the U.S. to be one of its most significant advantages to compete with China," Hourihan says.
MOL AmericaMOL (Mitsui O.S.K. Lines) America (www.molpower.com), Concord, California, is expanding its fleet of 650 vessels by another 280 vessels, including tankers, LNG (liquefied natural gas) ships, dry-bulk ships, car carriers and container ships to keep pace with expected growth of its customers. "We operate the largest LNG and dry-bulk fleets in the world and the second-largest tanker and car carrier fleets in the world," says John Gurrad, vice president of business planning and e-commerce.
MOL America participates in all major trade lanes and expects strong growth to continue in China and South America-particularly in Brazil. Gurrad reports significant increases in business this year over last year in all sectors, and especially in the LNG, bulk and container sectors.
U.S. West Coast congestion plays a major role in MOL's strategy. "We diverted more space to the Pacific Northwest and to Oakland," Gurrad says. "We plan to add additional all-water service to the East Coast via the Panama Canal and/or the Suez Canal pending the delivery of new Panama-sized vessels in the next few years."
In preparation of continued robust growth in China and Latin American markets, MOL America recently signed a 30-year agreement with the Port Authority of Jacksonville and will build a new 160-acre container terminal to be operational by early 2008. The terminal will be operated by TraPac, Inc., a wholly owned subsidiary of MOL. "This will serve as a key gateway for this trade," Gurrad says.
The recent alliance between MOL and APL, creating a peak season service-PS5-is designed to provide much-needed West Coast capacity with a Seattle connection to southern California ports. "This service offers flexibility so we can manage our capacity in line with customer requirements," explains Gurrad.
APLWith the rise of Chinese manufacturing as a key driver of world trade, APL (www.apl.com) has seen its volume significantly expand. "We are in our third year of above-average, double-digit growth in the container business, with the main driver of this kind of growth being expansion (in China)," says Bowe, president of APL in the Americas.
"Our Intra-Asia trade-between Asian countries and the Middle East-has grown rapidly, representing about 20 percent of our total liner business as these countries source from and supply to China," continues Bowe, adding APL is one of the biggest operators in this sphere.
Of the six major global trade lanes-trans-Pacific, trans-Atlantic, Asia, Europe, intra-Asia and north-south trade-the intra-Asia trade is the fastest-growing container trade lane in the world. Bowe notes trade from China to South and Latin America is also increasing significantly.
Although the carrier operates its own terminals on the U.S. West Coast, it is also redirecting some shipments away from Los Angeles/Long Beach to Seattle/Tacoma and Oakland. Like others in the industry, APL continues to find more efficient turns on its assets through service deployments such as its dedicated China service using only four vessels. "Capacity is not a function of size and speed on the water, but of vessel turnaround and this is getting a lot of emphasis in our company these days," Bowe says.
APL's two services from Asia to the U.S. East Coast (Ports of NY/NJ, Savannah, Charlestown, and Norfolk) are increasingly in demand, growing at mid-double-digit levels over the last couple years.
In alliance with MOL since 1995, APL in the late 1990s added Hyundai to the alliance, known as the New World Alliance, which achieves economies of scale and wider ranges of services. "We have alliances with other smaller operators in other parts of the world as well," Bowe says.
Reliability boundWith so much customer trust and expectation riding the waves of global carriers, reliability ranks among the highest priorities and MærskSealand (www.maersksealand.com) has strived to enhance this value-add. For example, the line created a new Pacific deployment this year in response to the peak-season congestion last year at Pier 400 in Los Angeles. "We added direct service to Tacoma and introduced faster transit times to Newark at Port Elizabeth," says Gordon Dorsey, senior director of corporate communications for Mærsk, Inc., headquartered in Madison, New Jersey. "This is one of a number of schedule enhancements and operational projects we initiated to better meet short- and long-term needs of our customers."
Maersk added two eastbound calls to Tacoma, reducing one from LA, and service was added to Vancouver. "We were able to trim five days in transit time from Asia to Port Elizabeth and two days off transit to Norfolk," Dorsey says.
The new deployment spreads the trans-Pacific services through the week so vessels are not congested in LA on weekends.
In response to higher levels of terminal activity, APM Terminals North America (an affiliate of Mærsk, Inc.) expanded Pier 400 by 40 percent-to nearly 500 acres last fall. In addition, APM Terminals introduced weekly evening hours and all-day Saturday hours at Pier 400. "The industry created PierPass, which coordinated the addition of off-peak hours at the Ports of LA and LB and we added to our chasses and container fleets and began a major high-tech upgrade at L.A., Oakland and Tacoma terminals," Dorsey says.
APM Terminals will open a new container terminal in Portsmouth, Virginia in mid-2007. "The facility will feature 4,000 feet of deepwater berth space-four times the space offered at our present facility," continues Dorsey. Port Elizabeth, New Jersey, will grow from 266 acres to 350 acres in June 2006. APM Terminals is the largest U.S. terminal operator, with eight on the East Coast, two on the Gulf Coast and three on the West Coast.
The Ports of Norfolk and Charleston will provide all-water service for the nearby textile markets, from which raw materials are shipped to Central America for production, and returning with finished products. This service allows improved trucking triangulation, reducing costs to shippers, says Dorsey.
Sidebar: Shipping DynamicsAccording to Washington, D.C.-based World Shipping Council, Americans imported 10 million loaded cargo containers in 2004 and the liner shipping industry transports an average of $1.5 billion worth of containerized good through U.S. ports daily. It's projected that the industry will handle more than 11 million U.S. import container loads in 2005 (representing a healthy growth rate of 11 percent)-and the industry expects another 10 percent growth rate for 2006, which means about 12 million import container loads. These growth trends are expected to continue and these figures represent liner shipping exclusive of bulk carriers, tankers, LNG ships and other sea-going vessels.
America's supply chains extend to tens of thousands of different points globally, reports the Council. In 2004, there were 7,241 individual vessels-registered in 81 different countries-that made 72,178 U.S. port calls. It's estimated that liner cargo in U.S. trades generates 1.1 million American jobs, directly and indirectly, with wages totaling about $38 billion annually.
In the last 15 years, liner export rates in the three major U.S. trade lanes-Asia, North Europe and East Coast South America) have fallen by 23 to 46 percent. In 2000, American exporters spent about $3 billion less than they did in 1985 to ship their goods to market. The Council notes these savings are dramatic, considering inflation rose 65 percent in that same 15-year period and the value of goods carried in U.S. liner trades where these lower rates apply increased 163 percent.