Big ships spark seismic shift for Americas’ container trade and infrastructure

13th TOC Container Supply Chain Americas moves to Miami in 2013 as industry deliberates over conflicting shipper, carrier and infrastructure dynamics
 
More trades sharing the same vessel systems, increased co-loading, common feeder services run by independent operators deploying larger vessels and more cargo transhipped in larger hubs in Panama and across the Caribbean: this is the shape of regional container shipping networks post-Panama Canal expansion, according to Poul Hestbaek, SVP Latin America West Coast & Caribbean for Hamburg Sud.
 
Speaking at the TOC Americas Container Supply Chain 2012 conference in Panama during December, Hestbaek and fellow container carrier executives from Hapag-Lloyd, Maersk Line and OOCL all indicated that they were gearing up to deploy larger vessels on all-water Asia-US East Coast services following the opening of the expanded Panama Canal in 2015.
 
 “To be on the “A” grade list of container vessel operators, be ready in time to accept vessels between 8,000 and 12,000 TEU,” Hapag-Lloyd Americas President Wolfgang Freese told US East Coast port and terminal representatives in the 400-strong audience. “Keep in mind that the huge investments made by container carriers do not provide the luxury of keeping vessels with 2-3000 moves for 4-5 days in ports,” he added. Hapag-Lloyd currently moves about 550,000 TEU, approximately 10% of its global cargo volumes, through the Panama Canal.
 
The consequences of cascading

 While the expanded Canal will be capable of accommodating container vessels as large as 13,200TEU - based on current ship designs - carriers and market watchers attending the annual gathering did not expect to see ships of this size plying the all-water trades in the near future. “There will be no big bang, but a cascading of larger tonnage over time,” observed Freese. Speakers agreed that 8,000-10,000TEU ships will likely emerge as the post- expansion ‘workhorse’.
 
The cascade effect and its regional impact - for cargo owners, carriers and port operators - was a key conference talking point. “Overcapacity will be cascaded from East-West trades into more profitable trades, such as Latin America,” said Alan Murphy, COO at SeaIntel Maritime Analysis. “Over-supply will put rates under pressure, with resulting increased rate volatility, and cascading from longer trades to shorter will only exacerbate the overcapacity issue.” All of this adds up to a tough outlook for the Latin container trades over the next few years, potentially destabilising what has so far been “a carrier’s dream - stable markets, low seasonality and almost balanced.”
 
The new shipping landscape also changes the game for cargo owners. “Lower freight rates and increased volatility will most likely lead to service disruptions, when carriers start blanking more sailings,” said Murphy. “Combining capacity cascading with cost cutting will also make super slow steaming increasingly attractive for carriers and this will naturally severely impact time-sensitive reefer trades.”
 
To date, Latin trades have enjoyed some of the fastest sailing times in the industry, averaging 19.7 knots on Europe-ECSA, for instance. “Schedule reliability and container delivery performance may increase as a result of added buffer in the schedules, but this will be at the of increased transit times,” said Murphy.

Reconciling big ships with less inventory 

For shippers, “each additional day of transit time causes an additional day of in-transit inventory and each additional day of transit time variability causes an additional day of safety stock,” noted Dr. Donald Ratliff, Executive Director of the Georgia Tech Logistics Innovation Research Center. Ratliff said that regional container supply chains are currently in the grip of “conflicting mega trends,” with carriers wanting big ships on the one hand to improve operating costs and efficiencies, and shippers pushing for less inventory on the other, for the same reasons.
 
To square the circle, Ratliff argued the case for an innovative hub and spoke approach, with large vessels deployed on mainline services between Asia and a central hub such as Panama, and smaller feeder ships shuttling cargo to and from US ports. “This has the potential for improving both big ship utilisation and shipper inventory,” said Ratliff.
 
While the role of Panama and other Caribbean ports as East-West and North-South transhipment hubs will certainly grow over the coming years, North American ports on all coasts are nevertheless bracing themselves for a step change in vessel size. “9-10,000 TEU vessels will be the next stage for the US East Coast,” noted Hestbaek of Hamburg Sud.

Mind the infrastructure gap
 
Tom Ward, Chief Engineer at Ports America, the largest US terminal operator and stevedore, highlighted a “sharp disconnect” between the shipping lines’ deployment of big ships, and the ability of port authorities and operators to respond with bigger facilities. “It takes a couple of years to design and launch a ship. It takes six to ten years to modify a bridge or a dock.”
 
“The expectations of the logistics chain, with regard to our business of running ports, are simple to state, harder to fulfil, “said Ward. “We need to be prepared to serve the biggest ships that naval architects can come up with, using ultra-modern cranes that support maximum productivity, and be perfectly responsive to the shifting needs of the global logistics system. We are expected to do this in existing seaports with sharp limitations on air draft, water draft, and channel geometry, on wharves that were designed before “Post Panamax” became real. And, of course, there isn’t enough money to get this done. The port authorities are like all other US government agencies – under pressure to ‘do more with less’”.
 
Ward and fellow company executive, Mark Montgomery, President and CEO of Ports America Chesapeake, discussed recent public private partnership (PPP) deals struck by the operator in Maryland and New Jersey to resolve the conflicting issues. Montgomery confirmed that the Seagirt Baltimore terminal, where Ports America signed a 50-year concession at the start of 2010, would be ‘post-expansion ready’ by the end of 2012, with 50ft berth depth and 4 super post-Panamax cranes.
 
The impact of rapidly escalating ship size for Latin terminals was also illustrated starkly by Matthew Leech, Senior Vice President and Managing Director Americas for DP World. Leech described how the company’s 3-year old facility in Callao, Peru – “one of the newest container terminals in the region with global standard KPI after more than $400m investment over 3 years” – already finds itself with berths that are too short to efficiently service the unexpectedly large vessels now entering the trade. “The port infrastructure gap in Latin America was closing based on 4,000-6,000 TEU vessels, but widens severely with 8,000 TEU vessels,” said Leech  who, like Ward, highlighted the hugely different development cycles of new ports and terminals versus ships.
 
 “Big ships are the biggest game changer for us all today and infrastructure is having a tough time keeping up with vessel technology,” added Sean Strawbridge, Managing Director, Trade Relations & Port Operations at Port of Long Beach. The US West Coast port handled its largest ever vessel last September when the 13,800 TEU MSC Beatrice docked.
 
“New shipping patterns require investments in select ports, but also highways, bridges and rail,” added Strawbridge. Long Beach’s own $4.5 billion capital improvement programme covers channel dredging to 76ft, a $960 million bridge replacement, investment in on-dock and near-dock intermodal, pier upgrades and the massive Middle Harbor redevelopment project.
 
Panama Canal expansion has been cast as a West Coast-East Coast battleground and Strawbridge and others said that fierce railroad competition for the US heartland is anticipated. However, he also observed that the new Panama Canal equally “represents an opportunity for USWC to increase trade with ECSA – particularly in bulk and liquid bulk commodities.” Latin America already makes up nearly 22% of total US trade, he said, and import/export flows between North and South will only grow in importance over the coming years – a sentiment widely echoed throughout the conference.
 
One of the ports looking to capitalise both on Panama Canal expansion and growing US-Latin trade is Miami. Home to a large consumer market (Florida is tipped to become the 3rd most populous US state), the closest US port of entry to the Panama Canal and with close ties to LAM and the Caribbean, Miami has embarked on a $2 billion infrastructure improvement programme covering -50ft dredging, ‘fast access’ road tunnel, on-dock and rail services and 4 new super post-Panamax cranes. The port – and in fact the whole of Miami-Dade country – also acquired foreign trade zone status in July of last year. Eric Olafson, Manager of Intergovernmental Affairs and Cargo Development at PortMiami, told delegates that Miami is gearing up as a cargo gateway for the Americas, with ambition to handle up to 3.38million TEU by 2034.

Mega hubs need mega coordination

The complexities and risks of developing a new breed of integrated port logistics gateways were highlighted throughout the conference – not just in terms of the substantive investments required, but equally in the need for operational resilience. To be successful, said Ratliff of Georgia Tech, mega hubs will need to safeguard the performance of the entire organism, not just its parts. “Service disruptions in any component impact everyone, are very costly for stakeholders and can do permanent damage.” He cited asset sharing, including virtual terminal agreements, process standardisation, data sharing, decision technology and disruption management as some of the critical innovations that will need to be adopted.

In the shipper’s point of view, the entire extended container transport chain should operate in a much more unified way. “We need rail, road and ocean to be functioning as one,” asserted Hector Gomez, Associate Director, Latin America Logistics Purchases at Proctor & Gamble. “Forget about the ocean cargo service provider concept and build on the logistics service provider definition. Give us service integration with real end to end solutions.”  Added Hernan De Mezerville, Logistic Operations Manager at Kraft Foods/Mondelez International: “The TOC Americas conference helped me understand that reaching the next level of excellence in supply chain of the shipper point of view can be possible only if we start collaborating with ports, carriers, freight forwarders and 3pls with a common goal of supporting one another.”
 
First launched in Miami in 2001, TOC Container Supply Chain Americas returns for the third time to the Atlantic Coast port city in 2013. Hosted by PortMiami, and supported by Panama Canal Authority, the 13th annual conference and exhibition takes place on 1-3 October 2013 at MACC Miami.

Source: TOC Events