Massachusetts Port Authority

Massachusetts Port Authority

Public ports, terminal operators and steamship lines are destined to face financial pressures in 2012.

Shrinking container volumes and overcapacity are expected to depress freight rates. At the same time, double-digit increases in labor costs will have a significant adverse impact on East and Gulf coast terminals.

The overcapacity resulting from an aggressive shipbuilding program, along with dwindling cargo volumes, will force carriers to slash rates in order to compete against similarly strained colleagues. Although some carriers were suspending service on trade lanes or eliminating and consolidating services as early as last fall, the fact remains that there is too much tonnage chasing too little cargo.

The beneficiaries will be shippers, who are continually offered low rates for their business. Proposed rate increases by carriers will be negotiated down sharply or sink beneath the waves altogether as U.S. and European ports see declining demand for imports, and a consequent drop in container volume.

U. S. East and Gulf coast ports in particular, will be even more challenged should labor costs rise in the upcoming negotiations for a new International Longshoremen’s Association collective bargaining agreement. Terminal operators will have to pay these increases, while carriers try to negotiate port costs downward.

Many ports still need to find capital funds to improve their terminal infrastructure so they can meet the challenges posed by ever-increasing containership sizes with deeper drafts, and the prospect of more large ships coming to Gulf and East coast ports when the new Panama Canal locks open in 2015.

During these times, ports, labor and carriers must look carefully at their costs and seek a mutually acceptable balance to weather the storm.