Dethroned Ports

A conceptually convenient way of depicting liner shipping’s recent history is as a series of technological breakthroughs or “revolutions.” First was the container ship, which revolutionized the ship-to-shore transfer process; second was the extension of containerization to encompass the entire door-to-door transport chain; the third revolution was the extensive use of intermodal rail.

Among ports, the leaders in this third revolution were Los Angeles and Long Beach. Intermodalism allowed them to expand their hinterland to almost the entire U.S., transforming them into the leading gateway for U.S. containerized imports. About 50 percent of the 15 million TEUs handled annually at Los Angeles and Long Beach are handled intermodally.

It seems, however, that intermodalism at these ports has peaked and will decline substantially. This unfortunate (although some local residents may see it as fortunate) downturn is the result of the convergence of several factors:

* Shifts in foreign trade lanes. More Chinese production will move to South Asia and perhaps to Latin America (“nearshoring”), shifting cargo away from the traditional trans-Pacific route.

* Improvements in logistics, especially in the planning and control of supply chains. Big retailers are constructing large, near-port distribution centers and warehouses, and becoming less dependent on the faster but more costly intermodal route.

*  Rising fuel costs. This will favor water transport over land transport, widening the cost differentials between all-water routes through the Panama or Suez canals, and land-based intermodal routes over the West Coast.

* Expansion of the Panama Canal. This will allow the all-water route to deploy ships of similar size and transport cost to those deployed on the trans-Pacific leg of the intermodal route. This will widen the cost differentials between the all-water and intermodal routes.

* Development of transloading, the near-port transfer of cargo from 40-foot marine containers to 53-foot domestic containers. Domestic boxes have 50 percent more capacity and do not have to be returned to foreign destinations. Transloading also allows mixing and matching of goods for specific destinations.

* Rising port costs in Southern California. Causes include environmental mitigation costs (harbor fees, cold-ironing, new harbor trucks, electrification of handling equipment), possible unionization of harbor trucking, and investments in new technologies for densification forced by the lack of developable waterfront lands.

* Emergence of alternative intermodal gateways. Ports in the Pacific Northwest, Mexico, the U.S. Gulf and Atlantic coasts could grab a share of the U.S. hinterland traffic that Los Angeles and Long Beach now handle intermodally.

At first glance, the last point appears to be the most important. Not so. It is the union of all of these that creates the critical mass required for changing the direction of Southern California’s intermodalism from “rise” to “fall.”

Most intermodal traffic handled at Los Angeles and Long Beach is bound for the Midwest. The main contender for the Midwest traffic is Canada’s Port of Prince Rupert, which is about 700 nautical miles closer to Asia. About 85 percent of Prince Rupert’s traffic is destined for the U.S. Midwest.

Other contenders, all substantially closer to Asia than the Southern California ports, are Port Metro Vancouver, British Columbia; Seattle; Tacoma; and, in the distant future, Grays Harbor, Wash. The main contender for the Gulf Coast cargo is Mexico’s Port of Lázaro Cárdenas, which is 400 rail miles closer to Houston than Los Angeles-Long Beach, and has a U.S. connection via a Mexican affiliate of Kansas City Southern Railway. Another long-term contender in Mexico could be Punta Colonet, a planned port 80 miles south of the U.S. border.

Gulf Coast traffic also could be served by all-water services using the expanded Panama Canal. Zim Integrated Shipping Services recently upgraded its direct Asia-Gulf Coast service by deploying full Panamax ships. New Orleans and Mobile also could be future contenders for Midwest traffic. New Orleans is only 390 rail miles from Memphis and 920 rail miles from Chicago, vs. 1,940 and 2,230 miles for Los Angeles-Long Beach.

New Orleans’ unique location on the Mississippi River could be further enhanced by extending its all-water services to the Midwest using specialized shallow-water containerships similar to those that link Rotterdam to the heartland of Germany via the Rhine.

Finally, the expansion of the Panama Canal and the introduction of direct Suez “express” services to the U.S. East Coast could enhance the position of Jacksonville, Savannah, Charleston, Norfolk and New York-New Jersey as contenders for Midwest intermodal cargo. These ports already have stacktrain service and intermodal yards.

Longer term, a new port developed in Nova Scotia, the closest North America point to Asia for Suez Express services, could mirror Prince Rupert on the Pacific. The Canadian ports could become specialized “pure rail ports,” because almost all their traffic would consist of intermodal containers.

The layout of pure rail ports would be geared toward direct ship-to-rail transfer, expediting the process and reducing handling costs. There is also the related possibility that shipping lines will introduce “pure rail services,” carrying only intermodal cargo and only calling these pure rail ports and therefore offering shorter transit times. (See “New era in container shipping?” Feb. 26, 2008, JoC).

Together, the combination of shorter ocean distance, specialized terminals and dedicated services will create a new type of “express” intermodal service.

Los Angeles-Long Beach intermodal traffic is likely to undergo segmentation based on transit times. Time-sensitive traffic will probably opt for the “express” bridges in the north; less time-sensitive traffic will use the various all-water services. The remaining, intermediate segment will continue to use Los Angeles-Long Beach and will be much smaller. The recent reorganization of ocean carriers’ trans-Pacific services (such as Maersk’s alliance with CMA CGM)

heralds this segmentation trend by offering fast services with first port of call in the Pacific Northwest. The trend toward transloading will further erode the intermodal volume of marine containers.

The decline in intermodal traffic in Los Angeles and Long Beach may take several years, and may not become apparent until after the expanded Panama Canal is ready in late 2014. Nevertheless, it has immediate implications for the Los Angeles-Long Beach terminals that are being designed with large on-dock yards. On-dock intermodal yards consume scarce waterfront lands. In addition, mile-long unit trains require land for rail access, supporting switchyards and rail gates. The rail access also requires heavy investments in grade separations.

A study by this author on the ship-to-rail process indicated that on-dock yards are viable only when the rail share of the total terminal traffic reaches 50 percent or more. For terminals with smaller rail share, the “near-dock” option is preferable. Near-dock yards are located adjacent to but outside the port area. They are much larger than on-dock yards, serving several marine terminals as well as domestic and domesticized (domestic containers with international cargo) traffic.

Near-dock yards require drayage, but because of the short distance, the drayage is fast and relatively inexpensive. For terminals with a small rail share, the drayage is less costly than switching long trains to smaller on-dock yards. The latter requires breaking the trains into short strings, pushing them in and out the on-dock yards, assembling these strings to trains and then switching them back, blocking the traffic to and from the marine terminals and the surrounding areas.

Other advantages of the near-dock over the on-dock intermodal yards are their higher operational efficiencies, better utilization of railcars, more frequent rail services to more destinations and the employment of less restrictive labor than port labor. Near-dock yards are the preferred option for most Atlantic and Gulf ports.

In the case of Los Angeles-Long Beach terminals, relocating the rail handling from on-dock to near-dock yards would release large chunks of waterfront lands that can serve as container yards, substantially adding to these terminals’ overall capacity. Because of the scarcity of waterfront land, this added capacity is critical for serving the future growth in local Southern California traffic.

Another implication of the downturn in intermodalism in Los Angeles and Long Beach relates to the ports’ claim to being a national gateway, based on the vast hinterland they serve intermodally. In the new era of intermodalism, the U.S. hinterland will be served by numerous gateways, each specializing in a different market segment, and none can claim the mantle of “national.”

This, in turn, would undermine Los Angeles-Long Beach’s claims for major investments of federal monies in port-related infrastructure such as the Alameda Corridor. Presumably, the Obama administration will note the imminent change in these ports’ status when preparing plans for new investments in transportation infrastructure.

As to the revolution-fraught history of liner shipping, the de-intermodalization of Los Angeles-Long Beach does not indicate the undoing of the third revolution. Rather, it indicates that the intermodal revolution continues in full force. Intermodalism, once focused on Los Angeles-Long Beach, is spreading to all major U.S., Canadian and Mexican ports. In this process of expansion, intermodalism also is undergoing a process of specialization, culminating with the expected emergence of an intermodal “express” option, based on pure-rail ports and pure-rail shipping services.

Asaf Ashar is co-director of the Ports and Waterways Institute at the University of New Orleans and can be contacted at aashar@uno.edu. More of his publications are available at www.asafashar.com.

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