Several years ago, when ports worldwide struggled to keep up with exploding container volumes, APM Terminals led the charge to acquire waterfront property and build container facilities as quickly as local conditions permitted.
This belief in unlimited potential for growth propelled the A.P. Moller-Maersk subsidiary to the upper tier of terminal operators. APM Terminals today operates 50 facilities in 34 countries.
In 2008, Netherlands-based APM invested $723 million in new projects. However, after global container trade collapsed in October, the terminal operator ceased investing in new projects. Its mantra now is to cut costs, improve productivity, add value and push as much volume as possible through existing facilities.
“It’s back to basics,” CEO Kim Fejfer said in an interview at APM’s massive 484-acre terminal at the Port of Los Angeles.
Most terminal operators agree this is not a good time to build new marine facilities. The global container trade is projected to decline 10 to 15 percent this year, carriers have laid up more than 400 vessels and many ports are struggling with overcapacity.
Fejfer said trade growth will resume, but the curve will be nowhere near as steep as it was the past eight years.
Relieved of the pressure of keeping up with double-digit growth, terminal operators are rethinking their business models. They are using the lull in activity to make basic physical improvements to existing facilities to enhance productivity.
“This is the breather we wanted for years,” said Peter Stone, chief commercial officer at Ports America, which has terminals throughout the U.S.
When the container trade returns to more traditional growth rates of about 5 percent per year, terminal operators fully expect to be working smarter. They intend to handle more TEUs per acre with fewer man-hours per lift.
“This will put us in a good position when the volumes come back up,” Stone said.
This thinking is especially evident at West Coast ports, where employers are gradually incorporating technology and improved work practices into their operations following the landmark longshore labor contracts of 2002 and 2008.
Technological improvements such as optical character readers, container tracking mechanisms and computerized yard management systems that sequence equipment movements to enhance productivity are being made, albeit more slowly than anticipated.
“It’s 50-50,” said Jim McKenna, president of the Pacific Maritime Association, the employer group that negotiates and implements waterfront contracts with the International Longshore and Warehouse Union.
Optical readers and cameras that streamline the processing of trucks at terminal gates now are standard. Some terminals have installed container- and equipment-tracking systems. A few are operating sophisticated computerized yard-management programs. Still, some terminal operators are sitting on the sidelines waiting for these systems to be perfected before investing, McKenna said.
The shocking 20 percent drop in container volume in the first half of the year forced terminal operators to scrutinize every detail of their business and eliminate practices that do not add value.
Organized labor understands the new economic realities and is proving to be cooperative in this venture, Fejfer said.
“It’s fundamental that we remain competitive. If not, we won’t earn and retain our customers’ business,” he said.
Use of “steady men” — skilled longshoremen paid a premium to work steadily at the same terminal — has gone from a common practice at terminals to a rarity. Crane drivers have been hit especially hard and now report to the hiring hall each day. Their annual earnings of about $150,000 have been cut in half.
Employers no longer incur the extra costs involved in working through lunch periods, opening gates an hour or two early and staying open on holidays. Those practices were crucial when volume was strong, but they make no sense in today’s weak economy, McKenna said.
Viewing terminal operations at West Coast ports today is a time warp.
Looking out over APM Terminals’ yard, one sees virtually all inbound loaded containers mounted on chassis. When volumes exploded, terminals had no choice but to stack containers five high to conserve space. However, such dense operations are hugely expensive because they require many man-hours and the use of costly equipment to shuffle containers around.
The return to storing containers on chassis calls into question the need for the slick operation that APM runs at its new facility in Portsmouth, Va. Generally regarded as the most efficient terminal in the U.S., the terminal is designed with container stacks running perpendicular to the berth.
This allows high-speed rail-mounted gantry cranes to remove containers from the berth and move them directly to the gate where trucks await.
Eric Sisco, APM’s president of the Americas region, said the highly automated Virginia terminal is ideal for an operator building on a greenfield site, but reconfiguring an existing terminal and purchasing the costly equipment cannot be justified in today’s environment.
“We’re not doing the Portsmouth model anywhere else right now,” he said.
Terminal operators’ current obsession with cost could come back to haunt them if cargo volumes suddenly surge. Even a return to sustainable growth of about 5 percent a year would eventually result in a capacity crunch at some ports.
That is why prime properties at U.S. ports will attract attention even in a down market. The proposed Pier S facility in Long Beach, a 160-acre greenfield site in the final stages of environmental study, is a good example.
Developing Pier S will take three years, and the operator may incur annual losses of $30 million before the first container is moved, but the bidding process is certain to be competitive.
“It would be shortsighted not to take a short-term loss for a long-term gain,” said Ed DeNike, chief operating officer at SSA Marine.
For many operators, however, conserving cash and keeping existing customers competitive in a declining market is the most prudent strategy over the next year or two.
“We must be seen as a damn good operator,” Fejfer said. “There’s nothing that can replace that.”
Contact Bill Mongelluzzo at email@example.com.