In his Aug. 5 Journal of Commerce article, “Decline of the Single-User Terminal,” Bill Mongelluzzo describes how vessel operators are eliminating their proprietary terminal operations in favor of using public terminals.
They may or may not know it, but by embracing the public option these operators are increasing port resilience.
Here are the main reasons why.
— Backup Capacity Is an Easier Option. The shift to public terminals means these vessel operators have multiple options for berthing in any one port. As a result, if there is a local disruption, they can find an alternative facility within that locale, assuming labor agreements have been sorted out in advance.
The alternatives for vessel operators committed to proprietary terminals are less convenient, because in all likelihood they will sail to another proprietary facility that could be hundreds of miles away.
This limitation was confirmed by an operator with proprietary facilities in several West Coast ports. If one of his company’s West Coast terminals was closed because of a disruption, the enterprise’s ships would sail to another proprietary terminal in order to keep the cargo-handling revenue internal to the company, he said.
The net effect is that the backup capacity for the vessel operator is in the same port, not at a distant facility that requires additional moves on the water and on land.
— More Public Terminals Equal More Options for All Vessel Operators. The general move toward public terminals means there is effectively more capacity in local ports available to all vessel operators. An increase in overall capacity translates into an increase in resilience.
— Better Space Utilization for Larger Operators. The ports landscape may shift away from small proprietary terminals toward fewer, larger public terminals. This means larger operations have the potential to utilize cargo-handling capacity more efficiently because they’re less likely to be stuck with small pieces of unused terminal space. A large contiguous terminal allows for various configurations of vessels berthing simultaneously, whereas a smaller facility is more limited, and some capacity probably goes unused at any given time.
Imagine, for example, a small terminal with two berths and six cranes receiving an oversize vessel that occupies one-plus berths and employs four cranes. Lacking the space to accommodate another vessel, the terminal has no choice but to allow the unused capacity to remain idle. A larger facility would be able to use the balance of the berth and cranes in contiguous dock space, making for less capacity waste.
Again, the bottom line is more resilience, in this case because capacity utilization is improved.
That’s not to say there are no downsides to the increased emphasis on public terminal usage. Here are two notable negatives.
— Service Degradation. One of the advantages for a vessel operator with a proprietary terminal operation is high service levels. The operator is given first priority by the proprietary terminal operator and is able to run more efficiently in serving its core business needs. Vessel operators in the public system don’t enjoy this privileged status, and this makes their operations more complicated and more prone to congestion.
— Reduced Pricing Options. If a large terminal operator provides all of the cargo-handling services in a port, it’s effectively a monopoly because vessel operators have few or no alternative providers. Monopolies tend to skew prices in favor of the dominant player.
On balance, however, the shift away from proprietary terminal operations enhances port resilience, and this is a positive outcome.
The situation, of course, could reverse quite quickly in the event of an economic boom. But at least the move away from proprietary facilities has highlighted both the concept of local port resilience and the benefits of public terminals.
What do you think? Are proprietary terminals gone for good or will they make a comeback when the economic tide turns?
James B. Rice, Jr., is deputy director of MIT Center for Transportation & Logistics. He is engaged on research into port resilience, and can be contacted at email@example.com.