U.S. West Coast ports have arrived at a “crossroads” in 2014, according to the head of the Pacific Maritime Association.
In the next 12 months, U.S. West Coast ports will have to continue their fight for market share in the Asia-Pacific trade in the face of potential labor instability, productivity challenges and emerging competitive threats such as the expansion of the Panama Canal and growing volumes to the U.S. East Coast via the Suez Canal.
However, James McKenna, president and CEO of the PMA, said in JOC’s 2014 Annual Review and Outlook that 2014 represents an opportunity for West Coast ports to solidify their position as the “gateway of choice” for goods being sent to and from Asia. West Coast ports will be well-positioned if a new longshore labor contract can be negotiated this spring without disurption on the docks and if bigger ships now calling at West Coast ports can be handled efficiently.
PMA, which represents West Coast shipping companies and terminal operators in their dealings with longshore labor, will be tasked with negotiating a new labor contract with the International Longshore and Warehouse Union, which represents West Coast dockworkers. The talks are set to begin in April in preparation for the expiration of the parties’ current six-year labor contract on June 30. If negotiations turn sour, as they did in the 2002 and 2008 negotiations, there may be delays to container movements, and the reputation of West Coast ports as effective gateways for trade could suffer.
“It will be a milestone year as the ILWU-PMA labor agreement is up for renewal,” agreed Bill Wyatt, Port of Portland’s executive director, in his ARO essay. “Though the issues are complex and the stakes high, the ability to find new solutions to old problems is within our collective reach.”
The upcoming contract talks between the ILWU and the Pacific Maritime Association will focus on two major issues: the tax employers will have to pay under Obamacare on ILWU members’ Cadillac health care plan and jurisdiction by the ILWU over jobs performed by members of other unions in and around West Coast ports. Issues resulting from the potential loss of jobs due to technology and automation will also be a primary concern.
In 2013, strikes, work slowdowns and sometimes violent picketing by office clerical workers in Southern California and ILWU container and grain-handler workers in Oakland, Portland and throughout the Pacific Northwest made West Coast ports seem unstable. The success of the ILWU labor negotiations this year could be critical for West Coast ports that need to prove to carriers and their customers that they are reliable.
Meanwhile, ships’ ever growing sizes will also continue to challenge ports’ productivity. As carriers have increasingly been turning to mega-ships to cut costs, the ability of ports to handle these vessels efficiently has become crucial to carriers, as well retail importers.
"Big ships will continue to dominate the horizon for ports worldwide in 2014 and beyond,” said Al Moro, acting executive director of the Port of Long Beach, in the JOC’s upcoming ARO. “The key to a port’s competitiveness will be its ability to accommodate the latest generation of large container ships.”
For example, the Port of Portland, Ore., could lose its biggest container carrier, Hanjin Shipping, as a result of issues with productivity. The Korea-based carrier last fall threatened to stop calling at Portland in order to cut costs following a protracted local jurisdictional dispute between the ILWU and electrical workers over reefer handling jobs. The dispute drove down productivity for Hanjin's ship calls to some of the lowest levels in North America.
“The biggest issue for ports given all that’s going this year and larger trends is gateway-level productivity leading to customer value,” said Chris Lytle, Port of Oakland’s executive director, in JOC’s ARO. “Part of the equation is terminal productivity and efficiency, which will be critically important to retention of existing business and attracting new business as ports continue to compete for cargo volume.”
Carriers are already beginning to favor ports that can process their mega-ships efficiently. For example, the largest vessels that carriers deploy in the U.S. trades call in Los Angeles-Long Beach inbound and Oakland outbound. It appears that carriers are pushing more cargo through these California gateways than the Pacific Northwest in an attempt to realize greater utilization of the mega-ships. According to Alphaliner, in Southern California, ships of 8,000 TEUs are very common now, vessels of 10,000 TEUs are relatively common and ships of 12,000 to 14,000 TEUs capacity are beginning to be deployed. In the Pacific Northwest, vessels of 5,000 to 8,000 TEUs capacity are common.
McKenna also said that other competitive threats include expanding ports in Canada and Mexico, as well as new Asia-to-East Coast services via the Suez Canal, given the possibility of a further delay in the construction of the Panama Canal expansion. Furthermore, retailers have been expanding distribution centers in the eastern half of the U.S., which will also chip away at West Coast ports’ competitive position.
“All of these alternatives have the potential to disrupt the long established patterns through West Coast ports,” McKenna said.
It's not all bad news though. Despite these challenges, West Coast ports recovered market share from Canada and Mexico in the third quarter of 2013, with 81.5 percent of overall traffic, up 0.8 percentage point year-over-year. In addition, in the first 11 months of 2013, total loaded import and export containers at West Coast ports were up 2 percent year-over-year.