APL’s launch of a weekly expedited service from China to Southern California next month will prove a test of whether shipper demand for guaranteed ocean and surface delivery goes beyond the market that Matson already serves, as carriers look to differentiate themselves by delivering faster and more reliable speed-to-market service.
Starting August 2, the APL service will depart Ningbo with an 11-day transit to the Eagle Marine Service (EMS) terminal in Los Angeles. In addition to the rapid transit time — most services to Southern California operate with 12-day or longer transits — the Los Angeles terminal will discharge inbound containers immediately to chassis and will guarantee that all containers on the Eagle Express X (EXX) service have chassis available. EMS will provide dedicated in-out gates for EXX customers.
Although the vessels will have a capacity of 5,000 TEU, only 1,900 TEU per ship will pay for and be given the expedited treatment. The rest pays less and is treated like any other cargo.
“We will make the cargo available quickly. This is a premium service,” said Sean Pierce, CEO.
The launch of the APL service comes as the trans-Pacific trade as a whole grapples with a deterioration of on-time reliability due to weather and fog problems this year in Asia, increasing demands on terminal performance in Asia from mega-ships up to 22,000-TEU capacity and rail service issues in the United States. Service reliability has been a problem affecting the entire trade this year. According to SeaIntelligence Maritime Analysis, vessel schedule reliability in May was 66 percent to the West Coast and 64.5 percent to the East Coast, compared with 71 percent for the global average.
The new service is also a test of whether shippers will pay for the better service they demand. The demise of the Daily Maersk, a guaranteed day, premium service on Asia-Europe, several years ago showed that at least shippers on that trade weren’t willing to pay up. Since then, however, APL has increasingly added guaranteed services on the trans-Pacific and Asia-Europe trades, in which it will pay shippers a fee if their cargo is rolled for another sailing than the one booked.
APL has partnered with American Intermodal Management so that shippers using the Eagle Express X service will have dedicated new chassis providing greater landside visibility. Each AIM chassis is equipped with a GPS sensor, an accelerometer that can transmit distance, speed, and direction, and a load sensor that notes and communicates when a container is mounted or dismounted.
The APL service will add 5,000 TEU of additional capacity to the eastbound trans-Pacific, which will aggravate somewhat the existing overcapacity in the trade. However, since the premium market represents a relatively small segment of a trade that generates 15 million TEU a year in imports, and the China trade is under siege because of the tariff war between the United States and China, the impact of one new service with modest vessel sizes on freight rates in the trans-Pacific is uncertain at this time. About 47.5 percent of total US imports from China are potentially affected by the tariffs, according to PIERS, a sister product of JOC.com.
Matson is not concerned about competition because it operates a unique service in the trans-Pacific. As a US carrier, Matson participates in the Jones Act trade from the mainland to Hawaii and Guam, its vessels sail light to China, and then return with relatively high-paying US imports. This service gives Matson a head haul in both directions, which other, foreign-flag carriers do not enjoy.
“Several carriers have tried their hand at an expedited service, the most recent was Hanjin [Shipping]. No doubt there will be others in the future, but Matson is the only carrier with two-way economics. This makes our model successful in good times and in bad, and it’s a big reason why we’ll be here for many years to come,” Matson stated.
Matson today owns the premium service market with a 10-day transit time from Shanghai, and expedited processing of containers and drayage at the Matson-SSA Marine terminal in Long Beach. “Our expedited CLX service has set the benchmark for the last 12 years,” a Matson spokesperson said Tuesday. Matson deploys vessels of about 3,000-TEU capacity on the service. Matson serves Hawaii and Guam westbound from the West Coast and carries US imports on the return trip from China to Long Beach.
The major complaint that beneficial cargo owners (BCOs) have about Matson’s service is its limited capacity. “If you are allocated two slots, you get two slots,” said Jeff Solomon, director of operations at SG Footwear. Solomon said the footwear importer welcomes the additional capacity that APL will bring to the expedited service market and will definitely consider shipping with APL, “depending upon the cost.” APL will operate 5,000-TEU ships on the EXX service.
Premium service, premium price
When US import volumes are strong, premium services come at a premium price. A non-vessel operating common carrier said Matson’s rate for its expedited service is about twice the $1,200-1,400 spot rate for a 40-foot container from China to the West Coast. The higher freight rate will act as a natural cap on demand because the supply chains of many importers do not need sub-12-day transit times and immediate inland shipment.
Steve Hughes, a consultant to the auto parts industry and former vice president of supplier development at Centric Parts, said that market segment wants reliable capacity, predictable voyage times, and efficient processing of containers at the marine terminals, but it doesn’t need the fastest transit times in the trade. Many high-volume importers tend to be risk-averse when it comes to capacity, so they will usually stick with the carrier alliances that have ample capacity, he said.
Furthermore, the C-suites in many companies are pushing for reduction in shipping costs, especially now with the tariffs imposed by the Trump administration, Hughes said. “I can see that being a big problem,” he said.
However, there is an entrenched market for reliable, rapid, and on-time service from China to the US port and onto the receivers’ warehouses, Matson said. The marine terminal is the key to making the supply chain reliable. “Our Long Beach marine terminal is totally dedicated to Matson. We use 100 percent Matson chassis, and loads are made available at a bonded off-dock container yard with virtually no lines. It’s the fastest, most reliable, and most customer-friendly service in the industry,” the Matson spokesperson said.
Some importers are satisfied with the four days of free storage time that many ports offer for imported containers, so they will not pay extra for rapid delivery of their containers from the marine terminals. However, for those importers of high-value or seasonal merchandise that must be on the store shelves by a certain date, the extra cost of a premium service can be absorbed as long as the marine terminal is consistent in its rapid deliveries and guaranteed availability of equipment.
This is especially true during the peak shipping season when terminals are congested, truck waits increase in length, and it takes longer than usual to retrieve containers from the stacks. In that respect, both the Matson and the Eagle Marine/APL terminals are positioned to handle the rapid delivery times customers are guaranteed in premium services.
According to the June truck mobility numbers published monthly by the Harbor Trucking Association (HTA), Matson was tied for first among the 12 container terminals in Los Angeles-Long Beach with 35-minute average visit times, and EMS was fourth with an average truck visit time of 68 minutes. The average for all of the terminals in June was 77 minutes. HTA CEO Weston LaBar said truckers welcome the premium service of APL because it adds to creative measures such as container peel-offs and dray-offs that BCOs, truckers, and terminals are implementing. “This is another example of what is possible for improving conditions for truckers,” he said.