Big ships, competition challenge West Coast ports

Big ships, competition challenge West Coast ports

Port of Los Angeles.

The ports of Prince Rupert, Vancouver, the Northwest Seaport Alliance of Seattle and Tacoma, Oakland, Los Angeles, and Long Beach are investing billions of dollars in terminal, road, and rail infrastructure. (Above: The Port of Los Angeles.) Photo credit: The Port of Los Angeles.

North America’s West Coast ports in 2019 are addressing challenges such as late vessel arrivals and explosive container discharges from mega-ships through efficiency enhancements that include extended gates, trucker appointments, and container peel-off piles. That’s proving to be a balancing act as they compete for discretionary cargo with East and Gulf coast ports whose fortunes have greatly improved from the expanded Panama Canal.

The ports of Prince Rupert, Vancouver, the Northwest Seaport Alliance of Seattle and Tacoma, Oakland, Los Angeles, and Long Beach are investing billions of dollars in terminal, road, and rail infrastructure. The competition for discretionary cargo moving to the continent’s vast interior, however, won’t be determined by infrastructure but by the efficient transfer of containers from vessels to trucks and trains. Because East Coast ports are much closer to the largest population centers, “We have to do everything perfectly” to compete, Gene Seroka, executive director of the Port of Los Angeles told the Harbor Association of Industry and Commerce on Sept. 28.

 

The West Coast's niche advantage

West Coast ports have a clear advantage in capturing high-value, time-sensitive imports from Asia. Compared with East and Gulf coast routings, importers reach their destinations 10 days to two weeks faster by shipping via intermodal rail through West Coast ports. That advantage erodes, however, when vessels arrive late because of port congestion or weather events in Asia.

Rail departures from the West Coast are compromised by excessive container dwell times, weather events, or rail service issues, as evidenced by delays last winter in Vancouver and Prince Rupert. Cost is also a determining factor in cargo routing, and all-inclusive costs from East and Gulf coast ports are lower than via intermodal rail from the West Coast.

East and Gulf coast ports in recent years have gained market share at the expense of West Coast ports. In the first nine months of 2018, containerized imports through the West Coast increased 3.3 percent from the same period last year, compared with 6.3 percent for East Coast ports, and 10.6 percent growth at Gulf Coast ports, according to PIERS, a JOC.com sister company. West Coast market share in the January-September period was 48.5 percent, down from 50.7 percent in 2016, while East Coast share increased to 43.6 percent from 42.5 percent, and Gulf Coast share increased to 6.9 percent from 5.9 percent in 2016. 

US West Coast ports are highly dependent upon intermodal rail to serve destinations in the US interior, and they are challenged not only by East and Gulf coast ports, but by Vancouver and Prince Rupert as well. The Canadian ports have direct intermodal service to Chicago and locations to the south and east.

Canada’s US Midwest advantage

Cheaper intermodal rail service to the US interior is a major factor in shifting market share. A 2018 study by the Northwest Seaport Alliance found that importers in Chicago save $400 to $600 per container by shipping through Vancouver and Prince Rupert via Canadian National and Canadian Pacific railroads, compared with West Coast ports served by BNSF Railway and Union Pacific.

The Canadian ports have parlayed this cost advantage into a steady increase in regional market share in the eastbound Pacific, with Vancouver increasing its share of Pacific Northwest imports in 2017 to 48.5 percent from 45 percent in 2012. Prince Rupert increased its share to 12 percent from 8.3 percent, while Seattle-Tacoma’s share of Pacific Northwest imports declined to 39.5 percent from 43.7 percent in 2012, according to PIERS.

To mitigate the cost differential, US West Coast ports concentrate on keeping container dwell times to less than three days through the rapid transfer of containers from vessels to trains. Tacoma, for example, consistently releases its first eastbound train before the vessel has finished unloading.

Container dwell times in Vancouver and Prince Rupert last winter more than doubled to over six days, owing to snow and freezing temperatures in western Canada, rail service issues (including a shortage of equipment and crew at CN), and delays caused by port construction. Although Vancouver returned to three-day dwell times last spring when container volumes declined amid normal seasonal trends, average dwell times increased again in July to 4.3 days and 5.2 days in August, according to rail metrics published on the port’s website. Container dwell times spiked again in October and November, with the Nov. 23 report showing an average dwell time of five to seven days at the port’s three major container terminals.

Kevin Krause, vice president of ocean services at SEKO Logistics, confirmed the disruption. “In the past 45 days we’ve definitely felt the pinch at Vancouver for a few of our clients,” he said in mid-November. Delays were experienced at the port as well as at the rail terminals in Chicago.

Prince Rupert’s improvements

Prince Rupert, on the other hand, recovered last spring from dwell times of about six days or longer last autumn and early winter, and the port remained fluid for the remainder of 2018. “Since March, dwell times have been less than three days, on average 2.7 days,” said Brian Friesen, vice president of trade development and communications.

Prince Rupert’s recovery followed completion of construction projects that had impacted cargo velocity, as well as a massive investment by CN in assets and trackage as part of its overall capital expenditure program of $3.5 billion, Friesen said. Prince Rupert was able to maintain improved dwell times even though its container volumes through October were up 13 percent over 2017. The port was on track to achieve record volume of 1 million TEU in December, he said.

Although the US West Coast ports in aggregate recorded an increased volume of 3.3 percent through September, according to PIERS, previous infrastructure developments and a series of process improvements — including extended gate hours, expanded trucker appointments that helped the terminals to manage truck flow, and the addition of container peel-off piles that expedite truck moves at the terminals — mitigated the excessive dwell times of past peak seasons.

Oakland and the Southern California port complex remained relatively fluid through the peak season, Krause said. Monthly mobility times published by the Harbor Trucking Association (HTA) showed a spike in average turn times in September and October in Los Angeles-Long Beach to about 85 minutes, up from 78 to 80 minutes in July and August.

Los Angeles-Long Beach, however, did experience chassis shortages and dislocations throughout autumn as vessel bunching and peak-season import volumes created chassis surpluses at some terminals while other terminals experienced shortages. The summer-autumn period in 2018 was unlike past years in that the peak season started earlier than usual — in July — and was followed in November by a surge in spring merchandise, as importers front-loaded shipments to get ahead of the Trump administration’s 25 percent tariffs on imports from China that had been scheduled to take effect on Jan. 1, but were later suspended for 90 days.

“There’s been an incredible amount of volume,” said Weston LaBar, CEO of the HTA. “They just can’t dig out.”  

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Comments

All very interesting, doesn't address the really big issue of crane productivity which is stuck in the 1990's on the West Coast and the costs considerably higher than the East Coast. Average productivity at the cranes - meaning when the ships get loaded and unloaded - is 30% higher on the East Coast than the West Coast and the cost per headcount on the terminal is another 30% differential. Will they ever address this? Apparently it hasn't been enough of a shift to cause concern to those involved.