Terminals seek vertical mass

Terminals seek vertical mass

Global container volumes are soaring. The ships that carry those containers are getting bigger. It is no wonder, then, that marine terminal operators are also growing larger.

Size matters in the container-handling business. Terminal operators need sufficient capital to purchase costly container-handling equipment and to lease expensive waterfront property. To generate enough revenue to raise this capital, terminal operators must handle ever-increasing volumes of containers. Raising their rates is often not an option.

In Europe and Asia, terminal operators have already reached critical mass. According to a report by Drewry Shipping Consultants, the four largest international terminal operators handle 34 percent of the global container trade. They are Hutchison Port Holdings of Hong Kong, PSA Corp. of Singapore, APM Terminals of Copenhagen and P&O Ports of London. They handle in aggregate more than 90 million TEUs per year in their global operations.

Those terminal operators, along with others, including SSA Marine, based in Seattle, and CSX World Terminals of Charlotte, N.C., are also expanding aggressively in the developing nations of Latin America, Asia and the Middle East. Government-owned port enterprises in those regions are turning to international terminal operators for the capital and expertise they need to quickly modernize their operations.

In the U.S., the model for growth is different. Three of the four largest global operators have no presence on the West Coast. APM Terminals, a sister company of Maersk Sealand, operates terminals on both coasts, while P&O Ports recently established a presence in New York-New Jersey and in the U.S. Gulf.

On the West Coast, carrier-owned stevedoring companies operate many of the container terminals, with two independent operators, SSA Marine and Marine Terminals Corp. of Oakland, accounting for most of the remainder. With most of the waterfront property at West Coast ports already claimed, terminal operators grow primarily through the increasing cargo volumes brought to the ports by their major tenants. The terminal operators also compete for third-party business from smaller lines that lack the volume to operate their own facilities.

East Coast ports have a mix of terminal operators, including carrier-owned stevedoring companies, the large independent operator Maher Terminals in New York-New Jersey and state-owned operators in the major Southeast gateways such as Savannah, Charleston and Norfolk.

The current challenge facing terminal operators in the east-west trade lanes is accommodating the newest generation of 8,000-TEU container ships. Vessels of that size are already in use in the Asia-Europe trades, and three strings of mega-ships will enter the U.S. West Coast trade in the summer and fall of 2004. Global shipping lines have on order about 100 vessels of 8,000-TEU capacity scheduled for delivery over the next three years.

Terminal size is critical in accommodating the mega-ships. West Coast terminal operators estimate they must devote 125 to 140 acres to handle a single 8,000-TEU ship. Leasing waterfront land is costly. In Los Angeles-Long Beach, leases go for $125,000 to $150,000 per acre.

Ports are ordering super post-Panamax cranes that can unload vessels carrying containers 22 rows wide. To unload and reload an 8,000-TEU vessel in three to four days, a terminal must work the ship with five cranes. The terminals will work the ships on at least two eight-hour shifts each day, or even around the clock.

As 8,000-TEU class vessels become common in the trans-Pacific, terminal operators will be challenged to secure enough experienced crane operators. In Los Angeles-Long Beach, for example, 13 terminals vie for skilled equipment operators. During the peak shipping season, the Pacific Maritime Association is sometimes forced to limit each terminal to three or four work crews.

Although it will be at least a few years before the 8,000-TEU vessels call at East Coast ports, vessel sizes continue to increase there also. Ships of 4,000-TEU capacity are becoming common on the all-water services from Asia. As a result, East Coast ports are scrambling to improve container yard and gate productivity so trucks do not back up at their facilities.

Longshore contracts on the West and East coasts will be the key to increasing productivity at marine terminals. The six-year International Longshore and Warehouse Union contract that was signed in February 2003 gives West Coast employers more flexibility to introduce information technology and to eliminate redundant work practices. Technology will be the key issue in International Longshoremen's Association negotiations for a new East Coast contract to take effect in September 2004.

Several West Coast terminals have installed optical character readers at their gates, with most terminals expected to have OCRs by the summer-fall peak shipping season. Optical character recognition technology uses cameras to read container and chassis numbers and feed that information into the terminal's database. If the information matches with the database, as it does in the vast majority of the cases, the trucks can enter the terminal without delay.

The new frontier for terminal operators in improving productivity is in the container yard. Terminals are installing global positioning satellite systems to track container movements within the yards and to relay positioning instructions to equipment operators, also without human intervention. Terminals on the West Coast intend to install wireless technology, such as radio-frequency identification, on trucks so their movement can also be tracked within the container yard.

Shipping lines in recent years have resisted attempts by terminal operators to raise their rates, so the terminals must increase their productivity and reduce their costs. U.S. terminal operators estimate that the port charges and rental fees they pay account for about 30 percent of their costs. Since many ports are running out of land, terminal operators have little leverage available to get port authorities to lower their charges.

Overhead and direct staffing account for about 25 percent of the terminals' costs. The terminals have reduced their overhead and direct employee numbers in recent years. However, terminals are now running lean operations and can not cut much more in that area.

About 45 percent of the terminals' costs involve longshore labor. Although wages continue to increase, terminals can reduce costs by increasing the amount of cargo handled per man-hour. That is what they intend to accomplish through the implementation of information technology.

For example, by replacing today's random movement of container handling equipment in the yard through the use of routing software, terminal operators believe they can reduce their equipment operating costs by 20 to 30 percent.