Lines urged to pool ships to balance supply and demand

US maritime executives and port authorities can be said to be truly thinking outside the box, as well as heeding the lessons of the Great Recession, and are coming up with new ideas as they change their outlook on the transpacific route.
Leading the way is former NYK America executive vice-president Peter Keller, who calls for container lines to pool shipA fromer NYK executive is urging lines to pool ships to bas, in the same way as they share container chassis in storage yards. He says this would balance supply and demand, in turn leading to more even swings in rates.

"Why not pool ships? Why not create an industry utility, owned by the lines, to manage vessel supply by major trade lanes?" he told the Virginia Maritime Authority.

Keller realises that there are logistical problems to be solved, but says that an example to follow is that of railway companies and the creation of TTX Co. Jointly owned by the main railway companies in the US, this supplies wagons on a common pool basis.

"Ships today are a generic commodity," said Keller, "While we may paint them different colours and have varying stack and hull art, the ships are generally the same based upon the trade lanes - very large sizes of 10,000 TEUs and over in the Asia-Europe lane; large 6,000 to 8,000-TEU ships in the transpacific; and Panamax, 5,000 TEUs and medium-range vessels in the Atlantic and so on.
"Larger trade lanes could have two or even three pools. The pools could be run as independent utilities for the trade and increase and decrease supply as demand warranted.

"As all pool members would have access to space, adjustments to meet trade needs could be more effectively managed to insure demands were met without creating serious overcapacity. We would need to reshape the regulatory framework in a positive way that fosters trade and stability in one of our nation's primary resources, international trade."

Industry insiders note that a container vessel sharing system would be vastly more complicated than rail wagons as the ships are owned and flagged in a number of countries, which would cause headaches for the different legal and financial systems, along with fluctuating exchange rates.

While this proposal is still at the discussion stage, two ports have gone ahead with business schemes that are a radical change from the past.

Virginia's virtual takeover of the AP Moller-Maersk terminal in Portsmouth has turned the "public-private" partnership principle on its head.

Ports such as Oakland have been relying on the private sector to take terminal operations off their hands and are switching to becoming landlords. Virginia has done the opposite.

The state authority will lease the terminal for 20 years, paying US$40 million a year in rent, under a tentative agreement, which has to be fully ratified. The state will split the income from the terminal if volume goes above 500,000 TEUs a year.

Since APM opened the $500 million complex in 2007, traffic has not justified the huge investment and the company has been seeking to save face and costs. Billed as the most modern in the world, the terminal has a capacity for one million TEUs a year, which can be expanded to two million, but handled only 430,000 TEUs in 2009, even though Evergreen began calling from 2008.

What really stymied APM was the port authority's ownership of all the other terminals at Hampton Roads, coupled with long-term contracts with carriers to use those terminals, which prevented APM from persuading lines to use its services.

At the same time, the state authority is negotiating for investment groups and terminal operators to lease other facilities in the state. Until the APM arrangement came up these talks were going nowhere because Virginia reckoned the bids were far too low.

Now it has a much stronger bargaining hand and can take time to think seriously about the ultimate prize of developing Craney Island, a $2 billion project that involves land reclamation and poses tricky engineering and logistics problems. The authority was being forced to develop the project in a hurry because of the rebound in container traffic, but says it will now take a much closer look.
Political pride is also taking a hand in the APM lease. The state desperately wants to knock New York/New Jersey off its perch as the biggest port complex on the East Coast, which would make the governor's re-election campaign that much easier.

New York recorded a 10 percent rise year-on-year in the first quarter to 564,000 TEUs, while exports were up 10 percent, but total throughout was still six percent below 2008 volumes for the same period.

At Portland, on the West Coast, Philippines-based International Container Terminal Services Inc (ICTSI) has signed a 25-year lease for the port's
container/breakbulk facility at Terminal 6, a combination container/breakbulk facility. Payment is $8 million as a lump sum plus an annual rent payment of $4.5 million. Rents are subject to annual increases based on the consumer price index.

 
The significance of this deal is that it has been done without a squeak from Congress, which went into hysterics four years ago when DP World tried to buy US terminals. Egged on by Hilary Clinton, the politicians claimed that national security was at stake because foreign companies were getting involved in "strategic assets", conjuring up images of terrorists causing mayhem.

ICTSI operates 18 terminals in 13 countries. Portland represents its first venture on the US West Coast and its contract prevents any other investment on the Western Seaboard without permission from Portland. The port cannot construct or operate a competing terminal for 15 years, or until yearly volumes hit 700,000 TEUs.

Portland last year handled 157,000 TEUs, while in the first quarter this year throughput was 34,415 TEUs down from 41,903 TEUs in the first three months of 2009. In April, there was a sharp improvement and container volumes are almost two percent up for the four months compared with 2009.

ICTSI has been shrewd in its timing, with business continuing to ratchet up on the West Coast. New or suspended services are being introduced each month and demand is so great that peak season surcharges are likely to be introduced early.

 
Paul Tsui, chairman of the Hong Kong Association of Freight Forwarding and Logistics, says most services to the US are overbooked, with consignments being delayed. There is some dispute over this, with logistics providers accusing carriers of refusing consignments if shippers reject sudden rate increases.

Ports are doing much better because of the increase in trade. Seattle has led the way with a 70 percent increase in containerised imports and 56 percent increase in exports in April, compared to April 2009. Total breakbulk and container volumes increased 64 percent, also the best on the coast.

Seattle is benefiting from a new service by Maersk Line and CMA CGM that began calling at the port in mid-2009. Tacoma is still down, with containerised imports in April 13 percent lower, exports down 38 per cent and total volume down 26 per cent. However, two services start this year.

Imports through Oakland increased 14 percent in April and total container volume was up 10 percent. Oakland's imports to the end of April increased 13 percent while exports were up five percent. Los Angeles' total container volume is up nine percent while Long Beach has registered a huge 17 percent rise.

Los Angeles has approved two terminal projects, but these could be delayed - leading to the possibility of carriers going elsewhere - because of uncertainty about a largely unused shipyard, whose owners say can be revived. Disused berths at the yard are needed as silt deposit sites during the terminal construction.
Though the situation looks rosy at most ports, there is continued concern about productivity. Seattle wants to match Pusan, South Korea, in automation, which Hanjin is about to do at its Jacksonville terminal.

But, as with all West Coast ports, Seattle has to face dragging reality in the form of the trade unions. "In the long term, we are going to have to have some very difficult conversations with longshore labour in terms of maintaining our competitiveness and maintaining jobs for all in Seattle at our cargo port," said one Seattle commissioner.

Trade union contracts for the Pacific Northwest ports are due for renewal in 2014 - at the same time as the Panama Canal project finishes and Prince Rupert is ready for more business.

In southern California, there is equal anxiety, so much so that a trade union leader pointed to the competition from Mexico and Canada - although this fact has been known to the industry for the last two years.
(Source:www.cargonewsasia.com)