ASIAN IMPORT STRATEGY: Alternatives to West Coast Ports
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ASIAN IMPORT STRATEGY: Alternatives to West Coast Ports ©2016 Purolator International, Inc. Asian Import Strategy: Alternatives to West Coast Ports Introduction When the CMA CGM Benjamin Franklin paid visits capacity that had previously only been seen on in early 2016 to several U.S. West Coast ports, ships traveling between Europe and Asia. it was heralded as the "largest cargo ship ever But while some saw the Benjamin Franklin’s to visit the U.S.,” with Port of Oakland Maritime arrival as heralding a new era, others saw it as Director John Driscoll calling the visit a “milestone” exacerbating existing congestion and infrastructure for the ports as well as for U.S. trade, and he issues at U.S. West Coast ports. As The Wall predicted: “We’ll see more of these big ships Street Journal explained: “The supersize ships are before long.” overwhelming many U.S. ports that weren’t built to Calling the Benjamin Franklin a “big ship” is an accommodate such largesse.” understatement for sure. Owned by French Labor unrest in 2014-15 at U.S. West Coast ports brought activity Among other things, the extra-large loads require to a virtual standstill. shipping company CMA CGM Group, the larger cranes to lift the top containers. And dock megaship is “longer than the Empire State yards accustomed to handling the arrival of Building and wider than an American football 10,000 containers from a single ship now see field.” And the ship can carry up to 18,000 almost twice as many arriving, with no additional Twenty-Foot Equivalent (TFE) containers, a room for storage. This has resulted in containers being stacked higher and higher, and for a trucker waiting to take possession of a specific container – often at the bottom of the stack – the impact can mean hours spent waiting. For many, the situation reached a breaking point when a 2014-15 labor dispute essentially paralyzed activity at 29 West Coast ports. The impact of that work stoppage was felt by a diverse sector of industries. From fruit and vegetable The CMA CGM Benjamin Franklin is the largest cargo ship ever suppliers who saw their perishable shipments to visit the United States. destroyed, to clothing and toy retailers who Introduction ©2016 Purolator International, Inc. 2 Asian Import Strategy: Alternatives to West Coast Ports missed key holiday deadlines, to industrial parts traffic between East Asia and the United States of every scenario, and it will be able to serve as manufacturers who had production schedules could shift from West Coast ports to East Coast a partner/consultant in formulating a highly disrupted, the impact was far reaching and ports by 2020. efficient solution. severe. As a result, many businesses have taken a Clearly, though, any change in port strategy As the following discussion will make clear, it’s “never again” attitude. Rather than risk a possible must be carefully planned and strategically an interesting time for ocean-bound shipments. supply chain delay or disruption, businesses are analyzed. Among the questions to consider Shippers that have used U.S. West Coast ports looking beyond West Coast ports and are finding are the following: almost as an automatic, default option now realize viable alternatives. that other options are available. But with so much • How will a switch in port strategy affect Canada’s Port Prince Rupert, for example, offers at stake, any change in strategy must be weighed transit time? the shortest trade route to Asia and express carefully with the steady hand of an experienced rail service to the U.S. Midwest. As reported • What about cost implications? logistics partner to lead the way. in Business Vancouver, Prince Rupert is North America’s fastest-growing port, and it also • What happens to the cargo once it arrives ranks in the top 10 in terms of North American on the dock? port productivity. • Will it sit in a container gridlock until it can Other shippers have been persuaded to route their be moved and unloaded? cargo through East Coast ports. Analysis by the • What about customs compliance? Baltic and International Maritime Council (BIMCO) How can excessive delays be avoided? found a 12.6 percent increase in the number of loaded containers processed during 2015 by East • What about convenient access to a highway Coast ports. BIMCO cites ongoing West Coast or rail network? congestion and labor issues – as well as the The key is to enlist a highly capable and expansion of the Panama Canal – as reasons the experienced logistics provider that can guide a move away from the West Coast may have staying business as it develops the ideal shipping strategy power. Indeed the Boston Consulting Group for its unique needs. A truly capable provider will (BCG) found as much as 10 percent of container have insight into the strengths and weaknesses Introduction ©2016 Purolator International, Inc. 3 Asian Import Strategy: Alternatives to West Coast Ports Industry Adapts to “New Normal” of Megaships The arrival of the Benjamin Franklin at several West Coast 1999: Post-panamax containerships come into service ports during 2016 cleared the way for what is certain to be with capacities of 6,600 TEUs, which soon grew to 8,000 a transformative period in U.S. shipping. With its 20,000 TEU TEUs. Once the panamax threshold was exceeded, ship size capacity, she is the largest ship to ever grace a U.S. port. quickly increased in order to accommodate growing demand And most North American ports will need to make significant for service. The larger ships though posed challenges for infrastructure adjustments to accommodate and service many port operators, since they required deep-water ports ships of this magnitude. and investments in high-capacity cranes. Today, roughly 30 percent of the global fleet is considered post-panamax. How exactly did we get here, where ships as long as the Empire State Building is tall will soon be outdone by a 2009: The Panama Canal Authority published dimensions planned series of ships capable of carrying 30,000 TEUs? for “New Panamax,” the new class of ships that will be Following is a brief timeline of some of the milestones in able to navigate the expanded Panama Canal, which at the containership development: time was scheduled to open in 2014. (Actual opening date is scheduled for mid-2016.) New Panamax ships have a 1966: First international containership voyage, as Sea-Land’s capacity of up to 13,000 TEUs, and can service the Americas Fairland sails from the U.S. to the Netherlands with 236 and the Caribbean, either from Europe or Asia. containers on board. 2011: Maersk announces an order for 20 ships, each with 1968: Containership capacity increases to roughly a capacity in excess of 18,000 TEUs which will be known as 1,000 TEUs. its “Triple-E” class to mark the company’s commitment to energy, efficiency, and the environment. The ships are used 1985: The size capacity of the Panama Canal, the “panamax Source: Allianz Global Corporate & Specialty standard,” becomes the new standard for ships, with a on routes between Asia and Europe, and, are considered capacity of approximately 4,000 TEUs. both “Malaccamax” and “Suezmax,” meaning they are able to pass through both the Suez Canal and the Strait of Malacca. It wasn’t long though before shipbuilding evolved to a At the time the Triple-E ships were delivered, they were the “panamax max” standard, which increased capacity to largest ships in the world. 4,500 TEUs by maximizing the Canal’s limitation in beam dimensions. Industry Adapts to “New Normal” of Megaships ©2016 Purolator International, Inc. 4 Asian Import Strategy: Alternatives to West Coast Ports 2015: The CSCL Globe makes its maiden voyage from began to reinvest, orders were overwhelmingly placed for Shanghai to Europe. Capable of carrying 19,100 TEUs, it is the megaships as carriers sought greater economies of scale. world’s largest containership by volume. “But,” the Los Angeles Times reported, “that strategy has 2016: Following the CMA CGM Benjamin Franklin’s successful backfired as the growing supply of vessels outstripped test voyage to several U.S. West Coast ports, its owner, French demand. A November report from Moody’s Investors Service shipping company CMA CGM SA, announces it will dedicate estimated that global containership capacity through the end six 18,000 TEU capacity ships for regular service between Asia of 2015 would increase 8 percent to 10 percent but demand and the United States. would only grow 3 percent to 4 percent.” 2016: Larger ship designs are on the drawing board that will As a result, shipping companies are under enormous pressure carry between 27,000 and 30,000 TEUs. These ships are to cut costs, which in part led to CMA CGM’s decision to expected to be built within the next decade. expand its Megaship operations to U.S. routes. This dramatic increase in ship capacity has forced fundamental changes in the business of international shipping, port operations, and the logistics involved in processing large volumes of cargo arriving simultaneously. Megaships and the Business of International Shipping The rise of the Megaship was driven both by capacity needs generated by increased global trade and a post-global recession demand for greater efficiency. According to Fortune The Hong Kong-registered CSCL Globe, with 19,000 TEU capacity, magazine, “after rates for containershipping hit record highs in is the world’s largest containership. Source: BBC News, the 1990s and early 2000s, prices collapsed along with global January 2015 trade in 2008 and 2009. Orders to shipbuilders around the world were cancelled in droves.” When shipping companies Industry Adapts to “New Normal” of Megaships ©2016 Purolator International, Inc.