FINAL REPORT

Port Performance and Terminal Operator Numbers

Prepared for: Global Container Terminals Inc. (GCT)

Prepared by: CPCS

CPCS Ref: 17539 January 30, 2018

DRAFT FINAL REPORT| Port Performance and Terminal Operator Numbers Client Ref: 17539

Background

Global Container Terminals Inc. (GCT) is the Port of Vancouver (Canada)’s main container terminal operator. The Port of Vancouver is Canada’s largest container port by volume, handling 2.9 million twenty foot equivalent units (TEU) in 2016, equal to 11 percent of North American (Canada and US) West Coast container port throughput.

The Port of Vancouver, along with the other North American and more recently Mexican ports, competes strenuously for the trans-Pacific container trade. It is within the context of the growing demand for container handling on the West Coast, the Vancouver Fraser Port Authority’s (VFPA) plans for expansion of container handling capacity ( www.robertsbankterminal2.com), as well as the evolving developments in the global container shipping industry, that GCT has commissioned this report.

Objectives

The purpose of this assignment is to examine container port performance considering the number of terminal operators serving a port. The report reviews the performance of a number of ports being served by two or fewer container terminal operators versus ports served by three or more container terminal operators. The key question to consider, in the context of the evolving trends in liner shipping, is whether fragmenting container terminal operations among several terminal operators at a port is positive for port performance, and as a corollary whether having two or fewer terminal operators is necessarily negative for port performance.

Limitations

The findings in this report are based CPCS’ knowledge and on the analysis of third party data. While CPCS makes efforts to validate data, CPCS cannot warrant the accuracy of third party data.

This study is the product of desk research based on information provided by GCT and other sources. There were no consultations undertaken with port authorities or other terminal operators.

Acknowledgments / Confidentiality

CPCS thanks GCT for the opportunity to undertake this assignment. While some information has been provided by GCT, the views expressed in this report are those of CPCS (unless otherwise noted) and do not necessarily reflect those of GCT.

This report may include information deemed by some to be commercially sensitive and should be treated as confidential, unless otherwise approved for release by GCT.

DRAFT FINAL REPORT| Port Performance and Terminal Operator Numbers Client Ref: 17539

Table of Contents

Acronyms / Abbreviations ...... i Executive Summary ...... 1 1 Liner Shipping Industry Key Trends and Implications for Terminal Operations ...... 4 West Coast Container Port Demand ...... 4 Liner Shipping Industry Concentration ...... 6 Increasing Vessel Size ...... 8 2 Port Case Studies ...... 10 Los Angeles/Long Beach ...... 10 Seattle/Tacoma ...... 14 Oakland ...... 17 Prince Rupert ...... 20 Halifax ...... 23 Manzanillo ...... 27 3 Conclusion ...... 31

DRAFT FINAL REPORT| Port Performance and Terminal Operator Numbers Client Ref: 17539

Acronyms / Abbreviations

AAPA AMERICAN ASSOCIATION OF PORT AUTHORITIES APL NEPTUNE ORIENT LINES – AMERICAN PRESIDENT LINES CMA CGM CMA CGM SHIPPING COMPANY CMSA CONTECON MANZANILLO SA DE C.V. COSCO CHINA OCEAN SHIPPING (GROUP) COMPANY CUT CALIFORNIA UNITED TERMINALS GCT GLOBAL CONTAINER TERMINALS INC GDP GROSS DOMESTIC PRODUCT HMM HYUNDAI MERCHANT MARINE HPA HAMILTON PORT AUTHORITY ICTSI INTERNATIONAL CONTAINER TERMINAL SERVICES INC. K LINE KAWASAKI KISEN KAISHA LIMITED LA LOS ANGELES LB LONG BEACH MSC MEDITERRANEAN SHIPPING COMPANY MOL MITSUI OSAKA SHOSEN KAISHA LINES NAFTA NORTH AMERICAN FREE TRADE AGREEMENT NWSA NORTHWEST SEAPORT ALLIANCE NYK NIPPON YUSEN KAISHA NY/NJ NEW YORK/NEW JERSEY OICT OAKLAND INTERNATIONAL CONTAINER TERMINAL ONE OCEAN NETWORK EXPRESS OOCL ORIENT OVERSEAS CONTAINER LINE SSA STEVEDORING SERVICES OF AMERICA TERMINALS, INC. TECI TERMINAL ESPECIALIZADA DE CONTENEDORES I TEC II TERMINAL ESPECIALIZADA DE CONTENEDORES II TEU TWENTY FOOT EQUIVALENT UNIT(S) TIMSA TERMINAL INTERNACIONAL DE MANZANILLO SA DE C.V. UASC UNITED ARAB SHIPPING COMPANY US UNITED STATES VFPA VANCOUVER FRASER PORT AUTHORITY

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Executive Summary The purpose of this report is to assess whether fragmenting container terminal operations at ports among a number of different terminal operators is positive for port performance, and as a corollary whether having concentration of terminal operators is necessarily negative for port performance.

First, we review the relevant trends occurring in global container shipping and their implications for port and terminal operations. The report next presents case studies of six ports: three ports with three or more container terminal operators and three ports with two or fewer container terminal operators. Lastly, we draw the conclusions.

Global Container Shipping Key Trends and Implications for Terminal Operations Three trends in global container shipping are especially pertinent to the study. These are:

 The slowdown in the growth of demand for container shipping. Worldwide, growth in container port throughput slowed markedly following the 2008-2009 recession. In Canada, West Coast container throughput has since 2010 slowed to an annual rate of 4.2 percent, versus 10.2 percent Figure ES-1: Percent of World Deployed Container Fleet during 2000-2008. The slowing of Capacity by Alliance growth reflects the maturing of containerized shipping and means increased competitive 18% pressures on shipping lines, ports 34% and terminal operators and the 2M Alliance need for new strategies. Ocean Alliance The Alliance  Increased concentration in the 20% liner shipping industry. Driven by Rest of World global competition and pressures on profitability, there has been increased concentration in the 28% global liner shipping industry, in particular through strategic Source: Figure 1-2 alliances which have been expanding. Today, three liner shipping alliances control over 80 percent of the world’s deployed fleet capacity (Figure ES-1).

 The rapid growth in the size of container ships being deployed. This includes deployment on the pertinent Far East-North America route, including vessels calling at the Canadian West Coast. The desire of ocean carriers to benefit from economies of scale in ship size and reduce the per unit slot costs, and by extension the cost of goods transported, has long been apparent. This use of bigger ships, facilitated by the expanded

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liner shipping alliances, is having the effect of imposing significantly higher operating and capital costs on terminal operators. In addition, the use of bigger ships and the larger alliances mean increased risks for ports and terminal operators as shipping lines necessarily become more selective in port choices.

Case Studies The cases studies cover three multiple container terminal operator ports — Los Angeles/Long Beach (LA/LB), Seattle/Tacoma and Oakland — and three ports with fewer container terminal operators — Prince Rupert, Halifax and Manzanillo. The review indicates that:

 All the ports are facing challenges caused by the dynamic changes in the container shipping industry.

 All the ports are capable of handling, and/or are making major capital investments in order to handle, the larger container ships being deployed.

 All of the multiple container terminal operator ports have been undergoing and/or are facing major terminal consolidation.

 Among the ports having only one or two terminal operators, there is wide disparity in performance, e.g. Prince Rupert is highly successful, while Halifax has long struggled.

Conclusion There is no simple relationship between the number of terminal operators at a port and port performance. Halifax and Prince Rupert illustrate this well. Halifax, with its two terminal operators has long struggled, and the possibility of consolidating and reverting to a single operator is one solution under discussion. Prince Rupert, in contrast, with its single terminal operator and railway access has rapidly developed into an attractive alternative to other West Coast ports despite its remoteness and limited local market.

A key consideration is that the container industry is subject to both intra-port and inter-port competition. In general, decisions by port authorities to have multiple terminal operators are based on the idea that intra-port competition is beneficial. However, the increasing liner shipping industry concentration and vessel size, which mean traffic arrives less frequently but in greater mass, suggest otherwise and have made intra-port competition less relevant. Significantly, each of the multiple container terminal operator ports reviewed here has been undergoing and/or is facing major terminal consolidation to more effectively serve the evolving liner shipping industry.

Finally, the trends in container shipping are strengthening inter-port competition on the West Coast. With the Panama Canal expansion, this will further intensify. Also contributing will be growing competition from Mexican West Coast ports. Canadian and US West Coast ports can expect to be further challenged as the battleground for inland cargo continues to be reshaped. For Western Canada this is most significant as US and Canadian inland markets account for nearly three-quarters of the laden container imports from Asia. For Western

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Canada, the US Central and Gulf regions alone account for 38 percent of laden container imports from Asia (Figure ES-2).

Figure ES-2: Asian Laden Import TEUs Destined to US Central and Gulf Regions, 2016

Source: Figure 3-2

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1Liner Shipping Industry Key Trends and Implications for Terminal Operations

Key Chapter Takeaways  Worldwide, growth in container port throughput slowed markedly following the 2008-2009 recession. In Canada, West Coast container port throughput has decelerated to an annual rate of 4.2 percent.  West Coast Canada ports have increased their share of North American West Coast container traffic, from eight percent in 2000 to 14 percent today. This has been at the expense of the Oakland and Seattle/Tacoma.  Today, three global liner shipping alliances control over 80 percent of world deployed container fleet capacity.  Increased liner shipping industry concentration is facilitating and reinforcing the trend towards use of larger ships, creating increased risks for individual ports and terminal operators as shipping lines become more selective in port choices  North American West Coast ports, including Vancouver, increasingly require the ability to effectively service larger ships and the associated volume surges.

West Coast Container Port Demand Figure 1-1 shows the trend in annual container throughput on the North American1 West Coast since 2000, in millions of twenty foot equivalent units (TEUs),2 according to American Association of Port Authorities (AAPA) data.3 The main ports include the West Coast Canada ports of Vancouver and Prince Rupert, the Northwest Seaport Alliance (NWSA) ports of Seattle

1 North America in this report refers collectively to Canada and the United States. 2 Twenty foot equivalent unit (TEU) refers to the dimensions of a standard 20 foot long marine shipping container and is the most common way of indicating the number of containers carried by a container ship or handled at a container port. 3 Throughput data is from the American Association of Port Authorities (AAPA).

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and Tacoma (NWSA formed in 2015), the port of Oakland, and the ports of Los Angeles (LA) and Long Beach (LB).

Figure 1-1: West Coast Container Port Traffic Since 2000

30

25

20 Other 15 West Coast Canada

Millions Millions TEU SeaTac, Oakland 10 LA/LB 5

0

2002 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2000

Source: CPCS analysis of AAPA data Total containers handled at West Coast ports increased by 1.6 times over the period, from 15.7 million Both global and overall North American West TEU in 2000 to 25.5 million TEU in Coast container port throughput has slowed 2016, corresponding to an average markedly since 2010, reflecting the maturing annual growth rate of 3.1 percent.4 container shipping market. Canadian West However, since 2010, the year Coast container port throughput has similarly following the deep 2008-2009 slowed since 2010, although the Canadian recession, the growth in total containers handled at West Coast West Coast growth rates have remained much ports has slowed markedly, higher than the US West Coast growth rates. averaging 1.6 percent per year. This slowdown mirrors the slowing trend in global container port traffic, reflecting the maturing of the container shipping market.5 Also notable is that, since 2010, the growth in containers handled on the West Coast has been less than the growth in North American real GDP, a further reflection of the maturing container shipping market. Both US and Canadian real GDP have averaged growth of 2.1 percent per year over 2010-2016.6

4 All annual growth rates in this report are compound annual growth rates (CAGR). 5 Drewry Maritime Research (November 2016). Ports & Terminals Insight. 6 US and Canadian real GDP growth rates computed from IMF World Economic Outlook Database, October 2017.

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Canadian West Coast container port throughput has also decelerated Over the period 2000-2016, growth in markedly since 2010, although the Canadian West Coast container port growth rates have been much higher throughput averaged 7.1 percent per than on the US West Coast. Over the full period 2000-2016, the growth in year. Since 2010, Canadian West Coast Canadian West Coast container port container port throughput has throughput averaged 7.1 percent per decelerated to an annual rate of 4.2 year (bolstered in part by the start-up percent. of Prince Rupert in 2007). Since 2010, however, this has slowed to an annual rate of 4.2 percent.

As can be seen, Los Angeles and Long Beach in southern California are the dominant ports, handling a combined 15.6 million TEU in 2016, or 61 percent of the total West Coast container traffic. Together, the two Canadian West Coast ports, Vancouver and Prince Rupert, handled 3.7 million TEU in 2016, or 14 percent of the total West Coast traffic. Canada’s ports have also significantly increased their share of the North American West Coast container traffic over the period, from Canada’s West Coast ports have eight percent in 2000 to the current 14 significantly increased their share of percent. This gain has occurred at the North American West Coast container expense of the northern California and traffic, from eight percent in 2000 to the Washington state ports of Oakland and Seattle/Tacoma, whose combined current 14 percent. This gain has share has declined from 30 percent in occurred at the expense of ports at 2000 to 23 percent in 2016. Oakland (CA) and Seattle/Tacoma (WA) (Vancouver’s share, it may be noted, did not decrease with the establishment of Prince Rupert.)

Liner Shipping Industry Concentration Collaboration among carriers in the liner trades has long been characteristic of the industry. Since the mid-1990s, the focus has been on forming strategic alliances, along with mergers and acquisitions. The result has been an evolution in the industry structure, and rapid growth in the concentration Today, container shipping is of fleet capacity, especially since 2010. consolidated in three strategic alliances In April 2017, the industry experienced that together account for more than 80 the latest round of consolidation by percent of world's deployed container contracting from four major alliances to three, with the three accounting for fleet capacity. more than 80 percent of deployed world fleet capacity. The three current

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alliances are the “2M” Alliance, “Ocean Alliance” and “The Alliance” (Figure 1-2).

Figure 1-2: Liner Shipping Alliances, 2017 Percent of Number Total Capacity Average World TEU Company of Ships (TEUs) Vessel Size Capacity Maersk 616 3,007,392 4,882 15.1 Mediterranean Shipping Company (MSC) 465 2,661,135 5,723 13.4 CMA CGM 435 1,829,951 4,207 9.2 China Ocean Shipping (Group) Company (COSCO) 268 1,554,434 5,800 7.8 Hapag-Lloyd 174 956.194 5,495 4.8 Evergreen 189 937,957 4,963 4.7 Hamburg Süd (1) 132 651,549 4,936 3.3 Hanjin Shipping (2) 101 617,665 6,115 3.1 Orient Overseas Container Line (OOCL) 111 589,476 5,311 3.0 Neptune orient Lines – American President Lines 89 564,028 6,337 2.8 (APL) Mitsui Osaka Shosen Kaisha Lines (MOL) 93 531,376 5,714 2.7 Yang Ming Marine Transport 97 520,580 5,367 2.6 United Arab Shipping Company (UASC) 54 510,296 9,450 2.6 Nippon Yusen Kaisha (NYK) 100 500,165 5,002 2.5 Hyundai Merchant Marine (HMM) (1) 57 401,152 7,038 2.0 Kawasaki Kisen Kaisha Limited (K Line) 68 380,851 5,601 1.9 Alliances Total 3.049 16,214,201 81.5 World Total 5,224 19,854,735 3,801 100.0 Legend: 2M Alliance Ocean Alliance The Alliance (1) Not formally 2M Alliance members but have slot purchase agreements with 2M members. (2) Declared bankrupt in February 2017 by South Korean courts and ordered to be liquidated. Data are as of the end of July 2016 Source: For alliance membership, Xeneta at https://www.xeneta.com/blog/infographic-shipping-alliances-overview. For data, UNCTAD, Review of Maritime Transport 2016, Table 2.4

The liner industry’s consolidation benefits the carriers by enabling them to reduce costs and raise competitiveness by sharing vessels, and rationalizing capacity and routes. At the same time, the consolidation means increased business risks for ports and terminal operators, as well as other supply chain members including railways and trucking companies, as shipping lines Increased liner shipping industry become more selective in port concentration, especially since 2010, is choices. First, it is possible for facilitating and reinforcing the trend ocean carriers to terminate service towards calls by larger ships and at ports that no longer suit their networks. The industry presenting increased business risks for consolidation also facilitates the use ports and terminal operators. of larger vessels by carriers combining resources, reinforcing the trend towards calls by larger

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ships (see below). As bigger ships are unlikely to call at as many ports, this means fewer calls and a reduced terminal customer base. Fewer but larger vessels also discharge more containers per call, causing operational challenges for ports and terminals. It is uncertain how this will play out at any particular port. To minimize the risks and to benefit from these trends, ports and terminals must make the most effective investments for remaining competitive which include those driving automation and higher productivity, and entailing significant capital expenditures.

Increasing Vessel Size A further trend impacting ports and terminal operators is the evolution in the size of containerships — an ongoing process towards adoption of ever larger vessels. The desire of ocean carriers to benefit from economies of scale in ship size and reduce the cost of goods transported has long been apparent. A major step came in 2016 with the enlarged Panama canal and its ability The evolution in the size of to accommodate Neopanamax vessels containerships has been an ongoing with capacities of close to 13,000 process towards adoption of ever larger TEUs, compared to the previous vessels. Panamax limit of around 5,0000 TEU. However, ships surpassing the Panamax limit have been available since the 1990s, the Neopanamax class size was reached in the 2000s, and vessels of 18,000+ TEU were introduced in 2013.7

Figure 1-3 shows the evolution in the capacity of containerships on the pertinent Far East-North America Most of the capacity deployed on the route. Since 2010, the increase in the Far East-North America route resides in size of these vessels — in particular vessels with capacity of 5,100-13,300 vessels in the 7,500-13,300 TEU range —has been rapid. Most of the current TEU capacity deployed on this route resides in vessels with capacity of 5,100- 13,300 TEU. Following the consolidation into the new liner shipping alliances in 2017, larger ships are doing transpacific trade, including more new 13,000+ TEU ships calling at Fairview in Prince Rupert and at Deltaport in Vancouver.

7 Rodrigue, Jean-Paul. The Geography of Transport Systems. https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/largestcontainerships.html.

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Figure 1-3: Far East- North America Container Ship Capacity Deployment by Size Range

Source: Alphaliner, Monthly Monitor June 2017 Large vessels, as previously outlined, impose both higher capital and operating costs on ports and terminals. The move towards larger ships is resulting in fewer vessels operating in key trade lanes but imposing higher volumes of containers per call. Increased vessel size not only requires increased terminal productivity, but also means higher costs for terminals and inland operations as large North American West Coast ports — numbers of containers arrive at once including Vancouver — are among those and must be effectively handled through affected by the cascading down of larger the off-terminal supply chain. ships, and increasingly require the ability Since fewer ports are able to handle the to more effectively handle the associated larger ships, most of these vessels have volume “surges.” been intended for services between Europe and Asia. However, this has resulted in a number of 8,000-12,000 TEU ships, previously on European and Asia trades, being cascaded down into North American and Latin American trades. This cascade is ongoing with secondary and tertiary trade lanes increasingly having to absorb large vessels, imposing capital expenditure requirements on ports and terminal operators. North American West Coast ports — including Vancouver — are among those affected by the cascading down of larger ships.8

8 Mongelluzzo, Bill (July 30, 2106). Pacific Northwest ports prep for alliance-operated mega-ships. http://www.joc.com/port-news/us-ports/pacific-northwest-ports-scramble-prep-alliance-operated-mega- ships_20160730.html.

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2 Port Case Studies

Key Chapter Takeaway  This chapter has carried out six case studies on port performance, three covering multiple terminal ports (LA/LB, Seattle/Tacoma, Oakland) and three covering ports with one or two terminal operators (Prince Rupert, Halifax and Manzanillo). In the context of the dynamic container shipping industry, all of the ports have their challenges.  All ports are capable of and/or are gearing to handle the challenges of increasing container shipping vessel sizes.  All of the multiple-terminal ports have been undergoing and/or are facing major terminal consolidation.  Within the group of ports with one or two terminal operators, there is a wide disparity in performance and prospects.

Los Angeles/Long Beach

Summary LA and LB are the two busiest container ports in North America. Each has seven major container terminals, each having a different operator. Growth in TEUs handled has slowed significantly since 2010, although most recently there has been an upturn. A key gateway for Asian imports, LA and LB are both facing increased competition for handling Asian cargo bound for the US mid-continent. Consolidation within the shipping industry and the use of larger ships has LA/LB investing heavily in infrastructure to handle larger vessels and also facing terminal consolidation.

2.1.1 North America’s Busiest Ports The Port of Los Angeles is the busiest container port in North America in terms of TEUs and, along with the neighbouring and second ranking Port of Long Beach, forms the biggest North American marine gateway for containers. Collectively, LA/LB make up the tenth-busiest container port in the world measured in TEUs.

Together, LA/LB handled 15.6 million TEUs in 2016.9 Trade with Asia accounts for over 90 percent of the international trade moving through LA/LB.10 Asian imports totalled 7.4 million

9 Based on AAPA data.

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TEUs in 2016,11 or close to half of the TEUs handled by LA/LB in 2016. As shown in Figure 2-1, of the Asian imports handled at LA/LB, 31 percent are destined for the US Central and Gulf regions.

Figure 2-1: LA/LB Ports Asian Laden Imports by 2.1.2 Slower Growth Since the Recession Destination, Thousands of TEUs, 2016 Figure 2-2 shows the history of TEUs handled at 7,444 the major North American West Coast ports. Growth in the combined LA/LB throughput has 5,121 averaged 3.2 percent per year over 2000-2016, but has slowed to an average of 1.7 percent since 2010. Worth noting is the symbiotic fluctuation between LA and LB, which directly compete for the same traffic given their proximity to one 1,087 1,221 another. 0 0 15

Notably, there has been an upturn in the most recent statistics. In November 2017, LA handled a one-month record of 924,000 TEUs, breaking the

previous record set in November 2016. LA will also break last year’s annual record of 8.8 million Source: Estimates provided by GCT TEUs, surpassing this by 6.3 percent 11 months into 2017.12 Meanwhile, LB handled 14.7 percent more TEUs in November 2017 as compared to the previous November, and will handle over seven million TEUs in 2017.13

Figure 2-2 also demonstrates the West Coast competitive inter-port dynamics with the growth in throughput at LA/LB, Vancouver and Prince Rupert, especially in the post-recession period since 2010, coming at the expense of Seattle/Tacoma and Oakland.

10 Port of Los Angeles. Facts and Figures. https://www.portoflosangeles.org/about/facts.asp; Port of Long Beach. Facts at a Glance. http://www.polb.com/about/facts.asp 11 GCT estimate. 12 American Journal of Transportation (December 13, 2017). Port of Los Angeles sets new record for highest monthly container volumes. https://www.ajot.com/news/port-of-los-angeles-sets-new-record-for-highest- monthly-container-volumes 13 American Journal of Transportation (December 13, 2017). Port of Long Beach surges past 2016 cargo volume. https://www.ajot.com/news/port-of-long-beach-surges-past-2016-cargo-volume

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Figure 2-2: Container Throughput at Major North American West Coast Ports

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3 Millions Millions TEUs 2

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0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Los Angeles Long Beach Seattle/Tacoma Port of Vancouver Oakland Prince Rupert

Source: CPCS analysis of AAPA data

2.1.3 Container Handling Facilities As shown in Figure 2-3, LA is home to seven major container terminals, each with a different operator, and collectively home to 59 berths and 32,530 feet in available berthage. LB is also home to seven container terminals, each with a different operator, and collectively home to 49 berths and over 25,000 feet in available berthage.

Figure 2-3: LA/LB Container Terminals Terminal Operator Size Berths Largest Berth Depth Port of Los Angeles Berths 100-102 West Basin Container Terminal 132 acres 2 53 ft (China Shipping Holding Company (53.4 ha) (2,500 ft) (min) Ltd.) Berths 121-131 West Basin Container Terminal (Yang 182 acres 2 45 ft Ming Marine Transport) (75 ha) (2,500 ft) (min) Berths 136-147 TraPac Inc. 220 acres 4 45-53 ft (89 ha) (4,630 ft) Berths 212-225 Yusen Terminals Inc. 185 acres 3 47-53 ft (75 ha) (5,800 ft) Berths 226-236 Everport Terminal Services 205 acres 3 45 ft (82 ha) (5,800 ft) (min) Berths 302-305 Eagle Marine Services, Ltd. 292 acres 3 45-50 ft

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(118 ha) (4,000 ft) (min) Berths 401-404 APM Terminals Pacific Ltd. 484 acres 6 55 ft (196 ha) (7,300 ft) (min) Port of Long Beach Pier T Berths 130- Total Terminals International 385 acres 5000 ft 14.7 ft/4.5 m 140 (155.8 ha) (min) Pier G Berths G226- ITS 246 acres 6,370 ft 15 ft/4.6 m G236 (99.6 ha) (min) Pier F Berths F6-10 Long Beach Container Terminal 102 acres 2,750 ft 14.4 ft/4.4 m (41.3 ha) Pier J Berths J243- Pacific Container Terminal 256 acres 5,900 ft 14.6 ft/4.5 m J247, J266-J270 (103.6 ha) Pier A Berths A88- SSA 200 acres 3,600 ft 14.2 ft/4.3 m A96 (80.9 ha) Pier C Berths C60- SSA 70 acres 1,800 ft 14.5 ft/4.4 m C62 (28.3 ha) Source: Port of Los Angeles. Container. https://www.portoflosangeles.org/facilities/container.asp;Port of Long Beach. Containerized. http://polb.com/economics/cargotenant/containerized/default.asp

2.1.4 Investing for the Future As noted, LA/LB container throughput has been sluggish since the recession (at least until the most recent months). Moving forward, competition resulting from the recent expansion of the Panama Canal is expected to affect LA/LB as East Coast ports have become more accessible to Asia. With roughly one-third of LA/LB Asian import traffic destined to US mid- continent regions, where LA/LB compete against other West Coast and East Coast ports, they are responding. LA is investing on the order of $7 billion, in particular in the rebuild of its terminals to accommodate megaships, improvements to automation and information management and expanded rail access.14 LB is also undertaking large capital projects, including ongoing redevelopment of the Middle Harbor that will combine two terminals into one, with the improvements expected to double existing capacity.15

2.1.5 Terminal Consolidation Necesssary Shipping line and alliance consolidation have meant that the traffic volumes of an alliance can become spread over multiple terminals, necessitating rationalization. For example, in 2015, G6 alliance traffic was being handled across five LA terminals.16 In 2017, Hyundai Merchant Marine (HMM) announced the shutdown of operations at its LA terminal after suffering traffic losses due to shipping line consolidation. Similarly, its sister company California United Terminals (CUT) also shut down operations at Pier 400 of LA. In the spring of 2018, a new merger of NYK, K-Line and MOL will come into effect under Ocean Network Express (ONE). All

14 Mongelluzzo Bill (December 17, 2015). LA, LB ports confident investment, productivity will spur growth. https://www.joc.com/port-news/us-ports/port-long-beach/la-lb-ports-confident-investment-productivity-will- spur-growth_20151217.html 15 Port of Long Beach. Pier E - Middle Harbor. http://www.polb.com/about/projects/middleharbor.asp. 16 https://theloadstar.co.uk/could-container-terminal-alliances-be-an-answer-to-shippings-triple-whammy/

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three have dedicated terminals in LA/LB, potentially resulting in further terminal consolidation.

Seattle/Tacoma

Summary Together, Seattle/Tacoma house 10 container terminals and nine terminal operators. Traffic has been stagnant and facilities underutilized, due to lack of investment following low returns from over-capacity development. In 2015, the NWSA was formed to collaborate on terminal investment, business planning, operations and marketing to address shipping industry consolidation and increasing vessel size. The NWSA is also facing stronger competition for Asian cargo with the enlargement of the Panama Canal. The NWSA is investing in its ability to handle megaships, and anticipates reducing the number of terminal operators by half.

2.2.1 Responding to Shipping Industry Trends The Northwest Seaport Alliance (NWSA), formed in 2015, is a precedent-setting agreement for jointly managing the facilities of the Ports of Seattle and Tacoma. Governed by an authority with equal members from each port, the NWSA is responsible for coordinating terminal investment, business planning, operations, and marketing. Specifically, it seeks to address the challenges from larger vessels, which not only make fewer stops but also require substantial investment in infrastructure due to the growing ship sizes and associated traffic surges.

2.2.2 The NWSA Gateway Figure 2-4: NWSA Ports Asian Laden Imports by Destination, Thousands of TEUs, 2016 Together, Seattle and Tacoma form the third busiest gateway by throughput on the North 1,301 American West Coast (Figure 2-2), handling 3.6 million TEUs in 2016.17 Similar to the other North 788 American West Coast ports, the NWSA serves as a gateway for containerized cargo moving between 503 Asia and major distribution points in central and

eastern North America. Asian imports totalled 1.3 9 million TEUs in 2016,18 or more than one-third of the total handled by Seattle/Tacoma in 2016. As shown in Figure 2-4, some 39 percent of containers imported from Asia are destined for the US Central region.

Source: Estimates provided by GCT

17 Based on AAPA data. 18 GCT estimate.

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2.2.3 Container Handling Facilities As shown in Figure 2-5, Seattle and Tacoma house 10 container terminals, nine operators, and 23 berths.

Figure 2-5: NWSA Container Terminals Terminal Operator Size Berths Largest Berth Depth

North Harbour - Seattle T-18 SSA 196 acres (79 ha) 3 50 ft/15.2 m (min) (4400 ft) T-25/T-30 SSA 70 acres 2 50 ft/15.2 m (min) (28 ha) (2700 ft) T-46 TIL 82 acres 2 50 ft/15.2 m (min) (33 ha) (2300 ft) T-115 Lynden 70 acres 4 30 ft/9.2 m (28 ha) (1600 ft) (min) South Harbour - Tacoma West Sitcum SSA (as 135 acres 2 51 ft/15.5 m of 10/17) (55 ha) (2200 ft) (min) Husky ITS 93 acres 2 51 ft/15.5 m (38 ha) (2700 ft) (min) East Sitcum TCT 54 acres 1 51 ft/15.5 m (22 ha) (1100 ft) (min) PCT Ports 140 acres 2 51 ft/15.5 m America (57 ha) (2087 ft) (min) WUT WUT 123 acres 2 51 ft/15.5 m (50 ha) (2600 ft) (min) TOTE TOTE 48 acres 3 51 ft/15.5 m (19 ha) RO/RO ramps (min) Source: NWSA. Facilities Guide. https://www.nwseaportalliance.com/sites/default/files/nwsa_facilities_guide_with_map.pdf As noted, SSA has taken over operation of West Sitcum as of October 2017 when APMT, the former operator, decided not to renew its lease, a decision seen as the result of there being too many terminal operators and facilities based on the available container volume.

A major project proposed by the NWSA is its Terminal 5 Modernization and Access Improvement Project, regarded as key to regaining market share lost to Canadian ports.19 T-5 is comprised of 185 acres, with two berths (2900 ft) and a depth of 50 ft. Not in operation since July 2014, T-5 is designated as one of two strategic terminals critical to the future of the NWSA. The cost of redeveloping T-5 is estimated at US$290 million but to date the NWSA has been unable to find a partner for the project, likely reflecting the low terminal utilization rates at the NWSA.

19 Northwest Seaport Alliance. Terminal 5 Modernization and Access Improvement Project. https://www.nwseaportalliance.com/sites/default/files/final_narrative.pdf.

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2.2.4 Traffic Stagnant/ Market Share Down Following a period of growth in the early 2000s, throughput at the Ports of Seattle and Tacoma has since then been basically stagnant, as shown in Figure 2-2 (p. 12). Since 2000, the combined Seattle/Tacoma share of North American West Coast container traffic has declined from 18 percent to 14 percent.20

Recently, the Ports faced declining volumes just prior to 2015, as shown in Figure 2-6, due in part to work slowdowns. However, in 2015, utilisation dropped as low as 43 percent, attributed to competition from Canadian and Californian gateways.21 Although traffic rebounded following the work actions, it has since remained sluggish.

Figure 2-6: Container Traffic at the Ports of Seattle and Tacoma

NWSA Signed 3,665 3,567 3,616 14% 3,564 3,529 3,493 3,456 3,394

4% 2% 2% 1%

3,130 -2% -2% -3%

-12%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Seattle/Tacoma (000 TEUs) YoY change

Source: CPCS analysis of AAPA data (2009-2016) and data provided by GCT (2017)

2.2.5 Planning Terminal Consolidation According to John Wolfe, CEO, the number of terminal operators will eventually be cut to four (two in the North Harbor and two in the South Harbor), although the implementation remains unclear as terminal consolidation is inherently slow due to the nature of the leases.22 By its consolidation of planning the NWSA hopes to address more effectively the challenges of rationalizing infrastructure. At Seattle/Tacoma the impact of shipping trends has been apparent in what has now become excess terminal capacity for container storage, of which the

20 Based on AAPA data. 21 https://scsolutionsinc.com/news/seattle-tacoma-port-volumes-surge-as-terminals-recover-from-backlog 22 Szakonyi, Mark (July 15, 2017). Terminal consolidation is coming. https://www.joc.com/port-news/us- ports/terminal-consolidation-coming_20170715.html

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NSWA hopes to divest in the near future.23 Its second biggest terminal is currently slated for redevelopment to be able to dock two megaships as early as 2018.24

Oakland

Summary The Port of Oakland is a major West Coast gateway for containers but predominantly it serves only its immediate hinterland. Traffic growth has been very slow, and Oakland’s share of West Coast container throughput has declined. The Port has suffered major terminal closures in recent years but has managed through the attendant disruptions. Twelve smaller terminals are now effectively consolidated into three. Despite an unoccupied terminal, management is strategically avoiding introducing a new operator and allowing the area to remain empty.

2.3.1 US West Coast Fourth Largest Container Port The Port of Oakland, in Northern California, handled 2.4 million TEU in 2016 and ranks fourth in TEUs among US West Coast ports after LA, LB, and Seattle/Tacoma (Figure 2-2). Some 77 percent of Oakland volume comes from trade with Asia.25 However, unlike LA/LB and Seattle/Tacoma, Oakland is not a significant gateway for regions beyond its immediate hinterland (Error! Reference source not found.). The majority of arriving container cargo is loaded onto trucks for movement to Northern California and western Nevada, while about 10-20 percent goes by rail to not-so-distant cities such as Salt Lake City or Denver.26

Along with Seattle/Tacoma, the Port of Figure 2-7: Port of Oakland Asian Laden Imports by Oakland has experienced only slow Destination, Thousands of TEUs, 2016 growth in throughput over 2000-2016 609 647 (Figure 2-2), and throughput since 2010 has grown little, expanding on average 0.5 percent per year (Figure 2-8). Also, like Seattle/Tacoma, Oakland has lost market share. Since 2000, the Port of 37 Oakland share of North American West 0 0 1 0 Coast container traffic has declined from 11 percent to 9 percent in 2016.27 Source: Estimates provided by GCT

23 http://www.portseattle.org/about/commission/meetings/2015/2015_06_05_SJM_supp.pdf 24 Johnson, Graham (May 23, 2016). Port of Seattle wants to ready Terminal 5 for big ships. http://www.kiro7.com/news/local/port-of-seattle-wants-to-ready-terminal-5-for-big-ships/300104777 25 Port of Oakland. Facts & Figures. http://www.oaklandseaport.com/performance/facts-figures/ 26Placzek, Jessica (August 10, 2017). What Gets Shipped Through the Port of Oakland? https://ww2.kqed.org/news/2017/08/10/what-gets-shipped-through-the-port-of-oakland/. 27 Based on AAPA data.

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Figure 2-8: Container Traffic at the Port of Oakland

14% 2,421 2,394 2,330 2,370 2,343 2,347 2,278 2,255

4% 4% 2% 2% 2,050 1%

-4% -5%

-8%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Oakland (000 TEUs) YoY change

Source: CPCS analysis of AAPA data (2009-2016) and data provided by GCT (2017)

2.3.2 Container Handling Facilities Today, the Port of Oakland has operating three multi-shipping line container terminals — TraPac Terminal, Ben E. Nutter and Oakland International Container Terminal (OICT) — and one dedicated container terminal, Matson.28 Of the four, the OICT handles 75 percent of the volumes moving through the port.29 The three multi-shipping line terminals, with 17 berths, handle cargo for 22 shipping lines.30

Figure 2-9: Port of Oakland Container Terminals Terminal Operator Size Berths Largest Berth Depth TraPac Terminal TraPac Inc. 123 acres 8 50 ft/15.2 m (49.7 ha) 4,263 ft (1,299.5 m) Ben E. Nutter Terminal Everport Terminal Services, Inc. 73.9 acres 4 50 ft/15.2 m (29.9 ha) 2,157 ft (657.4 m) Oakland International Stevedoring Services of America 270 acres 5 50 ft/15.2 m Container Terminal (OICT) Terminals, Inc. (SSA) (109.2 ha) 6000 ft (1,822.5 m)

28 Port of Oakland. Facilities. http://www.oaklandseaport.com/seaport-resources/facilities/ 29 Tirschwell, Peter (September 2, 2017). Oakland terminal consolidation: a West Coast model. https://www.joc.com/port-news/us-ports/port-oakland/oakland-terminal-consolidation-west-coast- model_20170902.html 30 Port of Oakland. Seaport Facilities. http://www.oaklandseaport.com/files/PDF/PoOak_16_OperationsFacilitesMap_V15_TRIFOLD_2.17.17_Page_1.jp g

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Matson Terminal Stevedoring Services of America 80 acres 4 42 ft/12.8 m Terminals, Inc. (SSA Oakland) (32.1 ha) 2,743 ft (836 m) Source:Port of Oakland. Facilities. http://www.oaklandseaport.com/seaport-resources/facilities/

2.3.3 Example of Terminal Consolidation The Port of Oakland operates three main container terminals capable of serving today’s large ships. This is in sharp contrast to a few years ago when Oakland was home to 12 midsize terminals suited to smaller ships and often serving their own individual shipping line.31

Consolidation was first triggered by the withdrawal of operations of APL in 2013, which chose to forgo calling at Oakland citing congestion due to labour disruptions that were plaguing the US West Coast, and Hanjin Shipping in 2014, which later declared bankruptcy. The adjacent Stevedoring Services of America (SSA) eventually took over the two terminals, consolidating three into one. The consolidation initially caused great difficulties for trucking operations but these have since been resolved.32

Then, in 2016, the Port’s second largest terminal operator, Outer Harbour Terminal LLC (joint venture of Ports America and Terminal Investment Ltd) terminated its lease, citing a strategic reallocation of resources to LA, LB and Tacoma, ostensibly to allow for aggregating cargo onto larger vessels and call at fewer ports,33 but soon after filed for bankruptcy.34 Outer Harbour Terminal accounted for approximately one-quarter (US$38 million) of the Port of Oakland's maritime operating revenue in 2015.35 Oakland’s loss of Ports America is seen as the result of too many terminal operators. Ports America signed its lease in early 2009, and shortly thereafter SSA began legal action against the Port, ultimately allowing SSA to absorb the terminals operated by APL and Hanjin. This also resulted in adjustment to SSA’s lease rates bringing competition with Ports America that forced Outer Harbor Terminal into bankruptcy. As a result, Oakland has been left with a large unused terminal.

31 Tirschwell, Peter (September 2, 2017). Oakland terminal consolidation: a West Coast model. Op. cit. 32 Ibid. 33 Business Wire (February 3, 2016). . Fitch: Port of Oakland, CA's Loss of Second Largest Tenant Negative Yet Manageable https://www.businesswire.com/news/home/20160203006163/en/Fitch-Port-Oakland-CAs-Loss- Largest-Tenant 34 Business Wire (October 26, 2016). Fitch: US Ports Exposed to Shippers Via Terminal Operators. https://www.businesswire.com/news//home/20161026006431/en/Fitch-Ports-Exposed-Shippers-Terminal- Operators 35 McDermid, Riley (February 22, 2016). Port of Oakland reaches deal with bankrupt operator to wind down operations. https://www.bizjournals.com/sanfrancisco/blog/real-estate/2016/02/port-of-oakland-bankrupt- ports-america.html

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2.3.4 Growth Forecasted Despite Empty Terminals As of late 2017, the Port is forecasting record high container throughput in coming years anticipating that by 2022 it will handle 2.6 million TEUs annually, or eight percent higher than currently.36 This is despite the fact that, after 2016, there are 160 acres of unoccupied terminal space which the Port announced it is strategically holding empty.

“I’m forecasting growth because of the development that’s going on here... It won’t be dramatic – it will be steady - but it will result in more cargo volume than we’ve ever had before.”

John Driscoll, Maritime Director Port of Oakland Port of Oakland Press Release, December 8, 2017

The Port of Oakland is currently redeveloping 360 acres from a former Army base into a logistics centre, which neighbours the vacant area. Management expects the land will prove more valuable in the future, and are reluctant to allow in new operators into its terminals given the recent experience and current trends in the industry.37

Prince Rupert

Summary The Port of Prince Rupert, where dedicated container handling started up only in 2007, has a single container terminal and sole operator. Purpose-built to serve the North American mid-continent in its growing trade with Asia, the Prince Rupert container operation has rapidly developed through effective supply chain collaboration with one railway into an attractive alternative to other West Coast ports despite its remoteness and limited local market.

2.4.1 Purpose Built Fairview Container Terminal is the Port of Prince Rupert’s sole container terminal. Purpose- built to provide a high-velocity gateway for the growing transpacific trade, the terminal opened in 2007 and is now operated by DP World. Despite being remote from major markets, the Fairview terminal, as the closest container port to Asia and with its dedicated ship-to-rail

36 Burnson, Patrick (August 14, 2017). Port of Oakland forecasts record container throughput in coming years. http://www.logisticsmgmt.com/article/port_of_oakland_forecasts_record_container_throughput_in_coming_ye ars 37 Lee, Thomas (july 14, 2016). What to do with empty terminals in Oakland? Nothing, port says. http://www.sfchronicle.com/business/article/What-to-do-with-empty-terminals-in-Oakland-8376791.php

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transfer and rapid container evacuation, has developed into an attractive alternative to other West Coast ports for serving North American mid-continent markets.

Figure 2-10 illustrates the Fairview Container Terminal’s gateway role. Laden Asian imports are the equivalent of 437,000 TEUs, constituting about 60 percent of the Fairview terminal’s total 2016 throughput of approximately 737,000 TEUs. Practically all of the laden Asian imports are destined for Eastern Canada, the US Midwest and the US Gulf, with less than 0.5 Figure 2-10: Prince Rupert Laden Asian Imports by Destination, Thousands of TEUs, 2016 percent staying in Western Canada.

2.4.2 Container Handling Facilities 437 In August 2017, DP World completed its $200 million “Phase II North” expansion of the Fairview Container Terminal, increasing 212 throughput capacity by more than 50 percent 118 from 850,000 TEUs to 1.35 million TEUs. The 85 expansion, along with acquisition of three new 20 “big ship ready” cranes, enables the port to 1 1 accommodate vessels of 20,000+ TEU capacity, up from its previous capability of handling 13,000 TEU vessels. Berth depth remains at 17.0 metres. In addition to a second berth, bringing total berth length to Source: Estimates made by GCT 800 metres, the project added 11 hectares to the terminal footprint, and importantly, an additional 6,000 feet of on-dock rail.38 Previously, the terminal was capable of building trains of up to 12,000 feet. CN has said it is committed to selling 80 per cent of the new capacity within three years.39 Not to be underestimated is the key role of rail capacity and access at Prince Rupert in enabling the port to succeed in attracting and growing US destined volumes.

38 Prince Rupert port Authprity (August 29, 2017). PORT OF PRINCE RUPERT COMPLETES FAIRVIEW TERMINAL EXPANSION https://mediakit.rupertport.com/wp-content/uploads/2017/08/Fairview-2-Expansion-news-release- 1.pdf. 39 Canadian National (August 29, 2017). CN congratulates Port of Prince Rupert and DP World on Fairview Container Terminal’s 10th anniversary and expansion. https://mediakit.rupertport.com/wp- content/uploads/2017/08/Fairview-terminal-expansion-final.pdf.

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“…the Port of Prince Rupert holds a premier place on the global trade map. The last decade of supply chain collaboration between the port, terminal operators, CN and other partners has become the model for how to establish and grow a trade corridor.” Luc Jobin, President and CEO CN CN Press Release, August 29, 2017

Figure 2-11: Port of Prince Rupert Fairview Container Terminal Terminal Operator Size Berths Largest Berth Throughput Depth Capacity Fairview Container DP World 70 acres 2 55.8 ft/17.0 m 1,350, 000 TEU Terminal (28.3 ha) (2,624.7ft / (min) 800 m) Source: Prince Rupert Port Authority. Backgrounder: Port of Prince Rupert. https://mediakit.rupertport.com/wp- content/uploads/2017/08/BACKGROUNDER-PORT-PRINCE-RUPERT-08_2017-final-1.pdf

2.4.3 Rapid Growth Since opening, the Prince Rupert container terminal has been the second fastest growing container port in the NAFTA region (after the small Guaymas, Mexico port located 242 miles from the US border in the Gulf of Mexico).40 Of the 75 ports in the NAFTA region handling containers in 2016, Prince Rupert’s throughput of 736,663 TEUs ranked 21st.41 By 2012, Prince Rupert had become Canada’s third largest container port by volume, eclipsing Halifax. Figure 2-12 shows the trend in Prince Rupert throughput since 2009. In 2017, throughput increased by a further 26 percent to approximately 926,540 TEUs.

40 Based on AAPA data for 2007-2016. 41 Based on AAPA data for 2016

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Figure 2-12: Prince Rupert Container Throughput, 2009-2017

927

46% 776 38% 737

29% 618 565 26% 536 26% 20% 410 343 15% 265

-5% -5%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Prince Rupert (000 TEUs) YoY change

Source: CPCS analysis of AAPA data (2009-2016) and PRPA data (2017)

2.4.4 Succeeding Against the Trend In general, transportation service providers, especially “footloose” services such as liner shipping, gravitate to where there is sufficient mass of traffic to support operations and maximize the utilization of assets. As such, North America’s predominant container ports have significant traffic related to regional economic activities.42 Prince Rupert has proven to be an exception. Built with the express purpose of serving North American mid-continent markets in their trade with Asia, the Prince Rupert experience has shown that it is possible through effective supply chain collaboration to establish a successful gateway despite having a limited local market. Furthermore, success at Prince Rupert had to depend on being able to efficiently serve the US market given the relatively small size and potential of the Canadian market.

Halifax

Summary The Port of Halifax is Atlantic Canada’s primary international marine gateway. It has two container terminals, leased to separate operators. Although throughput has grown rapidly over the past year and more, capacity remains three times the actual throughput level as

42 The road/rail modal split is illustrative in this regard. See Rodrigue, Jean-Paul. Modal Split at Selected North American Container Ports, 2007. https://people.hofstra.edu/geotrans/eng/ch2en/appl2en/NA_ports_modal_split.html.

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the port faces a challenging competitive environment. The possibility of relocating one, or both, of the terminals to the Dartmouth side of the harbour is being studied.

2.5.1 Atlantic Canada’s Gateway The Port of Halifax, managed by the Halifax Port Authority (HPA), is Atlantic Canada’s primary international marine gateway. Situated on the Great Circle Route, in proximity to major shipping lanes between Europe and North America, and with a natural ice-free deep harbour, it is Canada’s fourth largest container port by volume after Vancouver, Montreal and Prince Rupert.43 In 2016, container Figure 2-13: Percent Distribution of Halifax Import Container throughput at Halifax totalled Throughput by Destination Region, 2015 480,722 TEUs, up 15 percent from 28 28 418,359 in 2015.44 The Port, 22 21 however, has the capacity to handle 1.5 million TEU annually, roughly three times its actual traffic level. 1 Error! Reference source not found. illustrates the Port’s Atlantic Central Midwest US Other Empties gateway role which is Canada Canada predominantly with respect to Source: CPCS (2016). The Nova Scotia Transportation Sector: Global Market servicing imports. As may be seen, Challenges and Opportunities. roughly half of the loaded containers imported through Halifax are destined to markets in Central Canada or the US Midwest.

2.5.2 Container Handling Facilities As shown in Figure 2-14, Halifax has two container terminals with a total of seven berths. The South End Container Terminal, leased to Halterm Container Terminal Limited and referred to as Halterm, was opened in 1969. Its throughput capacity is 750,000 TEU. The second terminal, Fairview Cove, was opened in 1981 and deliberately leased to a second operator. It is leased to NYK/Cerescorp Company and referred to as the Ceres terminal. Ceres has throughput capacity of 780,000 TEU.

Figure 2-14: Port of Halifax Container Terminals Terminal Operator Size Berths Largest Berth Throughput Depth Capacity South End Container Halterm Container 74.5 acres 5 53 ft/16.2 m 750,000 TEU Terminal (Halterm) Terminal Limited (30.2 ha) (4,059 ft/ (min) 1,237.5 m) Fairview Cove Container Ceres Halifax Inc. 70 acres 2 55 ft/16.8 m 780,000 TEU

43 Transport Canada. Transportation in Canada 2016 Statistical Addendum. Table M19. 44 AAPA data.

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Terminal (Ceres) (28.3 ha) (2,297 (min) ft/700 m) Source: Halifax Port Authority. Facilities. http://www.portofhalifax.ca/facilities/

2.5.3 Traffic Accelerating Over the past year and more, container traffic at Halifax has been growing rapidly, as may be seen in Figure 2-15. One factor has been the lower value of the Canadian dollar vis-a-vis the US dollar, especially since the beginning of 2015. However, the Port and its operating partners have been making concerted efforts and investments to accommodate increasingly larger ships and attract new services.45 As a result, throughput rose 15 percent in 2016, and another 16 percent in 2017 to 559,242 TEUs. In June 2017, the Port received its first 10,000+ TEU capacity vessel,46 and Halterm has announced investments of $10 million to further attract vessels of this size.47

Figure 2-15: Port of Halifax Container Throughput, 2009-2017

559 26% 481 442 435 418 411 417 400 16% 345 15%

6% 5% 1%

-6% -10% -11%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Halifax (000 TEUs) YoY change

Source: CPCS analysis of AAPA data (2009-2016) and HPA data (2017)

45 E.g., Peters, Tom (September 21, 2016). Ready, willing and able – The Port of Halifax Big Ship Strategy in action. http://www.canadiansailings.ca/ready-willing-and-able-the-port-of-halifax-big-ship-strategy-in-action/; Risdon, James (April 21, 2017). Growth at Port of Halifax — again. http://thechronicleherald.ca/business/1461962- growth-at-port-of-halifax-%E2%80%94-again. 46 Chronicle Herald (July 21, 2017). Bigger ships, more traffic for Port of Halifax. http://thechronicleherald.ca/business/1488196-bigger-ships-more-traffic-for-port-of-halifax. 47 Halterm Container Terminal Limited (October 24, 2017). Halterm International Container Terminal commits to investment of $10 million, boosting Eastern Canada’s ‘Ultra-capable’ terminal facility. http://www.portofhalifax.ca/wp-content/uploads/2017/10/002-Halterm-commits-to-10m-boost-for-Eastern- Canadas-Ultra-terminal_Release_Oct17.pdf.

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2.5.4 Challenging Competitive Environment Halifax confronts a challenging competitive environment, competing against the major northeastern ports of New York/New Jersey (NY/NJ), Hampton Roads and Montreal, the smaller northeastern ports of Boston and Saint John, as well as Vancouver and Prince Rupert.48 As shown in the Figure 2-16 below, Halifax traffic has not kept pace with the northeastern ports against which the port of Halifax competes most directly. Whereas throughput in Halifax was actually lower in 2016 than in 2000, throughput at the others has ranged between increasing more than 2.0 times at NY/NJ and 1.4 times at Montreal. The result is that Halifax’ share of the traffic shown in Figure 2-16 has dropped from 8.9 percent in 2000 to 4.3 percent in 2016.

Figure 2-16: Container Throughput at Selected Northeastern Ports

7

6

5

4

3 Millions Millions TEUs

2

1

- 20002001200220032004200520062007200820092010201120122013201420152016

New York/New Jersey Hampton Roads Montreal

Halifax Boston Saint John

Source: CPCS analysis of AAPA data

48 CPCS (2016). The Nova Scotia Transportation Sector: Global Market Challenges and Opportunities, p. 51. https://novascotia.ca/tran/publications/NS-Trade-Gateway-Global-Market-Challenges-and-Opportunities.pdf

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2.5.5 Potential Terminal Relocation The HPA is now studying whether to relocate one or both of the container terminals to the Dartmouth side of the harbour. Driving this is the need to relocate the truck traffic that presently traverses the city’s downtown, and the need to accommodate the new ultra large ships of 13,000+ TEU capacity.49 It is an open question as to whether both terminals will be consolidated into one and whether the Port will revert to a single operator.

Manzanillo

Summary Manzanillo is Mexico’s top container port by volume. It has two main container terminals leased to separate operators. Growth in throughput has been very rapid. Capacity is stretched. Investments in terminal expansion and a new rail tunnel are aimed at serving growing Mexican demands and better positioning Manzanillo as a gateway for the US market. The port, however, is facing major uncertainties from the Trump Administration’s goals for renegotiating the NAFTA.

2.6.1 Mexico’s Leading Gateway Port The Port of Manzanillo, located on Mexico’s southwestern coast in Colima state, is the country’s top container port by volume. In 2016, it handled 2.6 million TEUs, amounting to 65 percent of Mexico’s Pacific Coast container throughput and 45 percent of Mexico’s total container throughput.50 As shown in Figure 2-17, Manzanillo principally serves the central part of Mexico, representing two-thirds of the country's GDP and 55 percent of the population,51 and including Mexico City and Guadalajara. Although Manzanillo is Mexico’s largest container port, it has been operating at full capacity which has caused congestion. Also, draught, storage and equipment limitations have prevented today’s larger container vessels from calling.52

49 Withers, Paul (November 2, 2016). Port of Halifax eyes relocation of container terminal to Dartmouth. file:///C:/Users/Joseph/Desktop/Port%20of%20Halifax%20eyes%20relocation%20of%20container%20terminal%2 0to%20Dartmouth%20-%20Nova%20Scotia%20-%20CBC%20News.html.

50 Based on AAPA data. 51 API Manzanillo. Hinterland. https://www.puertomanzanillo.com.mx/engs/0020202/hinterland. 52 Inter-American Development Bank (March 2017). Mexico: CMSA Manzanillo Port Terminal. https://library.pppknowledgelab.org/documents/4688/download.

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Figure 2-17: Port of Manzanillo Hinterland

Source: API Manzanillo. Hinterland.

2.6.2 Growth Outpaces North American West Coast Throughput Figure 2-18 shows the growth in throughput at Manzanillo, along with that at Lazaro Cardenas, Mexico’s second ranking container port, also situated on the southwest coast. Growth at both ports has been exceptionally strong, with Manzanillo expanding close to 12 percent annually since 2000, and Lazaro Cardenas expanding more than 30 percent annually since 2004 when operations formally began. These rates compare with growth of 3.1 percent per year for total North American West Coast throughput (as seen in Section 1.1). How rapidly Mexico’s ports can continue to grow is, however, a key question in light of the threats posed by the Trump Administration’s stated goals for renegotiating the North American Free Trade Agreement (NAFTA).53

53 Morley, Hugh R. Mexican Pacific coast competition intensifies. https://www.joc.com/international-trade- news/infrastructure-news/mexico-infrastructure-news/mexican-pacific-coast-competition-intensifies-manzanillo- expansion_20170516.html.

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Figure 2-18: Container Throughput at Manzanillo and Lazaro Cardenas

3,000

2,500

2,000

1,500

Thousands TEUs 1,000

500

- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Manzanillo Lazaro Cardenas

Source: CPCS analysis of AAPA data

2.6.3 Container Handling Facilities As shown in Figure 2-19, there are two main container terminals at Manzanillo with seven berths: Terminal Especializada de Contenedores I (TECI) operated by SSA Mexico (SSA), a subsidiary of SSA Marine; and the Terminal Especializada de Contenedores II (TEC II), operated by Contecon Manzanillo SA de C.V. (CMSA), a subsidiary of International Container Terminal Services Inc. (ICTSI). There is also the smaller Terminal Internacional de Manzanillo SA de C.V. (TIMSA), owned by the Hutchinson Group. Larger vessels are expected to be handled at TECI and TEC II.

Figure 2-19: Port of Manzanillo Specialized Container Terminals Terminal Operator Size Berths Largest Berth Throughput Depth Capacity

Terminal Especializada de SSA Mexico 88.7 acres 4 (3,445 ft/1,050 52 ft/16 m 1.5 million Contenedores I (TEC I) (35.9 ha) (1) m) (min) TEU

Terminal Especializada de Contecon 190.3 acres 3 (3,543.3 ft/ m (min) 1.35 million Contenedores II (TEC II) Manzanillo SA (77 ha) (2) ft/1,080 m) (2) TEU (2) de C.V.

(1) Total size, including for containers and other cargo. (2) On completion, 2021 Source: SSA Marine. Manzanillo, Colima. http://www.ssamarine.com/locations/manzanillo-colima/. International Container Terminal Services Inc. Contecon Manzanillo SA de C..V. (CMSA), Manzanillo, Mexico. http://www.ictsi.com/operations/contecon-manzanillo-sa-de-c-v-cmsa-manzanillo- mexico/. Inter-American Development Bank (March 2017). Mexico: CMSA Manzanillo Port Terminal.

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2.6.4 Manzanillo Expanding Capacity The Port of Manzanillo is expanding capacity at its existing terminals and with existing operators. SSA Mexico is expanding its container terminal at Manzanillo, Mexico’s largest by volume and operating at near capacity. The expansion will increase capacity to 2.1 million TEU. The expansion will enable the addition of a fourth berth, increase the existing quayside by 300 metres (984.3 feet) to 1,350 meters, and increase the terminal area by nearly 30 percent.54

TEC II has been under development since 2010. Phase 1A was completed in September 2013 with an annual capacity of 450,000 TEUs. Phase 1B, undertaken during 2014-2015, expanded capacity to 760,000 TEUs. Phase 2, to be developed between 2016 and 2021, is planned to bring capacity to 1.35 million TEUs and enable the terminal to handle the largest vessels expected to be deployed in the future.55

A further significant development is the nearly completed new rail tunnel. The project will allow trains to avoid the city center, improve efficiency by eliminating five level crossings, and is designed to accommodate double-stacking.56 The tunnel will also provide trains with 24- hour access to the port, instead of only entering the port four times per day presently, and is expected to more than double the container volume arriving and leaving the port by rail.57

54 Morley, Hugh R. Mexican Pacific coast competition intensifies. Op. cit. 55 Inter-American Development Bank (March 2017). Mexico: CMSA Manzanillo Port Terminal. Op. cit. 56 BN americas. Manzanillo rail tunnel. https://www.bnamericas.com/project-profile/en/tunel-ferroviario- manzanillo-tunel-ferroviario-manzanillo. 57 Morley, Hugh R. Top Mexican ports lead modernization charge. https://www.joc.com/port-news/international- ports/port-l%C3%A1zaro-c%C3%A1rdenas/top-mexican-ports-take-modernization-lead_20170110.html.

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3 Conclusion

Key Chapter Takeaway  There is no direct relationship between the number of terminal operators at a port and how well a port fares in attracting traffic.  The greater liner shipping industry concentration and size of vessels being deployed today mean that ports should move towards focusing on fewer, larger container terminals.  North American West Coast ports have competed strenuously for inland cargo markets. This can be expected to intensify. For Western Canada, this is extremely significant as inland markets are the destination of nearly three-quarters of the container imports from Asia.

The key question which this study is meant to address is whether fragmenting container terminal operations at a port among several terminal operators is positive for port performance, and as a corollary whether having concentration of terminal operators is necessarily negative for port performance. As shown by the cases reviewed here, fragmenting terminal operators does not provide a simple solution to fostering growth or port As shown by the cases examined in this performance. A port’s success study, fragmenting terminal operators depends on a multitude of does not provide a simple solution to factors, and unlike the decision regarding the number of fostering growth or port performance. terminal operators, some are outside the control of port management. These include factors such as the growth in demand for containerized shipping on the trades served by the port, whether there is a sufficient mass of traffic in the market served by the port to enable port and terminal assets to be fully utilized, the degree of congestion beyond the port gate that may affect being able to evacuate containers quickly, and others.

There is no direct relationship between the number of terminal operators and port performance. The contrast between Halifax and Prince Rupert illustrates well the complexities. Halifax, with its two terminal operators has long struggled, and the possibility of consolidating and reverting to a single operator is one solution under discussion. In contrast, Price Rupert, with its single terminal and operator has rapidly developed into an attractive alternative to other West Coast ports despite its remoteness and limited local market.

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A key consideration is the nature of competition in the container port industry, which involves both intra-port and inter-port competition. In general, the decision to have multiple Significantly, each of the multiple terminal terminal operators is made with ports reviewed in this study — LA/LB, the idea that promoting intra- port competition is beneficial. Seattle/Tacoma, and Oakland — has been However, the high undergoing and/or is facing major concentration in the global liner terminal consolidation shipping industry and the move to larger vessels suggests otherwise. Bigger vessels and increased liner shipping concentration mean that ports should move towards fewer, larger terminals. By consolidating terminals, investment can be focused where it can best accommodate larger vessels, terminals can more readily handle the larger but less frequent volumes that come with the use of large vessels that want to stop at fewer ports, and efficiencies will improve by simplifying the spread of cargo over numerous terminals. Significantly, each of the multiple terminal ports reviewed in this study — LA/LB, Seattle/Tacoma, and Oakland — has been undergoing and/or is facing major terminal consolidation.

“Neil Davidson, director of ports at Drewry Maritime Advisors, suggested to delegates at the recent TOC Container Supply Chain event in Rotterdam, that increased collaboration between terminal operators within a particular port, or between different port authorities may be one antidote to […] larger ships [and] larger alliances […]”

Van Marle, Gavin (June 25, 2016). Could container terminal alliances be an answer to shipping's 'triple-whammy'? https://theloadstar.co.uk/could-container-terminal-alliances-be-an-answer-to- shippings-triple-whammy/

Finally, it should be recognized that evolving trends in container shipping are intensifying inter-port competition on the West Coast. This is emanating not only from the deployment of larger vessels and increased shipping industry concentration. Other developments are also playing a role, eroding the West Coast’s share of the Asian container market as indicated in Figure 3-1.

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Figure 3-1: Percent of Total Asia-US Container Volumes Handled by US West Coast Ports

80% Vancouver Fraser Port Authority consolidates - 2008 Seattle /Tacoma 75% form Northwest Prince Rupert Seaport Alliance - Fairview 2015 Terminal opens - 2007 70%

65% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: PIERS, The Journal of Commerce

With the expansion of the Panama Canal, this competition may be expected to intensify.58 Finally, it should be recognized that the Also contributing will be the evolving trends in container shipping are increased competition from intensifying inter-port competition on the Mexican West Coast ports, for West Coast. For Western Canada, this is example, Manzanillo. The extremely significant as inland markets are impact will be that North American West Coast ports can the destination of nearly three quarters of expect to experience further the container imports from Asia. challenges to their growth in the future as the battleground for inland cargo is redrawn. For Western Canada this is most significant as US and Canadian inland markets account for nearly three-quarters of the laden container imports from Asia. For Western Canada, the US Central and Gulf regions alone account for 38 percent of laden container imports from Asia (Figure 3-2).

58 Bratton, Jennifer, et. al. (June 16, 2015). How the Panama Canal Expansion Is Redrawing the Logistics Map. https://www.bcgperspectives.com/content/articles/transportation-travel-tourism-how-panama-canal- expansion-is-redrawing-logistics/.

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Figure 3-2: Asian Laden Import TEUs Destined to US Central and Gulf Regions, 2016

Source: CPCS analysis of data provided by GCT

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