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JOC 21/2/14 - Mega-Ships, VSAs Tax Terminal Operations

Mega-ships and carrier alliances could prove to be the financial savior of the container shipping industry, but they are also straining the operations of marine terminals and motor carriers.

 

Take, for example, a weekly trans-Pacific service to Los Angeles-Long Beach with 10,000-TEU vessels. That service today is probably operated by a vessel-sharing alliance of several carriers. In the past, the same container volume would have moved via two separate services by individual carriers deploying 5,000-TEU vessels.

 

The concentration of container volume into a single weekly vessel call taxes the capacity of the marine terminal to work the ship. Truck and rail carriers must handle twice the volume of cargo from one vessel that used to be carried in two separate vessel calls each week.

 

“This puts much more strain on the supply chain,” David Arsenault, vice president of Hyundai Merchant Marine, told the California Maritime Leadership Symposium on Feb. 19 in Sacramento.

Environmental regulations, cost reduction drove mega-ship shift

 

The decision by ocean carriers to order vessels with capacities of 8,000 to

18,000 20-foot container units was driven by environmental requirements in Europe and North America, and by the severe financial losses carriers experienced since the economic recession of 2008-09, Arsenault said.

 

When Europe and North America established Emission Control Areas reducing the maximum sulfur content of bunker fuel to 0.1 percent from 1 percent, carriers had to decide whether to retrofit existing vessels or to order new ships.

 

After comparing the cost of retrofitting older, less-efficient vessels with the savings inherent in today’s large, fuel-efficient ships that offer a per-slot savings of $400 to $500, ordering new vessels was the right decision, Arsenault said. Reducing vessel costs is crucial because the average freight rate in many trade lanes has not changed over the past decade.

 

Read more about mega-ships

 

Big ships, by themselves, did not reduce operational costs enough to put carriers in the black, so the next logical step was to further reduce costs by banding together in alliances of three to six lines, with each carrier contributing vessels to the alliance.

 

Despite these measures, carriers in aggregate still lost $15 billion over the last three years in their global operations, Arsenault said. Now they are shedding assets, including marine terminals and chassis, in order to “right the ship,” he added.

Cargo surges from big ships put strain on supply chain

 

These changes have had a big impact on terminal operators and motor carriers.

Each vessel call in Los Angeles-Long Beach, for example, can generate 5,000 to

10,000 container moves, which is very taxing on vessel, yard and gate operations.

 

The cargo surges take a big toll on gate operations. Truckers in Southern California, New York-New Jersey and Virginia must contend with gate congestion and turn times that can take several hours on busy days.

 

Vic LaRosa, CEO and president of TTSI, said the Harbor Trucking Association of Southern California is addressing this issue with a truck mobility study that seeks to zero in on the chokepoints at each of the 13 container terminals in the harbor.

 

“There’s a lot of waste in the system,” LaRosa said, referencing the eight-hour work shifts at the terminals that really total only six hours when breaks and other work practices are included.

 

The complexity of terminal operations has intensified in recent months as carriers transition from owning and maintaining chassis to a new regime in which equipment lessors and chassis pool operators control the chassis. This has resulted in chassis shortages and dislocations in the harbor, he noted.

 

Events that occur in other parts of the country can also have an impact on marine terminals. Arsenault noted that the recent series of winter storms in the Midwest and along the East Coast forced railroads to hold their trains longer in Southern California. This threw train departures out of sequence and caused containers to back up at the ports of Los Angeles and Long Beach.

 

Borrowing an ancient adage from China to describe the current chaotic conditions at the nation’s container ports, LaRosa said, “These are really exciting times.”