Bulk over boxes

A tale of two different worlds sums up West Coast ports today. For container operations, unprecedented national political change and court room environmental wrangling, layered on top of uncertainty over the impact of the Panama Canal widening have turned the mood of expectation to, at best, cautious optimism mixed with finger crossing.

Just five years ago, the industry assumed steady growth, with the only worry being a shortage of capacity. That seems like a different world, following the world recession. Capacity is forgotten and the talk is about container volumes “creeping up”.

Breakbulk ports are much better off. China and Asia’s insatiable appetite for feedstuffs and raw materials has led to new terminals and property expansion.

However, overshadowing all ports is the dramatic political upheaval in Washington. The Democrat in charge of policy affecting ports has lost his seat and the new Republican majority has vowed to take a very different line.

Superficially, container volumes are looking very promising. At Los Angeles/Long Beach, the biggest container ports in the country, volumes for the year are up about 20% over 2009, but September’s numbers were 5% down on the previous month.

“The peak season has already been and gone,” a maritime analyst tells Port Strategy, “and frankly we were looking for bigger volumes.” Equally worrying is the fact that export volumes at Los Angeles are less than in 2009, at a time when the US economy is in a crisis and is trying to revive its exports.

LA is also facing a possible court battle over a crucial project costing $370m – deepening the main channel so that construction of the TraPac and China Shipping terminals can go ahead. The proposed site for the discarded soil is on the disused section of a shipyard, but the yard’s owner has come up with plans to expand the whole site and revive shipbuilding at the port. The owner threatens to go to court, which could delay the dredging for at least another two years.

The two terminals are already years behind schedule and if there are further delays, customers and shipping lines are likely to go elsewhere.

Long Beach has its own battle in the form of a new municipal law that allows the governing city council to draw more of the port’s profits. Industry pundits say this amounts to political control of the ports and will drive away business.

While the situation for breakbulk is much brighter, there could be one possible setback. Vancouver port on the Columbia River in Washington State has signed a potash terminal deal with BHP Billiton for material from Saskatchewan, with the lease set at about $800,000 a year.

Canada’s rejection of BHP’s bid for Potash Corp might lead to the deal being cancelled, even though the material is coming from a mine that was not part of the bid. This is because, according to industry sources, BHP was probably looking at the long term for the Vancouver deal and planned to send material from Potash Corp mines, which could change the economics of the Vancouver facility.

A number of other breakbulk projects are being undertaken up and down the coast, largely because of the deepening of the main channel of the Columbia River to 53 feet, expected to be finished by the end of November. This has been one of the most far-sighted maritime decisions ever taken by the federal government.

Vancouver is now able to add up to 9,000 tonnes of wheat to each export consignment, making it competitive with Gulf Coast ports.

At nearby Longview, an 8m tonne grain export terminal will open in 2011, the first in the US in 20 years. Executive director Ken O’Halloran says the channel deepening was essential for the project. Skyline Steel is opening a $9m pipe-manufacturing plant at the port in February. The port has also bought 300 acres of industrial property to cater for future projects.

Further along the Columbia River, Portland’s potash exports have increased by almost 200% over 2009 to more than 1m tonnes.

Close to the mouth of the river, Gray’s Harbour is expanding a grain handling and storage terminal, which will see volumes increasing from 700,000 tonnes to almost 2m tonnes in 2013.

Further north, on the Pacific coast, Tacoma’s strategy of being a container and breakbulk port is paying off. Box volumes have been dismal, with August the only month that traffic has increased while September was 18% down on the previous year. According to Tong Zhu, senior director in the commercial division, a 4% increase in containers is forecast for next year while there will be a 26% increase in log exports, and an 8 percent growth in vehicle imports.

He says the port’s focus is on “increasing efficiency and capacity through terminal and intermodal facilities, maximising the utilisation of real estate assets for warehouse/distribution uses, and continuing to make key investments in infrastructure.”

The port is committed to environmental improvement and has become the first in the Pacific Northwest to offer cold ironing to cargo ships.

In fact, the eco-drive all along the Pacific coast is undoubtedly the most developed and sustained in the country, led by Los Angeles/Long Beach. Says Phillip Sanfield, spokesman for Los Angeles port: “We are attracting innovative technology and “green-collar” through PortTechLA, a not-for-profit business incubator focused primarily on attracting maritime related clean tech companies, allowing them to test and certify their innovations”.

Marine Oil Technology, a start-up manufacturer of hydraulic oil and engine oil cleansing products, became the first tenant at PortTech LA’s San Pedro headquarters.

Although LA/Long Beach put a positive gloss on their eco-efforts, the interminable legal saga over the cargo vehicle anti-pollution campaign has exasperated the maritime industry and added to an erosion of business. “All sides are to blame for this dragging on for so long,” says an analyst. “Positions have become entrenched and as each week goes by, there is less willingness to seek a compromise.”

The influential Pacific Merchant Shipping Association, representing more than 30 industrial and commercial companies, shipping lines and terminal operators, warns that issues such as the cargo vehicle deadlock are causing concern in the industry.

Association president John McLaurin tells Port Strategy that other factors are at play as well – the increasing burden of regulations such as the use of low sulphur fuel within 24 nautical miles and strict ballast water requirements plus California’s budget crisis, which will mean that less money will be available from state funding for ports, are worrying customers.

“All these things will factor in, when shippers decide how to route cargo.”

Added to these is greater political interference in port administration. Mr McLaurin says Long Beach is following Los Angeles’ pattern, “which has been politicised for years”, with a new municipal law that forces the port to hand over more money to the city council each year. “The supply chain wants order and predictability – the more political a port becomes, the less predictable the supply chain becomes.”

The new law allows the city to siphon off a percentage of the port’s gross revenue, instead of from net profit. This has caused uproar in the maritime industry, which warns that the port will not be able to maintain capital investment.

The shipping association forecasts that cargo volumes will “continue to creep up” at California ports next year, but is apprehensive that new state taxes and levies will be imposed. “If the state decides to put on a container fee [twice shot down by retiring Republican Governor Arnold Schwarzenegger, who hands over to a Democrat from January], that will just send a terrible, terrible signal to the international community,” says Mr McLaurin.

California is also seen as being unreliable in its industrial relations, particularly in regard to the immensely powerful International Longshore and Warehouse Union, which controls all dock labour from Seattle to San Diego. Much of the antagonism against the union stems from waterfront inefficiency, as shown by the average 25 container moves per hour.

Terminal owner SSA Marine wants to install an electrified crane system at Long Beach (extending to other ports later), using technology and equipment from China’s ZPMC, which would increase moves to between 40 and 50 an hour. But, it would also reduce the number of dockworkers, which the trade union is dead against.

There has been no word on when the system might be introduced, even though the proposal was announced a year ago.

It is for this sort of reason that customers are shunning California.