Facing up to Western Seaboard realities
Anxiety over the COSCO-OOCL deal and a loss of traffic on the US West Coast are occupying port managers' minds. Martin Rushmere reports
Analysts warned right from the start when COSCO bid for OOCL that there would be problems with ownership of Long Beach Container Terminal, and so it has proved. The ghost of the debacle over DP World's takeover of P&O in 2006 has now arisen, when the Dubai company was forced into what some critics referred to as a ‘fire sale’ to sell operations at more than a dozen ports to what is now Ports America under the guise of national security ‘concerns’.
At the time of writing, analysts believe that COSCO had a very low percentage chance of being allowed by the Committee on Foreign Investment (CFIUS) to keep the Long Beach terminal, rumoured again to be because of national security concerns.
COSCO knows this but is anxious to cut its losses on the investment and not meet the same fate as DP World. OOCL in 2012 agreed to a 40-year, $4.6bn lease with the port. COSCO has offered to park ownership of the terminal in a trust until a buyer can be found.
The most worrying aspect for the port is its involvement in the 10-year $1.4bn modernisation and consolidation of the terminal – known as the Middle Harbour Development – due to end in 2020. Other foreign terminal owners could be reluctant to get tied up in capital investment or insist on strong legal and financial guarantees in the case of change of ownership.
The betting is that the terminal will have to be offloaded, with a very short deadline imposed. Special dispensation might be made, as was the case with communications company ZTE, in being exempt from White House sanctions.
Climate change acceptance
Down the US West Coast, the threat of rising sea levels is occupying the minds of San Diego, which is taking climate change seriously in a political climate that forbids acceptance of the notion.
The Port of San Diego has agreed to team up with the US Navy to plan for possible sea level rise impacts, in the form of a Memorandum of Agreement (MoA) with Commander Navy Region Southwest.
The agreement allows the port and the navy to share data, look at the latest and best scientific information and modelling for sea level rise and develop policies and measures.
"This MoA is yet another indication of the close and productive relationship between the Port of San Diego and the Navy, a relationship that benefits the entire San Diego region,” said Rear Admiral Yancy Lindsey, Commander Navy Region Southwest. “The potential impacts of sea level rise do not recognise jurisdictional boundaries and demand collaboration among all stakeholders. We look forward to continuing to work closely with the port, local municipalities, and other interested parties on this challenge to ensure the resiliency and viability of our Navy installations, San Diego Bay, and its surrounding communities, now and into the future.”
The port has been putting together its own study and assessment of how sea level rise could affect its facilities and infrastructure. Phase One involves an assessment of how vulnerable San Diego is to flooding as a result of sea level rise and major storms.
“The port and the navy are responsible for the San Diego Bay coastline – it's vital that we work together to evaluate and plan for the potential impacts of sea level rise,” said chairman Rafael Castellanos, Port of San Diego Board of Port Commissioners. “Our partnership ensures that we will continue to be a resilient, strategic port and economic engine well into the future.”
Market share concerns
For all the major ports on the US Western Seaboard, a reality that they have been trying to avoid is now having to be faced – loss of market share.
Analyst and consultant Jock O'Connell of California's Beacon Economics says the evidence is plain, echoing an assessment by London-based Clipper Maritime. "By all measures – teu, alleged dollar value, and cargo tonnage – the major US West Coast ports have seen their collective share of the nation's containerised trade ebb in recent years. And the diminishing market shares have been most evident with respect to the transpacific trade on which those ports long feasted,” he says in a commentary for the Pacific Merchant Shipping Association. The association has been warning for years of the dangers of ignoring US East Coast and US Gulf Coast competition and increasing productivity and lower costs.
His figures show that the US West Coast ports now account for about 55% of containerised import tonnage from East Asia, down from more than 70% in 2003.
Mr O'Connell is severely critical of Los Angeles/Long Beach for being unsure of, and even blasé about what effect the widened Panama Canal is having on traffic, particularly high value and time-sensitive cargo. He notes that between October 2017 and May this year, 769 neo-panamax vessels sailed through the canal. “Just two years ago, of course, that number was zero. “
Satish Jindel, principal at SJ Consulting of Pittsburgh, Pennsylvania, notes that shippers took a while to realise just how much more cargo they could send through the widened Panama Canal, but they are now taking advantage of the route. “Labour on the West Coast is seen as tougher to deal with than on the East Coast, the I-710 freeway from Los Angeles has become a parking lot. The West Coast is targeting the bigger ships (14,000 teu) but these are slowing down transit times – everyone wants their goods today, not tomorrow.”
He offers lukewarm support for the megaships of 18,000 teu and above because of their enormous infrastructure needs and logistics complexity. “I hope they don't end up like the Airbus 380 – only a few airports and a couple of airlines – which take so long to fill and unload.”
SJ Consulting’s clients fully support California's environmental programmes “but there has to be a balance with the business aspect and keeping the West Coast competitive. The labour unions are not as open to technology as their East Coast counterparts. If a client wanted to use autonomous vehicles and similar technology they would probably find a more favourable location.”
In a fresh attempt to get better co-operation from the ILWU, this year Los Angeles is setting up a Labor Relations and Workforce Development division to work with the Pacific Maritime Association – the bargaining body for the terminal employers – and the union “to jointly create innovative training programs that would train longshore workers so that they can continue to do their work in a safe and efficient manner.”
Mr Jindel says the trend for switching to the US East Coast will continue “but it will stabilise. Of course, Panama Canal fees could well be a factor in determining the trend.”
On port efficiency Mr Jindel says the willingness of the unions to co-operate is equally, or more, important as design and layout and similar technical factors. “You get high school graduates earning hundreds of thousands of dollars. People need to be more aware of how the situation stands or the ports will become like the steel industry – from hundreds of thousands [of employees] in 1979 to 50,000 today.
“The unions are not bad people. They just need to be more aware.”
He says US ports have fallen way behind in efficiency compared to those in Europe. “However, we must remember that US ports traditionally were not an important factor in the economy as we could consume what we produced.”
He forecasts that US West Coast smaller ports will stay very much the same, serving niche markets, with business fluctuating slightly.
DIFFERENT CARGOES A BREATH OF FRESH AIR
Some ports on the US West Coast are diversifying from their traditional activities to ensure their viability in the future.
The outstanding example is the base at Los Angeles for the SpaceX Mars rocket, which could herald the beginning of a transformation for the port.
Port of Portland, plagued by misfortune and circumstances beyond its control, is reaping the benefit of setting up the Gresham Vista Business Park. UK synthetic diamond manufacturer Element Six, which is part of De Beers, is setting up a $100m manufacturing plant, covering 5,500 square metres and scheduled to be fully operational by 2020.
For the smaller ports, a recent surprising legal decision could make a difference in the future. A judge overturned an Oakland regulation that bars terminals from handling coal. Although this is not expected to result in trainloads of coal heading to the port – a massive public outcry and legal suits from environmental groups would be certain – coal exporters could use the decision to resume stalled efforts to open terminals at other ports along the West Coast.
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