2016 AN EVENTFUL YEAR Los Angeles-Long Beach at a Crossroads Bill - PowerPoint PPT Presentation

JANUARY 2016 2016 – AN EVENTFUL YEAR Los Angeles-Long Beach at a Crossroads Bill Mongelluzzo, Senior Editor, JOC Group Inc. bmongelluzzo@joc.com (562) 428-5999 @BillMongelluzzo

2016 – AN EVENTFUL YEAR | JANUARY 2016 • 2015 — RIP The issues • Impact of labor issues on container volume • The mega-ships have arrived • 2016 —Year of the carrier mergers? • Going forward, port productivity will rule • Los Angeles-Long Beach leading the port industry into the future 2

2016 – AN EVENTFUL YEAR | JANUARY 2016 2015 — RIP 3

2016 – AN EVENTFUL YEAR | JANUARY 2016 • West Coast ports began 2015 in the throes 2015 Was an of the worst labor problems since the 2002 Eventful Year – ILWU contract negotiations For the Wrong • ILWU work slowdowns crippled the ports and Reasons caused severe congestion • In Los Angeles-Long Beach, ILWU reduced by two-thirds the daily dispatch of yard crane operators • Employers retaliated by slashing night and weekend work • Ports went into total gridlock • 28 container ships at anchor during the depths of the port congestion • In terms of container volume, January and February almost didn’t happen 4

2016 – AN EVENTFUL YEAR | JANUARY 2016 • West Coast ports, historically the gateway for Cargo Diversion 50-55% of U.S. containerized imports, Reared its Ugly dropped to 46% in January-February Head • Cargo volumes in Vancouver and Prince Rupert exploded • East and Gulf Coast ports enjoyed double- digit growth while West Coast ports languished • ILWU work slowdowns ended with tentative agreement on Feb. 20 • West Coast ports began to claw their way back • By summer, volumes had returned to normal • Year-to-date through November West Coast down 3 percent from same period in 2014; LA-Long Beach 2 percent less than 2014 5

2016 – AN EVENTFUL YEAR | JANUARY 2016 • LA-Long Beach has been served by The Mega-Ships 13,000-14,000-TEU ships for several have Arrived years now • That’s one of the reasons why the Southern California gateway has experienced more congestion than most ports • Term “Big Ship” took on a whole new meaning in December with the arrival in LA of the 15,000-TEU Maersk Edmonton • Four days later, the 18,000-TEU CMA CGM Benjamin Franklin also docked at the APM Pier 400 terminal • Carriers continue to order big ships. Why? 6

2016 – AN EVENTFUL YEAR | JANUARY 2016 Big ships and their impact on ports Cost per TEU comparison Scale is the way to cut costs 7

2016 – AN EVENTFUL YEAR | JANUARY 2016 • 2010, the biggest ship in service was Carriers Ordering 14,000 TEUs Big Ships at Unprecedented • Today, carriers taking delivery of 20,000- TEU ships Pace • By 2020, more than 100 vessels with capacities of greater than 18,000-TEUs will be in service in the major east-west trade lanes (McKinsey) 8

2016 – AN EVENTFUL YEAR | JANUARY 2016 • 2015 saw a new record for vessel Carriers Ordering deliveries – 212 containerships with total Big Ships at capacity of 1.7 million TEUs (Alphaliner) Unprecedented • 32 of those ships have capacity of Pace 10,000-TEUs or greater • 20 of the ships 18,000 TEUs+ • 28 ranged from 13,800-17,900 • That means 80 ships that are too large for even the expanded Panama Canal entered service last year! 9

2016 – AN EVENTFUL YEAR | JANUARY 2016 • Big ships are good for West Coast Big ships and ports their impact on ports • Already have deep harbors; excellent intermodal connections to eastern half of country • West Coast ports have made he billions of dollars needed to prepare for big ships • But billions more needed for super post-Panamax cranes, automated stacking cranes, AGVs, etc. • Most of all, ports must make process changes to handle cargo surges 10

2016 – AN EVENTFUL YEAR | JANUARY 2016 • Container volumes in a slump There is too much vessel capacity in • Q3 2015 container throughput at top 30 global shipping! global ports declined 0.9 percent (Alphaliner) • Full-year growth in volume in 2015 globally estimated to be 0.8 percent • Yet total capacity in global container fleet increasing 6-7% per year. • As one would suspect, freight rates crashed in 2015 and should stay low • In Asia-U.S. trades, spot rate to West Coast last month below $800/FEU • East Coast AWS rate down to $1,600/FEU 11

2016 – AN EVENTFUL YEAR | JANUARY 2016 • So, where is the money for port Big ships and improvements going to come from? their impact on ports • Carriers are forcing down the per-lift rates they pay to terminal operators • Ports must be careful not to increase their fees too high in competitive environment • But improvements needed: Ports are straining to handle big ships. Congestion and long lines at MTO gates • Inland infrastructure and intermodal connectors are likewise stressed 12

2016 – AN EVENTFUL YEAR | JANUARY 2016 • No matter what they did last year Carriers could not carriers couldn’t raise their rates stop the bleeding • Blank (void) sailings in Asia-Europe trade totaled 145, or 8 percent of all scheduled sailings • Asia-Europe rates as low as $100/TEU • Carriers filed for GRIs almost every month, to no avail. Increases lasted only one or two weeks • Bunker fuel prices plunged to $140/ton from $547 in 2014, but carriers gave the savings to customers • Only answer: CONSOLIDATION 13

2016 – AN EVENTFUL YEAR | JANUARY 2016 • We could see more carrier consolidation Big ships and the next two years than ever before their impact on ports • 2015: Hapag-Lloyd-CSAV and Hamburg Sud-CCNI • 2016: CMA CGM in talks to purchase APL • COSCO and China Shipping Container Line in merger discussions • Koreans talking about merger of Hyundai and Hanjin • Do Japan and Taiwan each need three container lines? 14

2016 – AN EVENTFUL YEAR | JANUARY 2016 Port Productivity Will Rule The Day 15

2016 – AN EVENTFUL YEAR | JANUARY 2016 • Before the Benjamin Franklin arrived at Working the Pier 400, APM had meetings with CMA mega-ships CGM, labor, BCOs and other requires a team stakeholders effort • Equipment was ready – up to nine cranes working simultaneously • Ensured there would be a sufficient supply of labor for seven work shifts over three and one-half days • Ensured sufficient truck capacity, chassis, etc. • This effort must be repeated every week a mega-ship is in port 16

2016 – AN EVENTFUL YEAR | JANUARY 2016 • A big need for big cranes. APM has 14 Ports and cranes, but none tall enough to handle terminals must 18,000-TEU ship with containers 10 high invest big bucks on deck for big ships • Will probably raise all cranes to167-foot height • But wait! With four berths, can APM work up to 9 cranes against three or four ships at berth simultaneously? • An 18,000-TEU ship at 90% utilization can generate 17,800 container moves per vessel call • Where are all of those containers going to go as they are loaded on/off the ship? 17

2016 – AN EVENTFUL YEAR | JANUARY 2016 • APM Pier 400, at 440 acres, is largest Big investments terminal in LA-Long Beach in terminals ahead • But if APM needs to do more to handle the big ships, what must the other 12 terminals in the port complex do? • This also begs the question, what about the ports themselves in terms of roadway and intermodal rail connectors? • LA-Long Beach has no choice but to invest – No other U.S. gateway comes close to Southern California in ability to handle big volumes and big ships 18

2016 – AN EVENTFUL YEAR | JANUARY 2016 ILWU-PMA CONTRACT 19

2016 – AN EVENTFUL YEAR | JANUARY 2016 “I believe in corporations; I believe in ILWU-PMA trade-unions. Both have come contract to stay, and are necessities in negotiations our present industrial system. But where, in either the one or the other, there develops corruption President Roosevelt in or mere brutal indifference to McClure’s Magazine : rights of others, and short-sighted refusal to look beyond the moment’s gain, then the offender, whether union or corporation, must be fought, and if the public sentiment is calloused to the iniquity of either, by just so much the whole public is damaged.” 20

2016 – AN EVENTFUL YEAR | JANUARY 2016 • Work slowdowns did NOT have to ILWU-PMA happen this year contract negotiations • 2014 contract was not a watershed contract like those in 2002 and 2008 • Everything the ILWU (local) leaders held out for was out of greed. Nothing was out of need. • But that was then and this is now. • One issue is for certain – current contract does not promote the level of productivity needed to handle big ships operated by big alliances 21

2016 – AN EVENTFUL YEAR | JANUARY 2016 • RELIABILITY is absolutely needed Need for improved port productivity • Even minor slowdowns and work stoppages can not be tolerated • New three-member arbitration board in each port should keep maverick work stoppages to a minimum • Yes, small, repetitive delays in cargo delivery add up and kill productivity, such as mandatory ILWU roadability inspections of chassis • Are these inspections even legal? 22