Mega ships leaving ports increasingly (financially) vulnerable, Long Beach official says

Source: Journal of Commerce

 | Sep 18, 2014 8:30PM EDT

“Larger vessels provide many advantages to liners, shippers and beneficial cargo owners, not the least of which is the reduction in the per-container cost to transport cargo,” Noel Hacegaba, acting deputy executive director and chief operating officer at the Port of Long Beach, wrote in a recent paper.
“However, it is thought that few or no advantages trickle down to the port authorities, which are pressured to deliver water (dredging) and landside (capital, infrastrcture and productivity) improvements to accommodate the bigger ships, whose advantages may be diminished without such improvements,” he wrote.
The paper reflects the growing frustration of ports like Long Beach, which cannot control the arrival of larger ships–a trend driven entirely by carriers seeking to reduce unit costs as their most promising avenue to profitability at a time when rates are volatile and commoditized. Yet unless the port takes measures to accommodate the bigger ships, carriers will bring them elsewhere. Thus despite ship visits from mega ships not being guaranteed, especially for Long Beach and many other ports around the world that face nearby, and intense competition, the port has no choice but to invest or risk being left out of the mega-ship game entirely, which would threaten its long term survival. With recent orders for ships of 19,000 TEUs and vessels of 22-24,000 TEUs not far away, the growth in ship sizes is accelerating, with big ships increasingly being blamed for growing arrival delays and port congestion witnessed this year in North America, Europe and Asia
The risk of being left out is greater now with the formation of global alliances; indeed with the announcement last week of the Ocean’s Three alliance of CMA CGM, United Arab Shipping and China Shipping Container Line, for the first time all major east-west carriers (with the exception of Zim) are committed to an alliance that covers all three major east-west trades, the trans-Pacific, the trans-Atlantic and Asia-Europe. The deployment decisions made by the O3 and the other alliances, the G6, CKYH-E and the recently formed but not yet approved 2M comprised of Maersk and Mediterranean Shipping Co., is certain to create winners and losers among ports.
“The combination of the growing vessel capacity and the formation of new alliances is creating a new and daunting challenge for U.S. port authorities, which have to make important decisions with significant long-term ramifications,” Hacegaba wrote.
“Carriers that currently call at a particular port may shift their cargo to neighboring ports in accordance with the vessel deployment strategy agreed upon by the alliance partners,” he said. “Although this scenario may play out in only those regions where alliance partners call at neighboring ports, the potential consequences for those ports could be considerable.”
“All of these changes in the industry are leaving ports in a vulnerable position.”
Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.