Terminal rationalization

   Most large U.S. container ports are chopped into multiple terminals and operate as separate units, but the traditional layouts may not be well suited for the new dynamics in maritime shipping.

   The liner industry’s rapid transition to much larger vessels has strained ports and inland infrastructure. Today’s leviathans of the sea can dump up to three times as much cargo at one time than previous generation vessels, which takes much longer to unload and can cause congestion without adequate cranes, longshoremen, storage areas, chassis, rail capacity and efficient truck gates. New carrier alliances are compounding the situation, as companies share vessels and then steer them to different terminals each week depending on the arrangement of the underlying vessel operator. Fifty-six percent of the containerships on order worldwide are 14,000 TEUs or larger. Over the holidays the ports of Los Angeles and Oakland welcomed the largest vessel to ever enter a U.S. port—CMA CGM’s 18,000-TEU Benjamin Franklin.

   Major gateways such as Los Angeles, Long Beach, New York/New Jersey, Norfolk, and Oakland have been plagued for three years with severe backlogs due to inefficient processes and terminals configured decades ago for much smaller vessels. The systemic challenges were magnified a year ago by a labor dispute that slowed productivity at West Coast ports and forced many retailers and manufacturers to divert shipments, resulting in a surge of cargo at East and Gulf coast ports. Cargo is flowing more smoothly in recent months due to extensive industry collaboration to reform operations, such as right-sizing chassis fleets, adding cargo-handling equipment, creating free-flow systems for truckers (as opposed to picking up an assigned box), and quickly flushing containers to off-dock depots where sortation to final destinations are made.

   “The big ships and the mega-alliances together have accelerated this issue,” Peter Ford, chief strategy officer for Ports America, said. “Most of the ports in the U.S. are too fragmented. We think consolidation is absolutely something that port authorities should encourage port operators to take on.” Ports America is the largest terminal operator and stevedore in the United States. In a typical year, it handles more than 13.4 million TEUs, 2.5 million vehicles, 10.1 million tons of general cargo and 1.7 million cruise ship passengers.

   “A terminal without enough berth for at least two ultra-large vessels, plus a smaller ship, doesn’t do anyone any good today—it’s not big enough. The larger ships are 400 meters, so you need at least 1,200 feet of berth to be able to cater efficiently to the new vessel schedules,” Ford said.

   One port that has remained mostly fluid despite a record cargo influx is Georgia’s Port of Savannah. Some look to it as a potential model for how ports should be configured to handle big ships. Savannah set an annual record in 2015 for container throughput with 3.48 million TEUs—with only 11 months in the books so far (full-year figures were reported after press time). In 2014, Savannah experienced a 10.2 percent growth in container volume to 3.34 million TEUs. On a fiscal year basis through the end of June, TEU volume was up 17 percent at Savannah and double-digit growth was common in several months.

   The port is handling volumes it didn’t anticipate until 2018.

   Although some diverted cargo has returned to the West Coast following the dockworker’s contract settlement, shippers say they are pleased with the reliability, performance, predictability and proximity to consumer markets provided by Savannah, and intend to continue re-routing a portion of their Northeast Asia shipments via the Panama Canal.

   An advantage that sets Savannah apart from other ports is that all container operations are concentrated on one enormous facility—the Garden City Terminal.

   At 1,200 acres, it is North America’s busiest single terminal for container trade. Officials say it allows for maximum efficiency and flexibility because all manpower, technology and equipment are co-located in one area, along with nine contiguous berths spanning 9,693 feet.

The setup means truck drivers don’t have to go hunting among different facilities for chassis and boxes, which helps to keep average turn-times under an hour for double moves.

   “Any day, I’d rather have a single 14,000-TEU vessel than three 4,000-TEU ships,” Georgia Ports Authority Executive Director Curtis Foltz said at a private briefing on port productivity in December 2014.

   A few months later he said Savannah was prepared for the unexpected influx in volume because the state of Georgia had the foresight to invest heavily in infrastructure and create one big terminal with the scale to achieve better efficiency than several, disconnected smaller terminals.

   Carriers give little warning when

they introduce big ships into service, so it helps to be ahead of the curve with the necessary cranes, wharf upgrades, rail capacity, roads and cargo-handling equipment, he said.

   The GPA operates under a 10-year planning cycle that is updated every two years. Officials study economic trends and project future box volumes, identify needed projects to accommodate that growth, and develop a financing plan.

   “Our board directed us to invest in capacity that exceeded our projected demand by 20 percent at any point in time,” Foltz said.

   The GPA board has approved $142 million worth of improvements for the current fiscal year, including an empty container yard with space for 15,000 TEUs, a new truck gate with eight additional interchange lanes, four ship-to-shore cranes and 30 rubber-tired gantry cranes.

   Capital expenditures and consolidation of container storage areas to create more space over the next decade will increase annual throughput from 4.5 million TEUs to 6.5 million TEUs. By 2024, Savannah is expected to feature about 30 ship-to-shore cranes, up from 22 today, and 169 rubber-tired gantry cranes.

   Savannah’s Achilles’ heel is water depth, but a multi-year project is now underway to dredge the Savannah River to 47 feet.

   The new mega-alliances among carriers have added to the need for the additional scale because equipment (i.e. chassis and containers) frequently have to be shunted between terminals to match up with where vessels dock, experts agree.

   In Los Angeles and Long Beach, for example, “you have multiple terminals and very few of them can handle the entire alliance volume, let alone the large-ship combination,” Ford said.

   Pier 400, operated by APM Terminals, is the largest of seven container terminals at the Port of Los Angeles with nearly 400 acres and five berths. Last spring, the company worked three 13,000-TEU vessels during an eight-day period, including two days in which all three were alongside, accounting for 34,465 container moves, which remains a North American record, according to the company.

   At the Intermodal Association of North America’s annual conference in Fort Lauderdale, Fla., last September, Port of Los Angeles Executive Director Gene Seroka acknowledged the industry would be better served with fewer terminal operators controlling a wider swath of property.

   Together with the Port of Long Beach, there are 13 terminals in the San Pedro Bay port complex, represented by 11 different companies. Getting some of them to voluntarily exit the market is likely to be controversial.

   Seroka said simplifying operations is part of the overall discussion that must be had to make the ports attractive to beneficial cargo owners.

   “Some of the thought leaders in this industry are already sitting down with us on this topic. Others will be laggards and some will be very difficult to bring into this conversation. But, I think for the betterment of the industry and our service delivery capabilities, it has to take place, whether it be tomorrow or in the future,” Seroka said.

   Meanwhile, the twin Southern California ports are focused on maximizing land-use opportunities by knocking down fences within terminals, repurposing underutilized land and providing larger backlands to stack containers.

   One of the biggest projects is the $330 million expansion of the TraPac terminal, which when completed in 2017 will encompass 220 acres. It will include some of the most automated container-handling equipment in the world and on-dock rail for the first time.

   And the Middle Harbor redevelopment project in Long Beach, expected to be completed by 2019, involves combining two existing terminals into one, along with technological and rail upgrades.

   At the Port of Los Angeles, terminals and ocean carriers increasingly coordinate where to dock a vessel based on ship size and berth availability. Big ships are directed to bigger terminals and smaller ships to smaller terminals, when possible, Michael DiBernardo, the deputy executive director, said. When CMA CGM, for example, brought the 18,000-TEU Benjamin Franklin to Los Angeles on a trial run it went to APMT’s Pier 400 rather than West Basin Container Terminal—the carrier’s normal stop.

   “We have long-term contracts with our marine terminals. Certainly our plan is to honor those contracts,” Noel Hacegaba, chief commercial officer for the Port of Long Beach, said in an interview. “Our focus right now is on improving operational efficiencies within the construct that exists today.” The port authority is also conducting a study to help determine the best use for existing land. PortMiami is contemplating whether to knock down the fence separating two of its three terminals to allow more room for storage and cargo-handling equipment to run back and forth between container stacks and vessels, Port Director Juan Kuryla told American Shipper.

   “By not having a fence, and maybe developing another row of containers, you can accommodate more throughput in that same square footage,” he said.

   The new footprint could be shared by the existing terminal operators with flex space in the middle that would be available to the company that had more vessels and box volume at a particular time, he suggested.

   Port officials are also considering combining two existing truck gates into a larger, unified one that they say would allow cargo to be processed faster.

   “The investments required to provide the scale and infrastructure can easily be funded by higher rates from the lines who will gain the full impact of the economies of scale these larger, better equipped terminals will provide,” Ford said.

   There are ways for port authorities to consolidate even if terminal leases overlap, he added. One option is to wait for a lease to expire and then offer a single concession to a neighboring leaseholder to take on the expanded footprint. Some stakeholders might be encouraged to divest, as many ocean carriers have done in recent years with their terminal assets, in favor of a new investor willing to manage combined terminals.

   In the summer of 2013, the Port of Oakland, under legal pressure from long-term tenant SSA Marine, created a “mega-terminal” by combining three terminals into one.

   Under the agreement, SSA, the incumbent at Oakland International Container Terminal, renewed its lease and picked up the lease of the Global Gateway Central terminal after APL exited the terminal business. Additionally, SSA was assigned the lease to berths 55-56, previously operated by Total Terminals International, through 2016, with an option to extend to 2022.

   The moves created a 350-acre terminal, which the port authority said was better suited to meeting the needs of ocean carriers.

   At the time, the port authority faced the expiration of all four terminal leases along its middle and inner harbors in 2016 and 2017. Further, those leases all had very short renewal notification periods, leaving the port vulnerable in the event one of the operators decided not to renew its lease. Maher Terminals in New Jersey, which has been up for sale for 18 months, also presents a consolidation opportunity given that it sits between Port Newark Container Terminal (operated by Ports America) and the APM Terminals’ facility.

   “If you look at the landlord ports, there’s clearly an argument to be made that you probably don’t need 13 different terminal operators in L.A.-Long Beach. You may not even need four in New York/New Jersey,” James Newsome, chief executive officer of the South Carolina Ports Authority, said Jan. 11 at the Transportation Research Board convention in Washington, D.C. “You can’t work an 18,000-TEU ship on a 100-acre terminal.”

   The port authority operates four terminals at the Port of Charleston and can steer ships to the facility best suited to handling them—a luxury that ports with multiple operators do not have, he said. The Port of Virginia, also an operating port, reopened the idle Portsmouth Terminal in 2014 to provide extra capacity for container operations in the midst of a congestion crisis. The port authority was unsuccessful finding non-container tenants for the facility when container business was slower, and port officials now look fortuitously on their bad luck. Portsmouth has older equipment and shallower draft at the wharf, but is now a critical relief valve for Norfolk International and Virginia International Gateway terminals, handling about 100,000 TEUs. Port managers now direct to Portsmouth smaller services that deploy ships of 5,000 TEUs or less so the other terminals can concentrate on the neo-Panamax vessels, according to Thomas Capozzi, chief sales officer for the Port of Virginia.

   Reade Kidde, director of international logistics for Home Depot, echoed the sentiment during another TRB panel.

   “I think we should have that conversation. Is it a tough conversation? Absolutely. But we should have the conversation” about mega-terminals, he said.