APL expects to benefit from CMA CGM’s decision to maintain its longtime brand.
CMA CGM’s is targeting the Asia-North America trade for growth by acquiring Singapore-based Neptune Orient Lines, and choosing to maintain APL, whose name and eagle logo are among the most recognized shipping brands in the transpacific trade and the United States. The purchase is expected to be completed sometime this summer.
Formerly known as American President Lines, APL has a storied history with roots that extend back to the days of clipper ships. Its first steamships carried “Forty-Niners” to the California Gold Rush. It was an early container carrier, pioneered land-bridge services and double-stack trains, and built the first post-panamax containerships.
Rodolphe Saadé, vice chairman of Marseilles-headquartered CMA CGM, said his company expects when the APL deal is finalized the French liner carrier will jump ahead of Mediterranean Shipping Co. and Maersk to become the largest carrier moving containerized freight in and out of the United States.
“The U.S. market, especially with the APL acquisition, is becoming a very important market for us,” Saadé said. With the addition of APL, U.S. trade is expected to increase from about 15 to 16 percent to about a quarter of CMA CGM’s overall business.
Last year, CMA CGM had spectacular growth in U.S. trade, increasing volumes by 30 percent to 2.3 million TEUs, and with APL under its wing, volumes could soar further.
CMA CGM “has reiterated many times that it is their intent to not only keep, but build the APL brand,” said Ken Glenn, president of APL. “This is certainly viewed as positive news both by our associates internally, as well as our customers.”
Glenn noted in an interview with American Shipper that because the acquisition of APL still needs to be approved by government regulators, the two companies have been limited in what they can say about how the combined companies will operate.
For example, there haven’t been specific discussions about trades, countries, or customers, he said.
But he noted APL has “particular strengths which are quite complementary to what CMA CGM is seeking to do,” including APL’s strength in the transpacific and intra-Asia trades, particularly the Far East-Middle East trade.
CMA CGM’s desire to grow APL is welcome news, he said.
“While we have done a good job on reducing costs and improving our earnings—or at least reducing our losses—the top line has been under pressure mainly from declining rates and the fact that we have not added significant capacity,” Glenn said.
In 2015 APL moved about 4.94 million TEUs of cargo, but its volumes have been declining each year since 2012 when it carried 6.18 million TEUs. Last year NOL had liner revenue of $5.41 billion, down from $8.05 billion in 2012.
The larger scale of CMA CGM—with annual volume of 13 million TEUs and revenue of $15.7 billion in 2015—will be a benefit to APL, Glenn said.
“There’s a strong correlation between scale, size and unit costs. They’re obviously a significantly bigger carrier, so from our perspective, the ability to share, gain some of the benefits that they have in terms of scale costs, will clearly be welcome news for us,” he added.
APL, which is part of the G6 alliance with Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK and OOCL, has committed to remaining in the alliance through Chinese New Year in 2017, he said.
After that, CMA CGM has indicated APL will join the Ocean3 Alliance in which it has been operating with China Shipping and United Arab Shipping Co.
While there are widespread rumors about how the Ocean3 and other alliances will be reorganized in the coming year, Glenn said the plans of carriers remained “just a matter of speculation.”
However the carrier alliances shake out, it is pretty clear CMA CGM has very big plans for the Asia-U.S. trade: in May it will start using the 18,000 CMA CGM Benjamin Franklin and five sister ships in a transpacific rotation.
It’s a bold move. Deployment of what CMA CGM calls the “Great Explorer-class” ships comes years earlier than many observers expected to see such large ships on the U.S. West Coast, and sooner than some think terminals here will truly be able to handle them efficiently. Indeed, the cranes at the Pacific Container Terminal in Long Beach and Oakland International Container Terminal, where the ships will call, are being raised so these big ships can be fully loaded, something the CMA CGM Benjamin Franklin was not able to do when it made two trial runs to the West Coast this winter.
Jeseper Stenbak, head of transpacific trade for APL, said unlike some other trades around the world, the transpacific trade has been growing at a rate of 2 to 3 percent, and as 2016 develops “we could be looking at 3 to 5 percent growth, and there might even be people who are saying 5 to 7 percent.”
APL currently deploys about 20,000 TEUs of capacity on 15 different services between Asia and North America, including five to the U.S. East Coast—three that transit the Suez Canal and two that transit the Panama Canal, and is expecting to increase that deployment in the summer by about 6 percent to handle peak-season cargo.
Panama Canal. Glenn said he does not expect the widened Panama Canal will cause a material impact on the mix of cargo moving from the Far East to the United States via the West and East coasts.
“We believe that most of the cargo that is East Coast discharge has already moved. There has been a steady migration of cargo moving from West Coast to East Coast for many years now,” with much of that moving on services that transit the Suez Canal where there are no restrictions on the size of containerships, he said. Singapore-based NOL pioneered trans-Suez services from the Far East to the U.S. East Coast even before it acquired APL in 1997.
More likely, Glenn said, are two other changes resulting from the Panama Canal expansion. The first is that various strings may be combined. Second, he said, some of the cargo that moves today via the Suez Canal and originates in South Korea, Japan, or Shanghai and more northerly Asian ports, may start using ships on Panama routings.
This change, he said, could happened this year, if the Panama Canal opens its new set of locks on schedule.
Stenbak said he expects most carriers will seek to increase the size of their ships moving through the Panama Canal soon after the new locks open.
“We are probably looking at services around 10,000 TEUs down to maybe 6,000-8,000 TEUs,” he said, although noting this is still a subject of discussion by G6 members and will depend on ship availability.
Normally the G6 increases the number of services it operates from the Far East to the U.S. East Coast from two to three in its summer deployment. With the ability to operate larger ships when the expanded Panama Canal opens, the G6 will probably continue to operate two loops, but with much larger vessels, Stenbak explained.
U.S. Flag Flying. Last year, APL reorganized its U.S.-flag fleet, concentrating six of its nine U.S. line-haul ships into a single string in the transpacific, which it calls the Eagle Express 1 (EX1) with a Los Angeles, Oakland, Dutch Harbor, Yokohama, Busan, Naha, Qingdao, Shanghai, Busan, and Los Angeles rotation.
APL also has three feeder ships that fly the U.S. flag: one that transits between Yokohama and Guam in coordination with the EX1, a second in the Mediterranean that transits between Turkey and Egypt, and another that serves various ports on the Persian Gulf.
In addition to a focus on military and other government cargoes, Glenn said the EX1 service is focusing on customers in the garment and textile market that find the 13-day transit time from Shanghai to Los Angeles attractive.
“Customers were consistently telling us that there was a need for more capacity and better service in the fast transit time segment, and so what we put together was in direct response to that,” Glenn said. “Early returns on it are very favorable.”
Because APL is using relatively small U.S.-flag ships (BlueWater Reporting says they have average capacity of 4,944 TEUs), Glenn said the ships are not constrained by draft limitations at the Waigaoqiao terminal in Shanghai the way some ships in the transpacific services are.
(Ships in the Asia-Europe trade do not face any draft limitations calling Shanghai, because they call Yanghan, the deep-water port built on an island far offshore.)
While APL’s other transpacific services are part of the G6 alliance, APL has kept the EX1 service for itself, running the ships and taking all of the capacity.
“We all accept and acknowledge that alliances are here to stay and we need to be a part of them, and we also generally see that customers are driving towards more low-cost models, so that’s part of delivering that product,” Stenbak said.
APL is marketing the EX1 service as a high reliability product, publishing key performance indicators that showed, for example, in January the ships had 100 percent on-time performance when arriving at APL’s Global Gateway South (GGS) terminal in Los Angeles.
(GGS is one of five terminals APL owns. The others are in Dutch Harbor, Alaska; Kobe and Yokohama, Japan; and Kaohsiung, Taiwan. It also has joint-venture terminals in Qingdao, China; Laem Chabang, Thailand; Ho Chi Minh, Vietnam; and Rotterdam, the Netherlands.)
To make the EX1 more attractive, an outbound call in Yokohama was eliminated so that the transit time could be reduced, and the date of arrival in Los Angeles was changed from Thursday to Tuesday to assure cargo being discharged could be released by Friday, at the latest, and not be at the terminal over the weekend.
The company is offering a special product called “Eagle Stow” in which it guarantees discharge of “hot boxes” onto truck chassis from the EX1 within 12 hours of the ship arriving at GGS.
“It might be within two hours, it might be within four hours, but what we are guaranteeing is within 12 hours,” Stenbak explained. Unlike for other cargo at GGS and many other terminals in Los Angeles and Long Beach, truckers can make an instant appointment to pick up Eagle Stow boxes.
The company is also offering Eagle Stow for the G6’s South China 1 service, which calls at GGS and arrives on Mondays.
Greg Tuthill, APL’s head of operations for the Americas, said truck turn-times have been averaging less than an hour at GGS. The company also offers a “peel-off” program for rapid evacuation of containers from the terminal to customers who have more than 50 FEUs.
About 40 percent of APL’s transpacific traffic is inland-point intermodal traffic, and at GGS the terminal receives 12 to 15 trains each week, and has eight tracks for loading trains and nine tracks for storing them.
APL partners with the Union Pacific and operates an intermodal train out of Seattle-Tacoma, as well. Glenn said the company used to offer many more land-bridge services out of the Pacific Northwest, including service to New York.
“That was an extremely good market, an attractive market for APL for many years,” he said, but “most of that cargo has since migrated to all-water service because the cost differential was significant.”
With 292 acres, GGS has four 1,000-foot berths, four super post-panamax and 12 post-panamax electric shore cranes, and ample space to grow.
Tuthill said GGS can accommodate larger ships which are expected to be cascaded into the transpacific as even larger 20,000-TEU ships begin to be delivered by shipyards and deployed in the Asia-Europe trade, but that additional investment will be required.
Talking about this year’s contract negotiations, Stenbak said it is “no secret the last couple of years’ supply and demand has not necessarily been in the carriers’ favor, so that is setting certain expectations on how things are developing rate-wise,” as APL and other carriers negotiate contracts with shippers on the transpacific where many annual contracts run from May 1 to April 30.
“We have seen good traction in our contract negotiations,” Stenbak said. The carrier is capturing the incremental cargo it needs to feed the increased capacity it is bringing on stream, he added.