Port Firms Move to Buoy Business

0
Port Firms Move to Buoy Business
Sea Change: Capt. J. Kip Louttit

When the MSC Valeria steamed into the Port of Long Beach in 2013, it carried 14,000 20-foot cargo containers. It was the biggest container ship ever to dock at either of the local ports – and a sign of things to come.

Since then, massive ships nearing the Valeria’s size have become more common, which means that even as the amount of cargo coming into local ports is growing, that cargo is coming in on fewer, bigger ships. That’s forcing local businesses that have long charged by the ship for their services to find ways to offset falling revenues.

The trend has hit ship pilots, tugboat companies and a non-profit association that monitors shipping traffic, among others. Some have already raised their fees or tacked on new ones to target bigger ships, while others are still struggling to figure out how best to adjust to the megaships without drawing the ire of their customers.

“Our fee structure is based on ship count, and ship count is down 25 percent since 2007,” said Capt. J. Kip Louttit, executive director of the Marine Exchange of Southern California, a San Pedro non-profit that controls ship traffic for the harbors. “If you’re ship-count funded, that creates a problem.”

Cargo ships have been getting bigger for decades. The ports last year handled 6.5 percent more cargo containers than they did in 2005 even though the number of ship calls was down 24 percent. (See chart.) Ship service businesses say the shift has grown more pronounced in recent years.

That’s a big problem for the Marine Exchange. From its hilltop office overlooking the two ports, the non-profit and its technicians are to cargo ships moving into and out of the ports what air traffic controllers are to passenger jets.

For that service, it charges each ship $385. That fee brings in about $1.8 million annually and is the exchange’s biggest source of revenue, Louttit said.

But as the number of ships coming and going has steadily fallen, the exchange’s board has been searching for ways to keep from running aground financially. Loutit said it’s tough, though, as simply raising the standard fee could anger port customers – who have the option of going to competing ports.

“Any of that is seen as not being business friendly – when you increase a charge for something,” he said. “It’s not an easy solution and that’s why we’re exploring other options.”

Game-changers

New big ships on the ocean today can carry as many as 18,000 20-foot-long cargo containers, about four times as many as the ships commonly built in the 1980s and 1990s. Those largest of the large haven’t called on local ports – yet – but they’re expected over the next few years.

Shipping companies are able to fill these bigger vessels thanks to new and growing alliances among competing firms. Maersk Lines ships used to carry Maersk containers only, and likewise for other carriers. But now lines have essentially teamed up, putting many companies’ cargo onto bigger ships.

Those alliances and their use of massive ships ultimately save money for shipping companies, said David Arsenault, president of American operations for Seoul, South Korea’s Hyundai Merchant Marine, the seventh-largest shipping line serving the local ports. Hyundai has ordered at least 10 ships that can carry 13,000 containers each, though those ships, for now, will likely be used in a Europe-Asia trade route and will not call on U.S. ports.

For some ship-service companies at the local ports, bigger ships can justify higher rates because they’re more difficult to work with or need special equipment.

Family-owned Jacobsen Pilot Service Inc. in Long Beach, which provides harbor pilots who take over and steer cargo ships into the Port of Long Beach, spent a year getting port approval for a new weight-based fee it charges shipping companies.

The piloting company started making that change in 2013 after seeing a drop in the number of ships it serves, said Capt. Thomas Jacobsen, the company’s chief executive.

In fact, its whole revenue structure – which now includes a charge based on how low a ship sits in the water – has changed to address the trend of bigger ships by charging them more and smaller ships less, he said. In the case of Jacobsen Pilot Service, the company contends that moving these bigger ships is harder and therefore should cost more.

“The ships sit deeper in the water when carrying more cargo; they are heavier and it makes our job tougher and takes more manpower to get the ship to dock,” Jacobsen said.

The huge new ships create an even bigger problem for Crowley Marine Services Inc., a Jacksonville, Fla., company that operates tugboats at the local ports. Not only do the big ships mean fewer total ships coming in, but the new vessels are also more advanced and need just one tugboat to move in and out of the harbor, not the standard two. And as the even bigger ships come – the 18,000-container vessels that are expected over the next few years – Crowley will need to upgrade its tugboats with more powerful engines that can handle the massive ships, said Scott Hoggarth, vice president of Crowley’s tugboat division.

Upgrading those boats will be an expensive process, and one Crowley must undertake even as it sees fewer ship calls. That will mean the company will have to change how it charges customers, Hoggarth said, though, like the Marine Exchange, it’s not clear what Crowley will decide to do.

“Our rate structure is going to need to be adjusted to meet that requirement or demand,” Hoggarth said. “Our overall picture might be fewer tugs, but we will need to charge more for those tugs. That’s what we foresee.”

Shippers, though, aren’t likely to appreciate fee increases.

Hyundai’s Arsenault said he hasn’t seen higher fees yet, but that his firm and others take all costs into account when deciding where to send their cargo. That means increased fees at Los Angeles and Long Beach could make the local ports less attractive if operators elsewhere don’t raise fees, too.

“Every dollar counts,” he said. “Any increase in cost is obviously moving us in the wrong direction.”

No posts to display