A wave of consolidation in the global shipping industry has brought about changes in cargo movement at the ports of Los Angeles and Long Beach.
Recent mergers, bankruptcies and the formation of shipping alliances – which give carriers a chance to cut costs by sharing space on vessels – all have played a role in the sea change.
The result so far at the local ports: More than half of the top 25 shipping lines on the Business Journal’s list as ranked by container volume at the L.A. and Long Beach ports in 2016 have actually merged or plan to combine operations with at least one other on the list.
“Since the onset of the Great Recession, the shipping industry has lost billions,” said Michele Grubbs, vice president for Southern California at the Pacific Merchant Shipping Association, which represents shipping lines and container terminal operators at West Coast ports. “There were about 20 major shipping lines that accounted for most of the world’s maritime trade, and now there are only about 12.”
Up 4 percent
The 25 companies on the list managed to advance through the first phase of the consolidation on a cumulative basis, combining for a 4 percent increase in the total number of cargo containers they moved locally last year, to 10.8 million compared to 10.3 million in 2015.
The effects of the consolidation trend were split sharply at the local ports, though, thanks largely to last year’s bankruptcy of South Korea-based Hanjin Shipping Co., which operated Pier T, the largest container terminal at the Port of Long Beach.
The net local result of Hanjin’s eventual demise: The Port of Los Angeles posted an increase of 8.5 percent over 2015, recording 8.9 million container units passing through while the Port of Long Beach saw a 5.8 percent decrease to nearly 6.8 million container units.
The Port of Los Angeles benefitted from Hanjin’s bankruptcy since much of the liner’s cargo went to other shipping vessels that had agreements to call there, not at Long Beach, which resulted in a diversion of cargo.
Another result of the consolidation trend was the elevation of Geneva-based Mediterranean Shipping Co., which acquired Hanjin’s local assets, rising to No. 1 on the list.
Mediterranean Shipping overtook Taiwan-based Evergreen Marine Corp. as the largest shipping line operating locally, with almost 1.1 million containers. No. 2 Evergreen moved 1 million containers last year.
No. 3 on the list, Shanghai-based China Ocean Shipping Co., moved more than 870,000 cargo containers last year, but the company already owns one liner on the list and is in the process of purchasing another. In the works is a deal for No. 5 Hong Kong-based Orient Overseas Containers Line, which had a volume of 818,000, and last year it purchased No. 16 China Shipping Container Lines, with a volume of 174,000.
No. 4 was Danish Maersk Lines, with a volume of 832,000 containers and which owns two other shipping companies on the list.
Hanjin dropped from No. 3 on the list in 2015 to No. 9 after the South Korean firm filed for bankruptcy protection in August 2016. The company was liquidated early this year.
Another challenge for Long Beach to contend with amidst the bankruptcy was the lease of its largest container terminal where Hanjin held a majority stake as a tenant.
“The port found a tenant at the end of 2016 for Pier T in Mediterranean Shipping Co., which took over Hanjin’s lease,” said Lee Peterson, port spokesman. Things are now looking up, he said.
“This year … the facility has rebounded very well from the challenges of 2016. Cargo is reaching near record levels in Long Beach, and Pier T is part of that increase,” Lee said.
Long Beach reported cargo volume rose 6.6 percent for the first eight months of 2017, compared with the same period in 2016, while Los Angeles was up 9 percent
Consolidation impact
The various shipping lines largely operated independently prior to the Great Recession, with many running their own terminals. The companies began using megaships which carried more cargo but the decline in global trade that accompanied the recession led to overcapacity on the vessels, driving down shipping prices.
Shipping companies responded with a wave of mergers and acquisitions, as well as newly formed alliances to share vessel space and costs. The latest formation has left three global alliances that launched in April responsible for moving 90 percent of the world’s maritime cargo.
Next on the horizon for the local ports could be terminal consolidation.
“We’ve seen this happen at other West Coast ports, and it could happen here,” said PMSA’s Grubbs.
In light of the recent mergers that saw several liners consolidate, it’ll be interesting to see what will happen to the terminals they called on, Grubbs said.
Cosco and China Shipping operate out of two terminals at the Port of Los Angeles, while Orient Overseas calls its terminal at the Port of Long Beach’s new $1.5 billion Middle Harbor home.
“By 2020, we estimate that these three terminals will account for nearly 30 percent of the capacity of LA/LB,” Neil Davidson, senior analyst at London-based maritime research firm Drewry, said in an email.
However, Cosco could decide to consolidate operations at a single site after the company finalizes its acquisition of China Shipping.
“We could see one or two terminals become a larger one or not,” Grubbs said.
This would raise questions about new leasing agreements or revenue loss for the ports, she said.
More mergers are on the horizon, including that of three Japanese lines.
The Kawasaki Kisen Kaisha (K Line), Nippon Yusen Kabushiki Kaisha (NYK) and Mitsui O.S.K. Lines (MOL) will jointly operate as the Ocean Network Express or ONE, in April 2018. The three operate two terminals in Los Angeles and one in Long Beach.
New Port of Long Beach Executive Director Mario Cordero told the Business Journal in July that he was not worried about potential revenue loss if terminal consolidation were to happen.
“I won’t be surprised if terminal consolidations did happen at the port,” he said, “but I’m not worried about loss of revenue with potentially less terminal operators because international trade will continue to grow.”
