Fighting to take back business that it lost to its neighbor, the Port of Los Angeles last week said that it will give shipping companies big rebates for moving more cargo there next year.
The incentive package was a direct response to a shipping company’s switch from the L.A. port to the Port of Long Beach last year and to plans for an alliance combining the world’s three biggest shipping lines, said Geraldine Knatz, the L.A. port’s outgoing executive director.
Shipping giants A.P. Moller-Maersk of Copenhagen, Denmark; CMA CGM of Marseille, France; and Mediterranean Shipping Co. of Geneva said this summer that they plan to work together to cut costs by sharing vessels on major trade routes.
That alliance, called P3, is the latest and largest to come together, but other big shipping lines have formed two other groups. The consolidation puts immense pressure on ports, which will now compete for the business of three major alliances rather than that of more than a dozen individual companies.
“Ports, not just in Los Angeles and Long Beach but around the world, will have less leverage in attracting cargo,” Knatz said. “There’s a consolidation of decision-making.”
She said the onset of the alliances, and especially the creation of the Maersk-CMA-Mediterranean group, forces a major shift in how ports will operate.
Ports used to drive business by signing shipping companies or terminal operators to long-term leases, guaranteeing cargo from a particular shipper would move through its particular dock. But through alliances, shipping companies have more port options as they can dock where any alliance member has a lease.
For example, Maersk leases Pier 400 at the Port of Los Angeles, while Mediterranean ships typically dock at Pier A at the Port of Long Beach. But a P3 alliance ship could dock at either one. The new incentives aim to make sure such a ship would dock in Los Angeles.
“All Maersk cargo used to come through Pier 400, but now they want to go wherever they get the best opportunity,” Knatz said.
She noted that the shipping companies formed the alliances to better deal with stagnant cargo volumes, and the port has announced the incentives for the same reason.
“We never thought about what business we could steal from Long Beach, but we’ve had little organic growth and that doesn’t seem to be changing. Competition has gotten cut-throat,” she said.
Under the incentive plan approved by the Los Angeles Board of Harbor Commissioners last week, shipping companies will get rebates if they move more cargo containers through the port in 2014 than they did this year.
If a shipping company moves up to 99,999 additional containers, it will get a rebate of $5 per additional container off the roughly $40 in fees paid to the port. If a company moves 100,000 or more additional containers, that rebate jumps to $15.
In a report to the harbor commissioners, port administrators estimated the incentive program could bring 575,000 additional containers through the port next year. That would represent an increase of nearly 8 percent from this year, based on the port’s cargo traffic through September.
The port’s cargo traffic this year has dipped nearly 6 percent, in part because Mediterranean late last year started moving more cargo through Long Beach. Knatz said the port already has received indications from members of the new P3 alliance that they plan to move additional cargo through Los Angeles next year.
“We know we’re going to be up 350,000 containers, just with the P3,” she said. “We worked our plan and we got the business.”
Knatz, a biological scientist and engineer, leaves her post as the port’s top executive after eight years that were defined mostly by battles over rebuilding port infrastructure and cutting pollution at the harbor. The latter includes the introduction of the controversial Clean Truck Program.
One of her final acts as port chief was to help push through big incentives for the shipping companies. But she has some misgivings about that.
The incentives could lure some cargo from Long Beach to Los Angeles and as a result, she acknowledged, could ultimately start a price war between the ports.
“A year from now, if you were in Long Beach and you saw business going to Los Angeles, how are you going to get it back?” she said. “In the long run, it’s not good for either port city.”
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