Two major shipping companies are moving to acquire the Port of Long Beach’s largest terminal from bankrupt Hanjin Shipping Co., a deal that could cause a shakeup in vessel movement at L.A.’s twin ports.
Hanjin owns 54 percent of Total Terminals International, or TTI, which for a quarter-century has operated Long Beach’s Pier T, a 385-acre facility that handles about 30 percent of the port’s total cargo volume. Mediterranean Shipping Co., which controls the remaining 46 percent through subsidiary Terminal Investment Ltd., this month announced a partnership with Hyundai Merchant Marine Co. to acquire Hanjin’s interests in TTI.
While the sale is viewed as a beneficial move that would maintain operations at a key shipping terminal for the region, it might have a whack-a-mole effect, according to Jock O’Connell, an international trade economist specializing in logistics who works with Beacon Economics.
Mediterranean and Hyundai vessels call at other terminals at both of L.A.’s ports.
“It will shore up the situation for TTI, and it will be getting a greater volume of business, but that will come at the expense of at least a couple other terminals at the ports of L.A. and Long Beach,” O’Connell said.
Terminal Investment President Alistair Baillie also indicated in the company’s announcement that consolidation is likely.
“We are delighted to partner with Hyundai in acquiring Hanjin’s shares of TTI,” Baillie said. “This investment will allow both companies to quickly consolidate their container volumes in the terminal and ensure its short-term solvency and long-term viability.”
Despite the rosy statement, the fate of Pier T has remained as murky as the waters that surround it; the two hopeful bidders aren’t the only ones seeking to acquire Hanjin’s stake in TTI.
A South Korean court in November picked bulk carrier Korea Line Corp. as the preferred buyer of some Hanjin assets over the much larger Hyundai in a surprise decision. Until its Aug. 31 bankruptcy, Hanjin was the seventh-largest shipping company in the world and second largest in South Korea, behind Hyundai.
The court’s decision allowed Korea Line to acquire assets including Hanjin’s business network and client information for its U.S.-Asia route, and gave it first right to purchase Hanjin’s piece of TTI.
A South Korean private equity fund also reportedly is looking to purchase TTI.
Mediterranean has moved to block the other bidders, however, filing a motion in U.S. Bankruptcy Court in New Jersey claiming that its subsidiary’s TTI agreement gives it right of first refusal if Hanjin were to sell its stake.
That might now be a moot point as far as Korea Line is concerned.
South Korea’s Yonhap News Agency last week reported that Korea Line’s owner, SM Group, had withdrawn its bid to buy Hanjin’s stake in TTI after struggling to raise funds.
Whoever acquires the terminal operator, the bankruptcy court will have to sign off on the sale first, and the Port of Long Beach hasn’t been given a time line on when this might happen, said Noel Hacegaba, the port’s managing director of commercial operations.
Hacebaga said no valuation of the terminal had been done by the port, but that it “is a remarkable asset. It’s highly valuable.”
A report from Hoover’s estimated the terminal generated just under $10 million in annual revenue from docking fees charged to shippers. TTI must pay the port a guaranteed annual minimum amount, but if it exceeds volume goals, the port discounts the payment as a way to encourage more cargo to move through Pier T.
After a postbankruptcy period when Hanjin ships and operations came to a standstill, it’s now business as usual at Pier T, said Hacegaba.
TTI has continued to make the payments required under its lease to the port, he said, though the drastic reduction in Hanjin vessels calling there led to a 6 percent decline in total Long Beach cargo volume in October.
“The terminal is still operational, it’s still moving cargo, it’s still serving ocean carriers,” Hacegaba said.
So long as TTI remains operational, it should continue to serve Pier T. Hacegaba said its lease, which was signed in 2002, will end in 2027.
Both Hacegaba and a spokesman for the Port of Los Angeles said it was still too early to say whether the ownership change will have a domino effect on vessel calls at other terminals, as Beacon analyst O’Connell predicted, or other port operations.
Pier T changing hands doesn’t have trucking companies worried, and it might actually be a good thing, said Weston LaBar, executive director of the Harbor Trucking Association.
The more than 100 companies his organization represents operate two-thirds of the trucks that haul cargo containers to and from the terminals at California’s ports. So as long as volumes don’t take a significant dip, LaBar said he doesn’t care where the containers arrive.
“From our perspective, a change at TTI would be welcome,” LaBar said. “We in the trucking community often experience the longest turn time at that terminal.”
Well before Hanjin’s bankruptcy, the time for trucks to get in, load up, and get out could be 110 to 120 minutes, nearly twice as long as at most terminals, he said.
“We feel like it’s a really big opportunity for someone to come in and run this in a different way that’s more efficient,” LaBar said.
Of course, Pier T is only one brick in the once-stately and now crumbled house of Hanjin that is still being broken up, salvaged, and pieced back together by an already beleaguered shipping industry that has faced years of rock-bottom rates for moving goods.
“The ports are by no means out of the woods with respect to the Hanjin bankruptcy,” O’Connell said. “This is one lingering manifestation of that impact.”
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