Piling It On: Loaded ship at Port of Long Beach’s Middle Terminal.

Piling It On: Loaded ship at Port of Long Beach’s Middle Terminal. Photo by Ringo Chiu.

The Port of Long Beach is hoping to turn the shipping company consolidations that have played a role in the industry’s turmoil in recent months to an advantage as it moves to complete construction of a massive terminal.

When the $1.3 billion Middle Harbor project is completed in 2020, the port will have a huge and largely automated terminal capable of simultaneously handling three of the new generation of super large container ships that are expected to be the future of cargo movement.

The shipping industry is awash with more vessels than can be filled, and that oversupply has led to a downturn that has forced many companies to consolidate. That, in turn, has prompted companies to embrace fewer but much larger cargo ships. The Middle Harbor project will make Long Beach one of the few ports in North America capable of handling such megaships, and port and shipping industry officials said that will give it a competitive advantage in the scramble among those ports over global trade.

“Fewer global shipping lines means fewer ships, and fewer ships mean those remaining ships must be larger,” said Noel Hacegaba, chief commercial and operations officer for the Port of Long Beach. “Larger ships, with their lower per-container cost, are much more efficient, and that will mean a great advantage for our port when the Middle Harbor project is completed.”

The Middle Harbor terminal will be able to handle container ships carry up to 21,000 20-foot container units, the maximum capacity of the largest megaships now planned. It is replacing two smaller terminals, consolidating facilities that at their peak handled roughly 1 million 20-foot containers a year into a largely automated super terminal capable of handling 3.3 million containers.

The first phase of construction, on the northern half of the 300-acre parcel, wrapped up roughly one year ago: The portion of the terminal on that parcel is being operated by Orient Overseas Container Line of Hong Kong, which signed a 40-year, $4.6 billion lease with the port for the entire parcel. The first ships called at the terminal in the summer. Construction is expected to start soon on the southern half of the parcel.

The project also includes construction of an expanded on-dock rail yard, connections for ship-to-shore electrical hookups to eliminate diesel emissions when ships dock, and partially automated cranes.

Although most of the other five terminals at the port can also handle some of the larger container vessels, the Middle Harbor terminal will be the most fully equipped and energy-efficient terminal able to accommodate megaships.

Plunging volume

The project could not have come at a more needed time for the port, which was hit hard by the Aug. 31 bankruptcy of Hanjin Shipping Co.

Hanjin was the majority stakeholder at Long Beach’s largest container terminal, and much of its cargo went to other shipping lines that have agreements to call on the Port of Los Angeles, resulting in a massive diversion of cargo. As a result, container traffic at Long Beach fell by double-digit percentage points during the final four months of last year.

Long Beach port officials are pinning their hopes on the success of the Middle Harbor terminal project. Much of that rests on the expectation that the trend toward fewer but larger ships continues – not just through the current wave of consolidation but for decades to come.

Global shipping lines collectively lost more than $8 billion last year, according to Hacegaba, amid a slowdown in the growth rate for international trade. In addition to the bankruptcy of Hanjin, which had been the seventh-largest cargo container mover in the world, five major shipping line consolidations have been announced over the last 18 months.

“The shipping lines have primarily been in the business of losing large sums of money,” said Jock O’Connell, international trade adviser for Beacon Economics, an L.A. consulting firm. “They overbuilt in terms of the number of vessels, adding too much capacity when the rate of growth in global trade was slowing.”

O’Connell said the shipping lines have shifted toward larger vessels to reduce per-container costs. Larger ships reduce the number of individual trips, saving on the number of ships needed and the fuel needed for ocean crossings.

Panama Canal challenge

Ironically, this trend toward larger ships could turn what was once the harbinger of doom for the Port of Long Beach into its greatest competitive advantage: an expanded Panama Canal.

When that canal expansion project began nearly a decade ago, the widespread expectation was that it would lead to the reorientation of hundreds of cargo routes from West Coast to East Coast ports, passing through the expanded canal locks. That move was forecast to decimate container traffic at both the ports of Los Angeles and Long Beach.

But the expanded Panama Canal can only handle container ships holding up to roughly 13,500 container units; O’Connell said half of all the ships now on order worldwide exceed that volume and won’t be able to pass through the canal when they enter service.

That means that in order to serve the vast North American market, those ships are limited to West Coast ports. Of those eight facilities, for the next several years only the ports of Los Angeles and Long Beach will be able to handle ships with capacities exceeding 14,000 container units.

“The Middle Harbor terminal could emerge as one of the winners amidst this consolidation,” said Michele Grubbs, vice president for Southern California with the Pacific Merchant Shipping Association, which represents shipping lines and container terminal operators at West Coast ports.

But there is a potential problem: the ability of the Middle Harbor terminal to handle huge surges in containers that the megaships bring.

“While larger ships are more fuel- and crew-efficient, they pose loading and unloading burdens that introduce delays in the overall transit cycle unless more efficiencies are found in loading and unloading,” Robert Krieger, president of Carson freight forwarder Norman Krieger Inc., said in an email.

Krieger said the larger number of containers aboard such ships make his job more difficult, especially since freight forwarders now take on more responsibility for sorting the containers once they hit the docks.

Hacegaba said that improving the handling of cargo at the terminals is a top priority, with use of better integration of appointment systems and common Web portals.

For example, he said, the port will use better software to coordinate the deployment of truck chassis to move containers from dockside to rail yards or waiting trucks. Chassis shortages have been an issue in the past; that could worsen as the peaks and valleys in cargo movement become more extreme.

“We must continually improve the flow of cargo into the port and into the supply chain,” Hacegaba said.

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