Twin Ports, Two Records

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Twin Ports, Two Records
Port of L.A.: 9.3 million containers in 2017

The maritime shipping industry has seen a rising wave of consolidation in the last two years, and the effects are still washing over the ports of Los Angeles and Long Beach.

Mergers, acquisitions and shipping alliances have all contributed to supply chain reshuffling, a rebalancing of resources such as truck chassis, and terminals changing hands, among other effects.

None of the changes stopped either the Los Angeles or Long Beach facilities from setting respective records for cargo movement in 2017, re-emphasizing their respective titles as the busiest and second-busiest seaports in the United States.

The 110-year-old Port of Los Angeles set its new mark by moving a total of 9.3 million 20-foot-equivalent units (TEUs), up from 8.8 million containers in 2016, and its second-straight record year.

The port of Long Beach handled 7.5 million containers, beating a record of 7.3 million set in 2007.

The gains were powered largely by the top 25 shipping lines that call on the local ports, ranked by container volume for this week’s Business Journal list. The biggest lines combined for 11.1 million containers spread over both ports, up 2.8 percent from 10.8 million in 2016. Seventeen saw increases last year, while 7 were down, and one new entry didn’t have a 2016 total for comparison.

No. 1 on this list is China-based China Ocean Shipping Co., up from the No. 3 spot last year, with total cargo movement of 1.1 million containers, a 30 percent increase compared to last year. The gain for the line, also known as Cosco, came prior to its acquisition of Hong Kong-based Orient Overseas International Ltd., a $6.3-billion deal that closed in July. Orient Overseas Container Line is No. 4 on this year’s list, and its volume of cargo movement locally is tallied separately from parent OOIL.

The announcement of that deal wasn’t without hiccups.

The initial terms of the acquisition included a 40-year terminal lease at the Port of Long Beach, set to expire in 2052. U.S. regulators raised concerns about the change in terminal ownership if the deal went through.

Cosco agreed to a divestiture of the terminal in July, keeping the deal on track amid the concerns from the Committee on Foreign Investment in the United States.

“As part of the acquisition, Cosco Shipping agreed to put the Long Beach terminal leased by OOCL into a trusteeship so that the rights to operate that terminal can be dealt to a third party,” said Mario Cordero, executive director at the Port of Long Beach. “That terminal – Long Beach Container Terminal – is still open and operating.”

Consolidations

Other mergers in the industry include France-based shipping line CMA CGM acquiring American President Lines in 2016. CMA CGM bought Singapore-based shipping company Neptune Orient Lines for $2.4 billion a year before, getting a Port of Los Angeles terminal through that deal. CMA CGM sold the terminal to an infrastructure investment fund in Sweden on Dec. 1 for $875 million.

“We’ve seen more mergers and consolidation happen in the shipping industry in the last two to three years when just 10 years ago, this was unheard of,” 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.

That took on a three-dimensional look in July when three Japan-based lines – No. 9 Kawasaki Kisen Kaisha Ltd. (K Line), No. 10 Nippon Yusen Kabushiki Kaisha (NYK), and No. 11 Mitsui O.S.K. Lines (MOL) merged. They all now operate as the Ocean Network Express, or ONE.

Another recent cause of consolidation in the industry was the bankruptcy of South Korea-based Hanjin Shipping Co., which was the Port of Long Beach’s largest terminal tenant when it ceased operations in early 2017.

No. 2 Geneva-based Mediterranean Shipping Co. bought Hanjin’s Long Beach terminal in early 2017. MSC was ranked No. 1 on the list last year.

Trade publication Alphaliner estimates the consolidation so far has put six major shipping lines in control of two-thirds of worldwide cargo movement.

Current concerns

The core concern at both of the ports relating to container count at the moment is global trade relations and the policies of President Donald Trump’s administration. Asian countries make up the top five trading partners, with China at No. 1 at both the ports.

Trump has imposed tariffs on $200 billion of Chinese imports and threatened to impose more if China retaliated.

China followed by announcing tariffs on $60 billion worth of U.S. imports.

“The imposition of the tariffs could result in reduction of cargo, higher consumer prices, and impact American jobs,” said Phillip Sanfield, a spokesman for the Port of Los Angeles. “More than 50 percent of the nation’s imports go to U.S. manufacturers. Tariffs could raise costs for U.S. manufacturers with established global supply chains and negatively impact American jobs.”

Sanfield said port officials are generally supportive of a “negotiated settlement” over tariffs as the best way to resolve trade issues.

“The Port of Los Angeles supports efforts to engage our trading partners to create a rules-based international trade and investment system that provides fair and equitable access to foreign markets for U.S. businesses,” he said.

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