ARO 2020: US West Coast ports competing through infrastructure, technology

Published on Monday,30 December 2019

US West Coast ports have a plan for regaining some of the market share they have lost over the past five years due to expensive terminal leases, labor issues, high intermodal rail rates, and costly environmental regulation. They say they are prepared to build the infrastructure and implement the technology that is needed to move cargo cheaper and faster.

“The only way to stay competitive is to operate more efficiently,” Dustin Stoker, chief operating officer at the Northwest Seaport Alliance (NWSA) of Seattle and Tacoma, told the DrayTech seminar in Long Beach in June.

For West Coast ports, which ship more than two-thirds of their imports inland to the eastern half of the country, that means making the transfer of containers from the vessel to rail and truck carriers more efficiently and at a lower cost to beneficial cargo owners (BCOs) than they do now.

“We get the cargo off the ships fine,” Michael DiBernardo, deputy executive director of marketing and customer relations at the Port of Los Angeles, told the Propeller Club of Southern California in November. “Getting the cargo to the rail and trucks out of the gate on time is how we will compete with the East Coast ports,” he said.

West Coast ports compete for discretionary cargo from Asia with ports on the East and Gulf coasts and with the Canadian ports of Vancouver and Prince Rupert. West Coast ports’ share of US imports from Asia declined from more than 70 percent in 2014 to 66.6 percent in the first 10 months of 2019, according to PIERS, a sister product of JOC.com within IHS Markit.

As manufacturing in Asia continues to migrate from China to Southeast Asia, West Coast ports will lose more market share because East Coast ports are well-positioned geographically for all-water services via the Suez Canal from Singapore and points west. In the first 10 months of 2019, US imports from Asia to the West Coast declined by 3.2 percent, whereas imports increased 5 percent through the East Coast and 17.4 percent through the Gulf Coast, according to PIERS.

Vancouver and Prince Rupert continue to expand their presence in the US market at the expense of all West Coast ports, but especially with Seattle and Tacoma. Over the past five years, the two Canadian ports increased their share of US imports from Asia that move through the Pacific Northwest region of the United States and Canada from 58.2 percent in 2014 to 63 percent, according to PIERS.

Higher costs

Terminal leases are generally higher on the West Coast than on the East Coast. There are only three major gateways on the West Coast — Los Angeles-Long Beach, Oakland, and Seattle-Tacoma — and they generally charge market rates for their leases. On the East Coast, a half-dozen ports from Florida to Boston compete for discretionary cargo, and they use lease rates as a tool for attracting carriers’ business.

Los Angeles and Long Beach have the most expensive terminal lease rates in the country, at least twice the cost of other ports, according to John McLaurin, president of the Pacific Merchant Shipping Association. When the cost of compliance with environmental regulations is layered on top of port charges, carriers, terminal operators, and BCOs pay a premium for shipping through the West Coast, he said.

West Coast ports also have been leaders in implementing green policies. “We operate in the most highly regulated environment in the world. The ports did not initiate this, but we have to manage it,” Noel Hacegaba, deputy executive director and chief operating officer at the Port of Long Beach, said regarding the state and local environmental regulations governing the California ports.

However, due to community concerns about the impact of port-generated pollution on the health of local residents, Los Angeles and Long Beach more than a decade ago faced the reality that they would never build — or even expand — another marine terminal or increase rail and truck service in the port complex, unless they implemented the strictest environmental regulations in the country.

Their joint Clean Air Action Plan (CAAP), adopted in 2006, is credited with reducing harmful nitrogen oxide, sulfur oxide, and particulate matter emissions by between 56 percent and 97 percent from the 2005 baseline year. Both ports already have achieved the emissions reductions that the CAAP set for 2023. Strict adherence to the CAAP has freed the ports to budget a combined $6 billion over the coming decade for capital expansion projects, Hacegaba said.

Vital expansion

Infrastructure improvements to accommodate vessels of 20,000 TEU capacity have become the norm at West Coast ports as they seek to attract today’s mega-ships. The Southern California ports are building for a future that could include vessels of 23,000-TEU capacity, Hacegaba said. “No other gateway will be as big-ship ready as we are,” he said.

The ports’ master plans project the Southern California gateway will handle 40 million TEU annually by 2040, DiBernardo added, up from 17.5 million laden and empty TEU today. To do so, the ports must expand their physical infrastructure of marine terminals, bridges, rail and road access networks. “We’re a port complex that builds things,” he said.

A few hundred miles north, the Port of Oakland will invest $800 million in infrastructure projects including road/rail grade separations to improve access to marine terminals, John Driscoll, director of maritime, told JOC.com in May. The port authority is also working with CenterPoint Properties to redevelop the 180-acre former Oakland Army Base within the port limits into a transloading and logistics center. CenterPoint is constructing a 440,000-square-foot logistics center on the property. With the cost of transportation at least 10 times the cost of real estate, moving transloading operations to property adjacent to marine terminals will improve the efficiency of shipping through the port.

Further up the coast, the NWSA last spring approved a contract with SSA Marine to redevelop and modernize Terminal 5, the former APL facility, as part of a long-term plan to consolidate operations into fewer but larger container terminals. There are nine container facilities in the port complex, and the goal eventually is to re-engineer the gateway to have two large terminals in North Harbor (Seattle) and two in South Harbor (Tacoma), CEO John Wolfe told JOC.com.

Technology boost

Although West Coast ports are investing billions of dollars in the coming decade in physical infrastructure to accommodate larger vessels and bigger container exchanges, more immediate gains in efficiency will come from investments in technology. The ports are developing information portals and are helping to fund pilot projects for data-sharing tools designed to increase cargo velocity.

Information portals linking marine terminals with truckers, railroads, BCOs, and equipment providers are operating in Los Angeles, Long Beach, and Oakland, and the NWSA is developing a portal. By sharing real-time information on container availability and harbor-area congestion through a single portal, port stakeholders are better able to make appointments and avoid trouble spots.

Trucker appointment systems are commonplace now in Los Angeles-Long Beach, and they contributed to the fastest truck turn times in the past six years in October. The average truck visit time at the 12 container terminals in Los Angeles-Long Beach was 68 minutes in October, down from more than 90 minutes earlier in the year, according to the Harbor Trucking Association.

Despite the continued proliferation of technology tools in logistics, BCOs and truckers say port stakeholders aren’t sharing enough data on shipments to give them the information they need to make decisions in real time. The goal of these technology tools is to get information early enough in the transportation move to be able to arrange cargo pickups even before the container is discharged from the vessel.