2018 demand started strongly on the transpacific – but vessel capacity upgrades are imminent and current spot freight rates are weak for ocean carriers, writes Dean Davison
The start of a new year represents a time for replenishing of stock and inventories following the holiday season and Chinese New Year (CNY). Invariably there is also a drop off in demand into North America. This has clearly assisted spot freight rates in headhaul Asia to west coast North America (WCNA) routes, along with pre-CNY volumes and load factors.
In early March 2018, the full impact of the Chinese factory closures was felt and falling spot rates wereanticipated, especially following an increase in average ship sizes in 2017. The anticipated cascade of vessels from current Asia-North Europe trades was expected as newbuilds from the orderbook enter service, even allowing for some delays from 2017 to 2018.
Despite the ongoing shift of container share of cargo away from the west coast in recent years to the east coast, the situation now looks to be reaching a ‘new normal’ with the west coast stabilising at 50% of total port handling volumes based on port statistics for 2015, 2016 and 2017 and the 1% gain (to 7%) by the US Gulf Coast coming from east oast ports now at 43% for both 2016 and 2017.
Using ClipperMaritime’s January 2018 data, the following trends of headhaul loaded units can be identified:
- January 2018 total of almost 1.17M TEU was 9% higher than the December 2017 figure of 1.06M TEU and 7% stronger than the 1.09M TEU reached for January 2017.
- Indicative load factors were an estimated 85% in January 2018, so an increase on the December 2017 total, but down on the 88% recorded for the comparable month in 2017 – reflecting the vessel cascade process that occurred during 2017.
Headhaul spot freight rates started 2018 strongly, with US$1,523 per FEU. Compared to 2016, average weekly 2017 rates were 20% higher and the position remained positive, as the monthly averages from Shanghai Containerised Freight Index confirmed:
- January 2018 four-week average – US$1,468 per FEU.
- February 2018 four-week average – US$1,484 per FEU.
As expected, some erosion has taken place leading into March after the CNY holiday season, with mid-March spot rates declining to US$1,016, a 33% erosion since the start of the year and the lowest recorded weekly rate since June 2016. Given the strong overall cargo volume growth, this dynamic must be worrying for ocean carriers, since now they are heading for the dark days of mid-2016 when rates were stuck firmly below US$1,000 per FEU.
The annual contracting season could prove challenging for shipping lines if service changes bring too much additional capacity, especially as they will also need to factor in rises in fuel costs and oil in 2018. However, further positive demand growth is projected in this trade route for 2018.
Service upgrades and cascade affect
Some of the major operators in the transpacific west coast North America trades continue to revamp and alter service schedules, while a new entrant is also entering the route. South Korea’s SM Line confirmed the launch of its new transpacific PNS service from mid-May 2018, using six relatively small ships of 4,000 TEU – 4,600 TEU. Vancouver and Seattle represent the WCNA port calls, with Yantian, Ningbo, Shanghai, Tokyo, Busan and Gwangyang filling the rotation. The operator is strategically targeting the Pacific northwest rather than the crowded southern Californian gateways of Los Angeles/Long Beach.
The largest contributor to additional supply remains the ongoing industry cascade and this trend is expected to continue.
In terms of the overall impact of the ongoing operator developments, the March 2018 position is:
- Total monthly nominal capacity of 1.23M TEU in January 2018, a 7% increase on January 2017 and an indication why spot freight rates have fallen since the beginning of the year.
- Average ship sizes reached 7,791 TEU in March 2018, 3% higher than one year earlier, where the average size stood at 7,586 TEU.
- The largest ship upgrades occurred in 2017, with the March 2017 figure of 13,568 TEU rising to 14,000 TEU in April 2017, where it remained until March 2018. Maersk redeployed 15,282 TEU Maersk Hanoi to the AE6/TP6 transpacific/Asia to North Europe pendulum loop, representing a major upgrade from the current 13,500 TEU vessels. Maersk will need to find a trade lane for the replaced 13,500 TEU units.
China is dominant
From February 2017 to January 2018, China remained the dominant origin for containerised goods shipped to the WCNA area, with 6.8M TEU – a rise of 7.4% year-on-year. By contrast, volumes to Canada fell by 0.5% to 1.39M TEU – a disappointment for the port of Vancouver. To put this dominance into perspective, the next largest country-to-country pairs over this same period were:
- Vietnam to US – 661,000 TEU, up by a strong 20%.
- China to Mexico – 581,000 TEU, a rise of 9%.
- Taiwan to US – 430,000 TEU, an improvement of 5%.
The strength of growing demand from Vietnam can clearly be seen. The bilateral trade agreement is clearly influencing products being shipped to the US and Canada and the 19.7% growth that has occurred over the past 12 months is expected to continue, especially as revamped WCNA transpacific services by the 2M Alliance, Ocean Alliance and THE Alliance all schedule calls to Cai Mep port, Ho Chi Minh City.
Volumes from Thailand are growing rapidly (+14%) but are less than half those out of Vietnam. Direct port coverage from Laem Chabang is also strong and, should these trends continue, operators have sound cause to upgrade vessels on current southeast Asian loops. Direct services are a distinct advantage for shippers.
This robust growth is reflected in the loaded box volumes handled by the largest container ports on the US/Canada west coast. During February 2017 to January 2018, the following trends include:
- Los Angeles – 4.3M TEU, up 3%.
- Long Beach – 3.3M TEU, a rise of 8%.
- Vancouver – 1.3M TEU, down 4%.
- Tacoma – 724,000 TEU, down 17%.
- Oakland – 665,000 TEU, an increase of 5%.
- Prince Rupert – 597,000 TEU, up 4%.
- Seattle – 485,000 TEU, a strong improvement of 23%.
Demand outlook and 2018 forecast
Total volumes on the headhaul trade reached 11.6M TEU in 2017, up 5.6% year-on-year, which was the second successive year of 5% growth. Our statistical analysis of the last five years suggests that positive momentum will continue in 2018 and annual growth will lie within the 3-5% range. Geopolitical tension between China and President Trump could impact trade flows, but it is too early to assess the material impact. Should the contract negotiations between the International Longshoremen Association and the United States Maritime Alliance on the US East Coast break down in late September, this could also see a temporary shift of cargo by shippers from the east to west coast.
Data from ClipperMaritime.
Dean Davison is a consultant at ClipperMaritime. Please see ClipperMaritime Horizons Container March 2018 newsletter, for more on this trade.
LA and Long Beach: views from the top
Port of Long Beach executive director Mario Cordero explains how the port is aiming to achieve the ‘Amazon 24/7 mindset’
Port of Long Beach (POLB) has kicked off 2018 in a position of strength – 2017 was its best year ever in terms of container volumes and looking forward it is focusing on enhancing operational opportunities.
The port saw its container volumes soar by 11% in 2017 compared to 2016 – hitting a total of 7.7M containers. This is POLB’s highest annual container volume in its 107-year history.
Explaining what lay behind it, the port's executive director Mario Cordero told Container Shipping & Trade “Cargo growth and trade overall in the global community have shown positive numbers but our investments in container infrastructure have proven to be a big factor.”
He singled out the investments the port had made in its Middle Harbor and Pier T terminals. Indeed, Pier T signifies a turnaround for the port. The terminal used to belong to Hanjin, Mr Cordero pointed out. Hanjin’s bankruptcy had a “significant impact” on the port, he said. But he added “What’s great about the year ending 2017 was that we have refounded that terminal with [new owners] TTI and MSC and it is one of our most efficient terminals at POLB.”
POLB is so focused on improving the port infrastructure that US$4Bn was committed in a capital improvement project,and due to this investment, the port is ‘big-ship ready’ and can receive vessels of 13-14,000 TEU. “Our investment was very prudent and we now have the benefits of this,” he observed. This means that because the port already had the infrastructure in place, the impact of the mega alliances has been minimal.
Elsewhere, Long Beach Container Terminal is under the last phase of its construction. The terminal, which already has 70 ha operational, will be fully operational in early 2020 with 126 ha. “This state-of-the-art electrified terminal, once finished, will be the fourth-largest port in the country. This shows its magnitude,” Mr Cordero said. Once completed, the terminal will be able to handle 3.3-3.5M TEU.
Along with Port of LA, Long Beach has partnered with GE Transportation to launch a port information portal across both ports that will allow all those involved in the supply chain to have better planning capabilities to service ultra large container ships at the port more effectively.
“All stakeholders will benefit from this maritime data information that is key for moving cargo in an efficient manner.”
He pointed out an advantage of the system: beneficiary cargo owners currently have two to three-days’ notice of when their container will arrive at the port. But using this portal means they will receive the information 11 days earlier.
“This will trigger other arrangements, such as drayage, chassis, intermodal – the long objective is maximum visibility of container movement from point of departure to point of arrival.”
Three of the port’s six container terminals are carrying out the pilot project.
Mr Cordero said 2018 was also about taking sustainable development at the port to the next level. He said the goal was to have zero-emission trucks by 2035 and zero-emission cargo handling equipment by 2030.
Mr Cordero summed up the major challenge for the port. “For us, I think where we need to get to operationally is the 24/7 mindset in the Amazon world that we live in today. Our challenge is to make sure we are leaders in reduced truck turn time and extended gate hour. I am pushing the envelope on that.”
Port of Los Angeles’ director of planning and strategy Mike Keenan explains the port’s push to use existing resources more effectively
Port of Los Angeles is focused on using its existing resources more efficiently, including GE Transportation’s Port Optimizer.
The port has carried out a pilot at Pier 400 terminal and will expand its use across more of its terminals. Port of Long Beach has joined LA in the pilot.
Port of Los Angeles director of planning and strategy Michael Keenan told Container Shipping & Trade “By getting customs data two weeks in advance rather than two days means that we can better plan the schedule of ships and it will make a big difference for railroads.”
Speaking of the benefits of both ports using a shared system, he said “It allows greater use of our resources and greater visibility. We share assets with Long Beach in the supply chain – the railroads, trucks, chassis operate at both ports. If there is a surge [in incoming containers] then we can make better allocation of facilities.”
Based on the pilot project, he said the port expected the portal to make efficiency gains of 8-12%.
The port is planning to boost its efficiency through optimising land it already owns and to this end the Harbour Performance Enhancement Centre (HPEC), a US$130M public-private partnership dedicated to facilitating sustainable freight movement and supply chain efficiencies throughout the US, has completed a strategic transaction with Macquarie Principal Finance, to provide capital for the development of the 0.5M m2 container staging hub located at Terminal Island in the Port of Los Angeles.
The public-private project will transform 45 ha that is currently fallow and bring the latest technology and operating capabilities to the land. When complete, the project will take 3,500 truckloads per day from nearby container terminals to the HPEC staging area.
Mr Keenan said “Cargo can be speeded away from the terminals and picked up here."
This will improve flow, increase velocity and enhance the efficiency of imported containers passing through the 14 marine terminals at the San Pedro Bay complex.
Elsewhere, the port is well-prepared for the challenges of big ships, and through its infrastructure can handle them. “They have come online much more quickly than anticipated,” Mr Keenan commented. “But this is what we have been planning for and our infrastructures allow us to handle them.”
Speaking about the impact of the mega alliances that launched in April last year, he said “One impact is that there is a bit more variance in services."
He explained “LA might see a surge [from them] one month, and Long Beach the next. It is just how the alliance shifts things around.”
Asked about the impact of the expanded Panama Canal, Mr Keenan said this had been minimal. Much of the cargo travelling via the Panama Canal is low-cost and was already using it before it was extended, he explained. Whereas most of the cargo moving via Port of Long Beach is high value. “We have not seen a very big shift,” he said.
The future looks bright for the port: the port has had two back-to-back ‘record’ years in 2016 and 2017. It handled 9.3M TEU for the calendar year 2017, up from 8.8M TEU in 2016. These are the best volume results since 2006. The forecast is for slow but steady annual growth of low single-digit figures.
Mario Cordero (Port of Long Beach)
Mario Cordero became executive director of the Port of Long Beach on 15 May 2017.
Back in 2003, Mr Cordero served as a member, vice president and president of the Long Beach Board of Harbor Commissioners for eight years, before resigning to accept President Barack Obama’s appointment to the Federal Maritime Commission (FMC) in 2011. He served on the FMC until May 2017 and was FMC chairman from April 2013 to January 2017.
He was recently appointed as the port’s representative to the Alameda Corridor Transportation Authority governing board and to the governing board of the Intermodal Container Transfer Facility-Joint Powers Authority for a five-year term.
Previously, he served as an executive board member on the American Association of Port Authorities’ Latin American delegation and was instrumental in the development of policy urging greater co-operation and trade between North American and Latin American ports.
Mike Keenan (Port of Los Angeles)
Mike Keenan is the director of planning and strategy at Port of Los Angeles. He joined the port in 2005 as a harbour planning and economic analyst with the port’s Planning and Research Division, where he worked on data analysis and research projects. Before joining the port, he worked as a consultant with the Los Angeles consulting firm Econ One Research for 11 years. He has a bachelor’s degree in economics from Stanford University.