Opportunities in the Ocean Freight Business and U.S. Ports
Over-capacity and falling rates define a struggling ocean freight market. According to industry analysts, the collapse in rates has not only been attributed to declining demand but also to over investment in shipping capacity by ocean carriers. Indeed, the introduction of new capacity has primarily been in the form of larger ships; however, the expected profits from these ships have yet to materialize. Meanwhile, investments in ports are underway to not only improve efficiencies but to also attract these “mega-ships”. While ocean carriers grapple with declining rates and profitability in addition to launching larger and larger ships, ports are undergoing their own transformation.
Top 10 US Ports
According to the Journal of Commerce, Los Angeles and Long Beach are the two largest ports in the US in terms of total TEUs for 2014. Along with Seattle/Tacoma, Oakland and other West Coast ports, 2015 was a difficult year due to a number of issues including prolonged labor negotiations, chassis shortage and preparations for handling mega-ships.
East Coast ports along with the Houston Port Authority appeared to benefit from West Coast labor issues and as a result, many ports reported record TEU throughput for the year. For example, the Georgia Port Authority noted an 11.7% year-over-year increase in TEUs for the Port of Savannah and the Virginia Port Authority recorded a 6.5% gain over 2014. In terms of total cargo, the Houston Port Authority also enjoyed a record year in 2015, moving 30.5 million tons of cargo at its facilities, surpassing the record set in 2014 of 30.3 million tons.
For 2015, it is likely the top 10 port ranking will not shift much despite the issues the West Coast ports endured during the year. Los Angeles and Long Beach will probably maintain the top two spots once again as over 40% of all Asian imports arrive at these two ports alone; however, East Coast ports are gaining ground and many of these ports have high expectations with the opening of the expanded Panama Canal later this year; but an even bigger question is, are the ports prepared for the mega-ships?
It appears the handling of mega-ships at US ports is going to be one of trial and error. The two largest container ships ever to unload in North America reached Los Angeles in late December. According to the Port of Los Angeles, the larger of the two ships, the CMA CGM Benjamin Franklin, stretched 1,300 feet — about as long as the Empire State Building is tall and approximately 1,500 longshoremen spent almost 56 hours moving nearly 11,230 containers on and off the ship before the visit ended Dec. 30.
Other US ports may not be as fortunate as Los Angeles to ably handle container ships of this size. Although the Georgia ports and Charleston ports have benefitted from record TEU volumes, neither are capable of handling these ships; but each of these ports has received funding for dredging projects while the Jacksonville port has received a financial commitment from the state government. Meanwhile, many bridges on the West and East coasts, such as in New York/New Jersey are too low or narrow to accommodate the mega-ships.
But as ports prepare harbors and structures to accommodate mega-ships, the question arises: do these ports have the necessary equipment and infrastructure in place for the loading, unloading and transport of increased container volume?
Investing in Efficiencies
As ports raced to prepare for the mega-ships, 2015 was also the year of efficiency improvements for many ports. For the Georgia Port Authority, investments were made to truck gates, container yard space, container handling equipment and ship-to-shore cranes. Meanwhile, the South Carolina Port Authority and the Virginia Port Authority improved truck turn times to support productivity of the trucking industry.
In an interesting move, to better compete against Canadian ports, the Seattle and Tacoma ports formed an alliance, Northwest Seaport Alliance, which aims to nearly double cargo volume by 2026.
Is It Enough?
The ocean freight market is changing rapidly – larger ships, falling rates, the opening of the expanded Panama Canal – to name just a few changes. But questions remain….
- Are the top US ports really ready for the changes?
- What will these industry trends mean for individual ports?
- Will the changes affect the rankings of the top 10 US ports?
And as we enter 2016, not only is the ocean freight market faced with many uncertainties but new requirements such as SOLAS container weight verification will come into play effective July 1. Once again, more questions for a market that is still reeling from 2015. Will the Ports adapt? It remains to be seen.
What This All Means For U.S. Importers & Exporters
As we have shown in previous posts, here at the Exporting Excellence™ blog, we really like macroeconomic data and all things related to international trade. Investment in air and ocean port infrastructure is pretty much the perfect real world intersection of trade and economic data.
Opportunities abound for U.S. importers, exporters and their freight forwarders to take advantage of falling ocean freight rates. Over 50% of U.S. import traffic comes from Far East Asia, and hence signing favorable contracts with steamship lines in Q1 2016 can yield considerable savings in terms of landed cost even over the already low pricing importers benefitted from in 2015.
For U.S. exporters a similar opportunity exists to lock in savings for the next 12 months. As ocean freight contracts are typically renegotiated in March, the timing is right to forecast volumes for the year to come. Some trade lanes are already showing signs of stability, such as trans-Atlantic services from the U.S. East Coast. However, the arrival of more capacity, resulting from the expansion of the Panama Canal will continue to pressure rates especially for exports to Asian markets such as China.
Take a moment to look at your international business and invite your freight forwarder in on the discussion. It’s likely that a little bit of collaboration now can save a lot of time, money and effort in the form of shopping for prices further down the road. Most importantly, take a moment to download our free infographic on the Top 10 US Ports!