Vancouver and other ports along North America’s West Coast face significant challenges in retaining and attracting a bigger share of the predicted surge in Asia Pacific container traffic over the next five years.
According to Drewry, that traffic worldwide, estimated to be approximately US$4 trillion, will grow 4.5% annually through to 2019 after rising 5.4% each year from 2010 to 2014.
The U.K.-based shipping consultancy predicts that Asia will account for 60% of that growth.
To handle the demand, major ocean carriers such as Maersk (Nasdaq:AMKBF) are sinking billions of dollars into adding larger container ships to their fleets and forming alliances to reap economies of scale.
According to Neil Davidson, Drewry’s ports and terminals senior analyst, the global container terminal industry is consequently facing “unprecedented” capital and operating cost challenges.
Port Metro Vancouver (PMV) is also grappling with the region’s rapidly disappearing inventory of industrial land and implementation of a controversial overhaul of its container trucking system.
Solutions to those challenges need to be found soon, because, as Davidson pointed out to Business in Vancouver, container shipping is now fundamental to the global economy.
“No container shipping, no economy,” he said.
Davidson added that Drewry has not changed its forecast despite recent global economic volatility because it’s too early to “come to firm conclusions on the implications of the current issues in China.”
Ten years ago, the largest container ships could hold 9,200 20-foot equivalent units (TEUs); today that total is 19,200, enough to fill a train 77 kilometres long.
Alphaliner, an international shipping industry data company, has reported that 37 new ultra-large container ships have been deployed on the Asia-Europe trade route this year and another 13 are set to be delivered by December.
While Davidson said the largest ships are assigned first to Asia-Europe trade routes, the next-largest ships are then reassigned to Asia-West Coast North America. The overall result is bigger ships on all routes.
Drewry estimates that annual container traffic outlook for West Coast North America ports will grow 2.7% through to 2019.
In addition to more demands on docks, cranes and other port infrastructure, Davidson said the rapid move to larger ships means terminals “have bigger [cargo] peaks to cope with.”
He added that larger ships and ocean carrier alliances require larger terminals but fewer of them. However, as he pointed out, “consolidation of terminals is a slow and complicated process – and costly.”
Competition for larger ships that make less frequent stops at fewer ports is growing.
According to an August 26 report from Jones Lang LaSalle (JLL) (NYSE:JLL), West Coast North American ports have collectively lost containerized traffic to their East Coast counterparts over the past eight years. Their market share has dropped to 55.2% from 61.2%, while the market share of Gulf of Mexico and eastern seaboard ports like Houston, Savannah and New York-New Jersey has increased to 44.8% from 38.8%.
But the investment management company’s Seaport Outlook report and index noted that container traffic at PMV bucked that trend by rising 16.7% over that period. JLL’s port area market score for PMV puts Vancouver ahead of such mid-range competitors as Baltimore and Houston, but behind Tacoma and Savannah. The rating is based on such measurements as container terminal operations and industrial real estate inventory and availability.
Among the reasons JLL cites for the eastern migration of discretionary container cargo are the labour issues that slowed operations at U.S. West Coast ports from mid-2014 through the early part of 2015 and the expanded Panama Canal, which can now accommodate container ships ranging from 12,000 to 14,000 TEUs.
Peter Xotta, PMV’s vice-president of planning and operations, said the average container vessel handled by the port now ranges between 5,000 and 6,000 TEUs. The biggest container vessel to call at Deltaport, Canada’s largest container terminal, has been 10,000 TEUs, but Xotta said he’s confident the terminal could handle vessels up to 14,000 TEUs.
PMV, meanwhile, is increasing its container capacity.
DP World Vancouver’s Centerm container terminal, which handles about one-fifth of the port’s annual container cargo, plans to expand its capacity to 1.5 million TEUs from 900,000. But the project is still in the preliminary design phase.
GCT Global Container Terminals Inc.’s, reconfiguration of its Deltaport intermodal yard will increase annual container capacity to 2.4 million TEUs from the current 1.8 million.
PMV’s proposed three-berth Roberts Bank Terminal 2, meanwhile, would add another 2.4 million TEUs.
Xotta said Terminal 2 would be designed to handle any ultra-large container vessels anticipated to start calling at PMV in three to five years.
But the Canadian Environmental Assessment Agency is still reviewing the project.
PMV spokesman John Parker-Jervis said the port remains optimistic that construction could start by 2018. Terminal 2 could then be ready for operation in the early 2020s.
Another major PMV challenge is securing industrial land that has road, rail and navigable water access. The port estimates that only about 1,000 acres remain.
But there are more kinks in the local logistics chain.
Local shippers continue to wrestle with the cost implications of the 14-point plan instituted to end the port’s 28-day container truckers strike in 2014.
Representatives of the Western Canadian Shippers’ Coalition (WCSC), whose members are among the top users of containers that are exported back through PMV, have told BIV that the added costs of the plan have forced shippers to consider shifting their exports from containers to break-bulk cargo ships.
Xotta said one of PMV’s advantages is “cargo opportunity” for shippers, because, unlike at Los Angeles-Long Beach and other major competing ports, containers heading back to Asia are often filled with B.C. wood and Canadian agricultural products. Containers filled for the return trip to Asia help reduce overall carrier container costs.
“Vessels that go into L.A. largely are leaving with much less when they go back to Asia,” said Xotta, “so they come in loaded and go back half empty.”
However, PMV stats for 2015’s first six months showed a 48% jump in the number of empty containers leaving the port.
Xotta said the increase was largely due to the U.S. West Coast port labour dispute, which threw supply chain schedules out of balance.
WCSC chairman David Montpetit confirmed that his membership is still pursuing options to containers.
He said he had no numbers to show how much of the spike in empty containers resulted from WCSC members finding alternatives. But Montpetit stressed that nothing has changed for shippers when it comes to the higher cost of container shipping.
It has doubled in the past three years, he said. “And, again, until they have final resolution with what they do with this and the 14-point plan, we haven’t solved anything or gotten anywhere.”
Montpetit added that Andy Smith, appointed container trucking commissioner February 3 by the B.C. Ministry of Transportation and Infrastructure, is scheduled to meet with the WCSC in mid-September.
