20% Decline in 2009 U.S. Container Traffic Forces Terminals, Ocean Carriers to Adjust
By Eric Miller, Staff Reporter
This story appears in the Aug. 24 print edition of Transport Topics.
With total U.S. container import traffic down more than 20% in the first half of 2009 compared with a year ago, all pieces of the supply chain are feeling the pain of the recession.
Ocean shipping lines are laying up container vessels and eliminating lanes, port authorities are cutting costs and discounting use fees, freight terminals are shortening hours of operation and shedding workers, and drayage operators are shrinking fleets and picking up fewer loads.
“Consumer demand is down, and because of that we have the domino effect,” said Michael DiBernardo, director of marketing for the Port of Los Angeles, the busiest port in the nation. “Everyone in the supply chain is impacted.”
It’s a far cry from the boom days of much of the past decade, when U.S. ports were wrestling with record levels of container traffic. However, while all port businesses are carefully watching their bottom lines, Dick Steinke, executive director of the Port of Long Beach, Calif., said there also seems to be growing a spirit of cooperation as ports weather the storm and take steps to prep for better times.
“I think we all realize that we all succeed or fail based on volumes passing through our terminals,” Steinke said. “These ports cannot be seen as just warehouses for people’s goods. We have to have velocity.”
“We’re all kind of hanging in there, comparing notes, figuring out ways that we can hang on until the economy rebounds,” Steinke added.
According to Port Tracker’s Monthly Trade Logistics and Intermodal Outlook, container traffic was down 20.7% in the first six months from a year earlier, and many ports reported even larger declines.
The drop-off has been so pronounced that many port-related businesses are being forced to drastically cut costs, payroll and hours of operation, said IHS Global Insight economist Paul Bingham. Others have given up and closed their doors, he said.
“It isn’t just the terminal operators, port authority employees, dray truckers, or the steamship lines,” Bingham said. “It’s all of them that have been affected.”
The difficulty comes when one port player makes changes that affect the others, Bingham said. It sometimes can seem like a thread unraveling on a fine linen coat.
The snowballing effect of the recession begins with the ocean carriers that drop off goods at U.S. ports. In some ways, they seem to be hit the hardest financially, Bingham said.
“Steamship lines are bleeding red ink,” Bingham said. “We haven’t seen any major bankruptcies yet, but there have been a lot of rumors. It’s certainly a situation where the current conditions within the container shipping industry are not sustainable.”
Port authorities also are feeling the sting of the recession. For instance, at the Port of Long Beach, a hiring freeze is in effect, and the port is cutting its budget by 15%, Steinke said. Container volume is down 27% for the first six months of 2009, he said.
Even such ancillary port businesses as piloting services, tug operators and bunker barges companies are feeling the pain.
While container traffic at most of the ports on the Eastern Seaboard also is down by double-digit percentages, Bingham said the declines have been larger at West Coast ports such as Los Angeles and Long Beach. The two ports alone handle more than 40% of all U.S. container traffic.
Ports reap most of their revenue from fees for containers crossing their docks and from leasing buildings and land to terminal operators, DiBernardo said. So when container volume declines, so does port authority revenue.
“We haven’t laid off any employees yet, but the city will be doing a reduction in force, so some of our employees may be affected in upcoming months,” Long Beach’s Steinke said.
But West Coast ports other than those in Southern California also have been adversely affected by a sharp decline in imports from Asia.
“We’ve seen some dire financial circumstances at some of the port authorities, even extreme cases like the Port of Oakland,” Bingham said. “They’re in a cash-flow crunch because they had made commitments in earlier years to certain payout on some of their capital expansion programs. They ended up having to lay off 400 of their employees earlier this year.”
Oakland officials recently approved a resolution asking Congress to establish a national goods movement policy, which would include financial assistance for U.S. ports.
“Other ports have not engaged in wholesale layoffs, but they’ve had furloughs or early retirements — Seattle and Tacoma have done that,” Bingham said. “And they’ve been talking about furloughs at the Port of Los Angeles.”
Terminal operators, which typically have substantial fixed costs, are cutting back on the numbers of longshoremen and reducing operating hours for drayage pickups.
Those reduced hours of operation in turn have hurt truckers, who over the years have gotten used to extended hours in the morning, over the lunch hour and at night.
“Suddenly I can’t get that additional turn, and suddenly my income’s cut,” Bingham said. “The cargo may be there, but I can’t do it because the gate hours have been reduced.”
“This has forced some of that pain, quite frankly, onto the truckers,” Bingham added.
Curtis Whalen, executive director of American Trucking Associations’ Intermodal Motor Carriers Conference, agreed.
“I often hear that they’re moving in a week what they used to move in two days,” Whalen said. “Even though there’s less traffic, there’s less time to get the traffic through. It’s a chain reaction.”
Although there have not been reports of serious congestion at terminals, port officials admit that the lines are longer and that the process of picking up loads has slowed considerably.
“It has really slowed down some of the turn times for truckers because they’re not getting in and out like they used to,” Steinke said.
The reason for the slowdown at the terminals is largely because of fewer workers at the gates and terminals. Craig Merrilees, a spokesman at the International Longshore and Warehouse Union in San Francisco, said that work for longshoremen at terminals is down by about a third.
“The workers are doing like they always have,” Merrilees said. “They go to the hall each morning and are called when the ships come in. The difference is they aren’t called to work as often.”
Indeed, the ships aren’t coming in as often. In fact, ocean carriers are on course to lose from $20 billion to $50 billion industrywide in 2009, said John McLaurin, president of the Pacific Merchant Shipping Association.
“There isn’t a lot of good news out there,” McLaurin said. In fact, the rate for shipping a 20-foot [equivalent] container from Hong Kong to Los Angeles on a container ship has sunk to below $900, on average 40% less than the $2,100 cost on Jan. 1, McLaurin said.
To cope with sinking freight volume, ocean carriers have been slowing ships to save fuel, cutting shipping lanes and partnering to divide routes, deploying smaller vessels and even mothballing portions of their fleets.
As of the end of June, an estimated 520 container ships have been laid up by Pacific Ocean carriers, about 10% of the total fleet, said Niels Erich, a spokesman for the Transpacific Stabilization Agreement.
Not only are there fewer ships, but they are getting smaller. During periods of container growth, ocean carriers were traveling the Pacific with 8,000, 10,000 and even 12,000 TEU ships, Erich said.
Now, the average ship arriving at West Coast ports carries only 6,000 TEU containers, he said.
But while the freight slowdown has taken its toll on company bottom lines, some say it will help ports and their businesses better position themselves for the future.
“It’s a good time to rebuild for the future — get our terminals ready for the future volume when it does come back,” said Los Angeles port’s DiBernardo. “Even the shipping lines are looking at ways to redo their process and procedures, streamline things and make them more efficient.”
Long Beach port’s Steinke noted that the decline in container traffic has reduced the number of trucks servicing the ports of Long Beach and Los Angeles to 8,700 from 16,000 in past years. The good news, he said, is that more than half of them are either 2007 federal emission-compliant trucks or alternative fuel trucks.
The slowdown also is giving port officials time to work on improving infrastructure to prepare for future growth.
“It’s a good time to build,” Steinke said, “and it’s green growth.”
Steinke said that more than 100 contractor representatives showed up for a pre-bid meeting on a port construction project, and a relatively small paving project drew 10 bidders and netted the port a good price.
“It’s a very aggressive bidding climate,” he said. “A lot of people are hungry for work.”
