Trade and Transportation by Dr. Thomas O’Brien

Big Ship ReadyTrade And Transportation By Tom O’Brien

January 21st, 2014 - Ocean carriers have responded to competitive pressures, particularly in the wake of the economic downturn, by seeking to reduce operational costs. One solution has been to run larger, more efficient ships on major trade lanes. Larger vessels allow for economies of scale and new ship designs allow for more fuel efficient operations. The largest of the new vessels are referred to as the Triple E class, which stands for energy, efficiency, and environmental improvements and will carry up to 18,000 twenty-foot equivalent units (TEUs). The ships can reach up to 1,300 feet long and 200 feet wide.

The Triple E’s are examples of post-Panamax vessels which are too large to transit the Panama Canal. While fifteen percent of the world’s container capacity moved on post-Panamax vessels in 2000, that number increased to forty-four percent by 2011.

Maersk, the world’s largest ocean carrier, will be taking delivery of ten Triple E vessels by next year. Most of these will be deployed on Asia-Europe trade lanes but their impacts on the global freight system, including here in Southern California, are widespread.

The most direct impact is on the port facilities that have to accommodate them. Because the large vessels include an extra row of containers and are stacked higher, they demand more specialized cranes; and the additional loads that the cranes handle place additional pressure on the dockside infrastructure. Berths have to be able to handle the impact of the larger vessels.

The increase in container volume will also require more on-dock labor during peak periods when ships call and are unloaded. This creates a similar pressure on supply chain partners – including the trucking and warehousing sectors – that move and process the cargo once it leaves the ports.

For shippers relying upon a predictable discharge schedule for vessels (and for the truckers, warehouses, railroads and others who help shippers move the cargo), larger vessels may inject some uncertainty into the process of moving goods. Larger vessels mean potentially longer unloading times at ports which is a concern to importers operating on a just-in-time basis. The loading and unloading of larger vessels can also create peak period demands for equipment use (like chassis or yard equipment), resulting in possible shortages.

However, larger vessels do provide an opportunity for ocean carriers to share excess capacity. In 2011, carriers Hapag-Lloyd, APL and Hyundai established the G6 alliance for the Asia to Europe trade lane. In 2014, pending European and American regulatory approval, the world’s three largest carriers – Maersk, MSC and CMA CGM – will launch the P3 alliance. The alliance will result in vessel sharing agreements covering fifteen percent of the world’s global containerized fleet, 255 ships with a capacity of 2.6 million TEUs. The investment of the P3 carriers in larger, more efficient vessels may force competitors to do the same, or at least deploy smaller but newer and more efficient ships that are competitive from an operating cost perspective. Once the P3 alliance is established, it is expected that all of the ships being deployed in the trans-Pacific trade lanes servicing the west coast of the US will be larger than 9,000 TEU vessels.

California, particularly the Southern California trade gateway, is in a position to draw traffic from these larger and alliance-run vessels because of existing capacity. Long Beach’s main channel is 76 feet deep and is the longest in North America. But there will still be pressure on ports and terminal operators to upgrade facilities and develop new terminals designed for the newest vessels.

This may require new kinds of operations to eliminate peak period congestion when ships are loaded and unloaded and when containers leave the port by either truck or rail. For local officials and communities, increasing volumes will create new demand for infrastructure improvements outside of the gate as well.

(Dr. Thomas O’Brien is the director of research for the Center for International Trade and Transportation at CSULB and associate director for Long Beach Programs for the METRANS Transportation Center, a partnership of USC and CSULB. For past articles in this series, please go to www. ccpe.csulb.edu/IndustryArticles.)