Growing Shipping Alliances Are Straining Major U.S. Gateway Ports
Ocean carriers are cooperating on capacity on their new, larger ships, adding to handling problems
Container shipping, which moves over 95% of the world’s manufactured goods, is largely controlled by around 15 mostly European and Asian operators, which recently have accelerated the pooling of operations within giant alliances to cut costs. Long a feature of maritime shipping, the alliances have grown in recent years as carriers have introduced bigger vessels that are least twice the size of those calling on U.S. ports for years.
The economic imperatives of carriers trying to get the most out of the new ships meet the cargo-handling limitations at ports such as those the largest U.S. gateways at Los Angeles and Long Beach. Upon arrival, containers often are randomly unloaded, which swamps terminal operators as they try to organize the metal boxes in stacks and move them to specific destinations by truck or rail.
“Existing terminals were designed two decades ago to handle ships half the size of today’s vessels, and with the alliances, six ships belonging to the same alliance can show up at five different terminals in Los Angeles and Long Beach.” said Gene Seroka, executive director at the Port of Los Angeles. “This disperses cargo over a wider array of facilities making it challenging for truckers to pick the containers as well for western railways to amass the cargo and move it to specific destinations.
“We have 13 different terminals in Southern California. So there is a lot of confusion in picking up cargo,” said Mr. Seroka.
Mr. Seroka said that on average terminal operators had to pay $3 million in added spending a week to deal with the congestion.
California ports handle the largest share of cargo moved from and to Asia, everything from clothing and home appliances to toys, luxury goods and electronics coming in and packaged food, fresh produce and scrap metal going out. Peak periods include September and October when retailers prepare for the Christmas holidays and the first-quarter period before the Lunar New Year, when U.S. importers typically stock up for spring before Chinese factories shut down for up to two weeks.
Jon Slangerup, chief executive at the Port of Long Beach, says that as ships get bigger, they call to more ports in Asia where containers are loaded randomly, with little attention to the ownership of the containers or their final destination. When docking at multiple terminals at the West Coast, unloading the ships is also done randomly, straining port operators and truckers as they try to figure out which box goes where.
Historically, a single ship had its containers stocked in blocks, with each block destined for a particular location by a particular mode of transport. The process known as block stowage was for decades the preferred method for port operators and it worked well.
“In the past, we handled a container one to three times before it left port, Mr. Slangerup said. “Now, at peak times, it is five to eight times, and when it happened last year nobody really understood the magnitude of the problem. It wasn't expected or planned for and so the physical gridlock that ensued was very serious.”
Jonathan Gold, vice president of National Retail Federation which represents 18,000 U.S. retailers, says members also have been levied by shipping companies with congestion charges to compensate for the for the extra time a vessel stays at port while cargo is being shorted out.
“It’s a very large issue that adds major costs to cargo owners,” he said. “We want to see better port operations overall that moves cargo quickly. We need a wider conversation with everyone involved in the supply chain, but it will take years to deal with the problem.”
Last month, the Federal Maritime Commission, the U.S. marine watchdog, voted to call in all parties involved to discuss the issue and come up with proposals to address the problem. It said that in many cases, congestion charges are deemed unfair since importers, exporters and truckers aren't responsible for the delays, and the regulator warned it could penalize unfair practices by shipping companies and terminal operators.
“The message from cargo owners, importers and exports is loud and clear,“ said FMCFMC0.23% Commissioner Richard Lidinsky. “These alliances and their big ships are causing major problems at U.S. ports and by our vote all parties involved will have to sit down over the next 90 days identify what went wrong and come up with solutions. After that, the FMC will have a clear picture and if needed get involved in specific cases with investigations, subpoenas and fines.”
“We had shippers telling us they are being regularly charged for the congestion by shipping companies. The operators cause the congestion and they want to profit on top of it. This is unacceptable,” Mr. Lidinsky said.
Maersk Line, the world’s biggest container operator with 15% of global capacity, according to the Singapore-based maritime research group Alphaliner, says the larger vessels actually improve efficiency as the cost savings are largely passed on to customers.
The FMC and the marine regulators from the European Union and China is set to meet in Brussels in May to discuss whether the alliances are in line with international competition practices and their role in congestion at U.S. ports.
The big players in the business have said that pooling their resources and deploying bigger ships—such as the Triple-E class, which can carry in excess of 18,000 containers—cuts their costs and provides better service to cargo owners.
The world’s two biggest alliances in capacity terms are the 2M and Ocean Three.
The 2M consists of A.P. Møller-Mærsk A/S’s Maersk Line of Denmark and Swiss-based Mediterranean Shipping Co., the world’s top 2 container lines, with a combined 28.2% of all capacity, according to Alphaliner. The 2M moves around 35% of all goods between Asia and Europe and controls a market share of 15% and 37% of goods moved on the trans-Pacific and trans-Atlantic routes, respectively.
Ocean Three, consisting France’s CMA CGM, China Shipping Container Lines Co. and Middle East shipping major United Arab Shipping Co., controls a 20% slice of all cargo between Asia and Europe and 13% and 7% across the Pacific and Atlantic oceans, respectively.