Containership capacity in Transpacific trade increasing
by Mike Hansen, Hawaii Shippers Council, June 5, 2017
Drewry Shipping Consultants Limited’s Maritime Research unit, issued their latest Container Insight Weekly on June 4, 2017, “West Coast Update,” describing how the operators of ocean common carrier container services in the Transpacific trade between the U. S. West Coast (USC) and Asia are substantially increasing the capacities of their containerships.
This is an important development for many shippers (i.e., cargo owners) in Hawaii and Guam because it further places the supposed opportunity to take advantage of these international services to the islands out of reach.
There has been for many years a belief on the part of shippers, that, but for the Jones Act, it would be possible to take advantage of the existing international (i.e., foreign flag) containership services Westbound from the USWC to Hawaii and Guam obtaining very low freight rates and high service levels. This belief was based upon the long term imbalance in the Transpacific trades with cargo volume shipped Westbound being about half that shipped Eastbound (from Asia to the USWC) with correspondingly very low Westbound freight rates.
Demonstrating this imbalance continues, Drewry reports Transpacific container cargo volume at the port of Los Angeles / Long Beach for the first four months of 2017 was exports of 1.14 million Twenty-foot Equivalent Units (TEU) and imports of 2.54 million TEU a ratio of 1 to 2.2.
There are several reasons why it’s not realistic to assume these services would call at Hawaii and Guam Westbound even in the unlikely event Hawaii and Guam were completely exempted from Jones Act cabotage.
These include: (1) the use of Great Circle Routing which takes many of these ships far North of Hawaii and Guam and would require a large deviation to call at Honolulu and Apra (Guam) harbors; (2) even before the recent increase in containership capacity many of the ships were physically too large to enter Honolulu and Apra harbors (maximum capacity around 3,600 TEU); (3) the operating cost of a large containership to divert, call in port, and the port and cargo handling costs at Honolulu and Apra, would likely be greater than the revenue generated by the cargo transacted at those ports; and, (4) the time to divert from Great Circle routing and call in port at Honolulu and Apra would disrupt the lines’ schedule integrity and possibly require the addition of another ship to their service routing.
Based upon current carrier practice, Drewry predicts that the capacity of containerships operating in the Transpacific will tend towards 14,000 TEU over the near term and as USWC terminals are expanded and improved, carriers will shift to Very Large Container Vessels (VLCV) of greater than 18,000 TEU in the Transpacific trade.
Drewry Shipping Consultant Limited is a leading independent provider of research and consulting services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. They provide their services through four business units: Maritime Research, Maritime Advisors, Supply Chain Advisors and Maritime Financial Research. Drewry was established in 1970 in London by George Drewry, a Paris based tanker broker, to provide independent market research services to the maritime and shipping industry.
The number of containerships of 13,000 teu or above deployed on the Asia-US West Coast trade has nearly doubled since the start of 2017. How long before the mega-ships arrive?
Back in late 2015, French carrier CMA CGM trialled a single 18,000 teu Ultra Large Container Vessel (ULCV), CMA CGM Benjamin Franklin, on one of its Asia-US West Coast services to the port of Los Angeles. Despite backtracking on a later plan to make the move permanent, CMA CGM and its rival carriers are increasingly trusting West Coast ports with bigger ships. Drewry research suggests that the number of 13,0000 teu+ containerships has nearly doubled since the start of the year, rising from 21 units in January to 36 in May (see Figure 1).
At the time of the CMA CGM Benjamin Franklin trial-run we questioned the ability of West Coast ports such as the Los Angeles-Long Beach complex to handle the 18,000 teu ULCVs on a regular basis, citing concerns over infrastructure, labour and the ability to efficiently move cargo to and from the port complex via truckers and intermodal railroad. It would appear that carriers share some of the same fears as, thus far, they have resisted the urge to introduce mega-ships, limiting their ambitions to 14,000 teu units for the time being.
The recent influx of >13,000 teu ships into the Asia-WCNA trade coincides with the 1 April alliance restructuring that reduced the number of weekly services in the lane by one to 37. As more cargo is squeezed onto fewer weekly services terminals have to prepare for much greater peaks in container activity. This problem is exacerbated on the USWC as ships often only call at a couple of ports, unlike in Europe, meaning those US ports have to handle a higher ratio of boxes per ship call. Having a big import bias, as Los Angeles-Long Beach does – there were 2.4 times more loaded imports than loaded exports in 2016 – adds to the complexity as import moves require more exchanges between various equipment types, requiring more time, and more container terminal choreography than loading export containers.
A swifter rise in exports of late will have helped smooth operations somewhat, but imports remain dominant. After four months of 2017 total port handling at Los Angeles-Long Beach has thrived, growing by 8% to 5.1 million teu (see Figure 3). Loaded exports (1.14m teu) increased by 9%, while loaded imports (2.54m teu) were up by 6%, and empties (1.41m teu) rose by 10%.
ULCVs will come to the USWC in time, but carriers should wait until the ports are completely ready for them. In the case of Los Angeles-Long Beach, when most of the disruption surrounding the construction works is over. Until then, importers would be wise to monitor the productivity of the various terminals and consider their terminal preference when selecting carriers.