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Consider some recent developments:
--Oil prices are in free fall, roiling markets and undermining the economies of petroleum-producing powerhouses such as the OPEC nations.
--Confounding traditional cycles, cheaper energy has not resulted in a surge in global economic growth.
--China's economy is finally slowing, casting doubts as to whether the country can hang on to its recently won title as the world’s largest economy.
--And, on the transportation side, a major U.S. West Coast port has said it has too much space available for container shipping.
That last revelation comes from the Port of Oakland, which experienced both a high and a low in the span of just three weeks.
The high was the December 31 visit of CMA CGM’s Benjamin Franklin, the largest vessel ever to call a U.S. port, with a capacity of 18,000 twenty-foot equivalent units (TEUs). (It called the Port of Los Angeles five days earlier.) The line intends to deploy the ship in regular service between China and the West Coast.
The low was the January 19 announcement by marine terminal operator Ports America that it will terminate its 50-year lease at Oakland, abandoning its operation in the Outer Harbor. (Where, ironically, the Benjamin Franklin docked.)
The latter development came as a shock to industry watchers – how often does a terminal operator walk away from an ongoing lease that appears to be functioning smoothly? – but Oakland sought to put a good face on it. “We at the port are going to do absolutely everything in our power to make sure there are no disruptions in cargo in any shape or form,” executive director Chris Lytle told a luncheon audience in Oakland two days after the CMA CGM announcement. He promised that all container cargo would find “a good home” within remaining port terminals, and that the transfer of operations would be “seamless.”
One might expect the port to be scurrying for another operator to take over the terminal lease and maintain container handling in the Outer Harbor. But that isn’t happening.
Lytle was candid in his assessment of Oakland’s current resources. “This port is way over capacity,” he said. “We have too many acres dedicated to container facilities.”
That’s not a message you would expect to hear from a hard-charging West Coast port, especially one that has geared its operations almost exclusively to containers. Ports up and down the coast have been engaged in a decades-long battle for container business, in response to a boom in trans-Pacific trade, driven in large part by the growth of China. Just about every available scrap of new dockside acreage – whether created by landfill at the ports of Los Angeles and Long Beach, or abandoned military bases in Oakland, has been given over the handling of containerized freight.
Not until now has a port executive admitted that this flurry of activity might have resulted in a glut of terminal capacity. So Oakland has no intention of immediately bringing in a new operator for the Outer Harbor facilities – an action that would “dilute that container market and create the same problem that we had,” Lytle said.
Instead, it will explore alternative uses for the Outer Harbor, including automobiles, breakbulk and roll-on/roll-off cargoes. (The very type of activities that were moved out all along the coast to make room for containers.) And Lytle, who previously served as executive director of the Port of Long Beach, implied that other West Coast ports should be considering a similar strategy. The Port of Seattle’s Terminal 5 has been vacant for the last two years, he said. “And there’s a terminal at Tacoma with essentially no business.”
It’s unclear why Ports America, the largest terminal operator in the U.S., is abandoning Oakland. In its announcement, the company would only say that it was “refocusing” its strategy. It will instead concentrate West Coast terminal operations at Los Angeles, Long Beach, the Pacific Northwest and Canada. One possible factor was the many work stoppages caused by members of the International Longshore and Warehouse Union and local political groups such as Occupy Oakland. But other West Coast ports have faced similar actions, including the months-long slowdown last year during fractious negotiations over a new contract.
Lytle said the labor situation had “no relationship whatsoever” to Ports America’s decision. Nevertheless, there’s a lot of bad blood between the ILWU and the shipping community, which experienced empty retail shelves, lost export sales and rotting produce as a result of the union’s delaying tactics in the early weeks of 2015. Losses to the U.S. economy during the slowdown were estimated at $2bn a day.
Now, Lytle is waving an olive branch at the ILWU, saying that “our role is to provide a very critical linkage with labor to bridge that gap and work on these relationships… A successful port has got to have labor and management working together.”
A more direct reason for Ports America’s departure from Oakland might be related to the much-hyped visit of the Benjamin Franklin. (In more ways than one: Lytle’s resume includes a stint with CMA CGM.) The ballooning in size of modern-day containerships means fewer calls at bigger terminals. So it makes sense for a port to consolidate operations, especially since many berths sit empty for a good portion of the month.
The challenge for Oakland and its rivals now is to boost the productivity of their remaining terminals, so as to avoid gridlock caused by the offloading of thousands of containers into the yard at a time. That means significant new investments at berthside, as well as on- and near-dock rail-transfer facilities. The visit of the Benjamin Franklin offered a tantalizing source of future revenue for Oakland, but the ship won’t be calling there on a regular basis unless the port can promise deep water, adequate equipment, maximum efficiency, strong intermodal links and labor harmony. And there’s nothing “bizarro” about that.
