US LOOKS TO GROW SEA TRADE WITH CHINA

Cranes are offloaded at the Port of Long Beach for the Middle Harbor project, which is scheduled to go live in the first quarter of 2016. (Photo: Port of Long Beach)

Sea trade between the world’s two largest economies was the unfortunate victim caused by the labour dispute between the International Longshore and Warehouse Union and the Pacific Maritime Association, which shut down ports up and down the US West Coast. Now that the dust has settled, the US is looking forward to growing its trade activity with China.

Andy Wang, president of Asia operations at forwarder C.H. Robinson, says that China-US is the strongest trade lane in the company’s global portfolio, and that he is satisfied with the performance in 2015. “As one of the top NVOCCs, we feel we’ve been doing very well, especially at the beginning of this year, during the West Coast disruption,” he says. “We were able to provide more options and solutions to our customers to keep their cargo moving. We moved some cargo via the PNW service, some with an East Coast all-water service, and even some with air freight.”

The Port of Long Beach (along with the Port of Los Angeles) was at the centre of the strikes that brought about severe congestion affecting ships from all over the world. The backlog took months to clear, but in July 2015, the port broke its all-time record for cargo volumes for a single month, and then went on to break that record again in August, with more than 700,000 TEUs. In September, the numbers came down slightly to 650,000 TEUs.

“What’s interesting is that in the third quarter, we were up 15% year-on-year,” says Noel Hacegaba, chief commercial officer and managing director of commercial operations at the Port of Long Beach. “We’re very encouraged by these strong volumes because for us it means that shippers’ confidence has been restored in our gateway. We’re seeing a lot of the cargo that was diverted coming back and we also think it’s a good sign of the overall US economy.”

The whole dynamic between the West Coast and the East Coast looks set to change with the expansion of the Panama Canal. The maximum ship size the canal can currently accept is around 5,000 TEUs, but when the expansion is complete, it will allow vessels of up to 13,000 TEUs to cross.

The Port of Miami hopes to benefit from the fact that the East Coast will become more easily accessible to more ships sailing from the Asia-Pacific region.

“We’re of the mind that the West Coast share is now 65%, and it wouldn’t shock us to see four or five years from now that the percentage is closer to 55%, so we think there might be a 10% market-share shift,” says Kevin Lynskey, deputy director of PortMiami. “We think there are about 400,000 moves that will be shared among ports serving the Southeast US, and that includes imports, exports and empties. The Port of Miami is looking to move its share of Asian trade, which is presently 35% of our business, to over 50% over the next few years. That share will be completely dominated by China – it’s to the point where Hong Kong and China account for over 90% of the trade.”

But Miami isn’t the only port which stands to gain from the increased trade activity as a result of the canal expansion. Port Everglades, located approximately 35 kilometres north of Miami, is also looking to expand its presence in the trans-Pacific trade lane, but doesn’t necessarily consider Miami a rival.

“We work together,” says Steven Cernak, chief executive and port director of Port Everglades. “It’s simple – if I grow the pie larger with them, and even if my slice stays the same size, then by design, I’ve grown. It’s really the private sector that decides what’s happening. All I can do is provide the best possible facilities I can, and I will let the market take care of itself.”

Apart from seaports, another player which will be affected by the expansion of the Panama Canal is Florida East Coast Railway, which serves both PortMiami and Port Everglades exclusively with on-dock rail.

“We have an overnight service into the state of Florida from Miami, and a two-day service into the Southeast region,” says James Hertwig, president and CEO of FECR. “So we think a lot of the cargo that before was being loaded to other ports will get loaded onto bigger vessels coming through the Panama Canal. In addition, PortMiami can do transhipments into the Caribbean. We think that because there’s a lot of cargo already coming into the state of Florida, and because there’s a good amount of baseload along with the Southeast region and with some of the transhipment, the carriers will be able to fill those vessels coming into Miami.”

FECR and Port Everglades launched an intermodal transfer facility in July 2014, which Hertwig says is “going great” and has led to volumes growing at 20% ever since. “Now we’re very competitive with truck because we’re right there at the port,” he says. “We come out of the port and we only go [320 kilometres] to Cocoa, and then truck it for [50 kilometres] to Orlando. But in the past, when we weren’t near the dock, we had to truck it to our facility, load it on a train, and truck it again. The old facility we were in was only 12 acres and very congested. We’re now in a 43-acre facility and we can grow our volumes up to four or five times what our current levels are. So we’re well positioned in the future at Port Everglades.”

The Port of Long Beach, however, remains convinced that the West Coast will dominate the trans-Pacific trade.

“We view these projects as alternative routes and they obviously open up more options for shippers,” says Hacegaba. “However, we’re in the middle of our US$4 billion capital improvement plan, and we’re optimistic that by investing in our infrastructure, optimizing the supply chain and capitalizing on our strategic location, even when the Panama Canal expansion project is completed, we’ll continue to command the lion’s share of the cargo coming to the US.”

Hacegaba adds that, by the time the new set of locks opens up commercially, the 13,000 TEU size constraint isn’t likely to have that big an impact on the West Coast, which is already handling ships of that size. “Early next year, we’ll have the ability to handle 18,000 TEU vessels, and by the end of this decade we’ll have the ability to handle 24,000 TEU vessels,” he says. “So we think that by the time the canal expansion opens up, the size of the fleet that’s in deployment will outsize it. If you look at the order books right now, about 53% are 13,000+ TEUs.”

One of the factors which could potentially influence the nature of trans-Pacific trade is the Trans-Pacific Partnership, which was agreed upon by 12 countries in October 2015.

Wang says that even though China is not a member of the TPP, he doesn’t really see how that will impact C.H. Robinson’s business greatly. “China is building strong trade and business partnerships with the individual countries,” he says. “From our perspective, it’s all about demand and supply – they need one another and will continue collaborating.”

Lynskey is of the same opinion, saying that China is currently seven times larger than PortMiami’s next biggest Pacific trader in containers. “I really think it’s whether that growth rate with China will remain at a nice 3-4% or maybe drift down to 1-2%,” he says. “Other countries in Asia have such a long way to go to become really significant in this trade lane that I think those growth rates certainly will be higher, but it’s not going to really change the picture.”

Lynskey also says that, up to now, Miami’s imports haven’t really seen a decrease as a result of China’s recent economic slowdown. “What I’m more concerned about is the particular export products that go out of the Southeast US, because there are really large amounts of recyclable materials,” he says. “The problem is, to the extent the domestic market slows down in China, those recyclables that are used in the market may soften up, and that’s not going to be fun for us.”

C.H. Robinson hasn’t noticed a decrease either, according to Wang. “Compared with the 7% of last year, the export growth in 2015 is probably 5.5% in terms of volume,” he says. “I don’t really see a serious drop, so there’s nothing to worry about. Having worked in the industry for more than 20 years, I see ups and downs all the time. Compared to 2008, I think this is nothing.”

To prepare for the arrival of more and larger vessels, Port Everglades, PortMiami and the Port of Long Beach have all been carrying out major infrastructure projects.

Having just completed upgrading last-mile connectivity, Cernak says he’s now concentrating on improving waterside access. “The deepening and widening of the navigational channels is a critical project, but another equally important project is the Southport turning-notch extension,” he says. “That’s where we’re basically going to create up to five additional berths. We had to do some mangrove replacement and that will take about a year. I’m trying to get it down to eight or nine months, and as soon as the conservation easement is released, we’re going to go into construction, which will take approximately two years to complete.”

Meanwhile, the Port of Miami completed its US$250 million deep-dredge project last month, which involved deepening the main channel to 52 feet. According to Lynskey, this stretches from the sea buoy, which is approximately 4 kilometres out to the international waterway, to the tip of the port, while the remaining dredge, which is about a little over a mile (1.6 km) long, is at 50 feet.

Lynskey also highlights the importance of the port’s new quick-access tunnel, which opened in August 2014 and has saved a typical trucker about 20 minutes in each of the three loops he makes into the port every day. “If you look at the total cost of moving a container, the inland portion is starting to become equal to the water portion,” he says. “Ports that don’t take care of the trucker and don’t make his moves efficient really are adding extraordinary costs onto the system. That extra hour is worth US$60, which is actually a pretty decent cost when you start layering it on top of the container.”

Hacegaba says that the port is close to finishing the first phase of its Middle Harbor project, which is scheduled to go live in the first quarter of 2016. By itself, the project would rank as the fourth-largest port in the US by TEU capacity, at 3.3 million TEUs. The construction of a new, taller bridge, which will allow bigger vessels to transit underneath, is also expected to be complete in 2018.

One particular area which the Port of Miami is looking to explore is the export of perishables to China. As the closest port to Latin America and the Caribbean, where a lot of fruits and vegetables are grown in the winter time, Miami considers itself the gateway for perishables, which take up about 20% of the port’s business. Eric Olafson, manager of trade development and Foreign Trade Zone 281 at PortMiami, says that he is in discussions with Shanghai Eastern Airlines Express, the logistics subsidiary of China Cargo Airlines.

“They’re very interested in bringing fruits and vegetables, exported from Central and South America to Miami, to Shanghai by air freight once or twice a week,” says Olafson. “They think that that’s a possibility. We want to be a part of the significant reefer increase to Asia. Currently, we send a lot of frozen poultry and beef from the Carolinas to Central America. As the middle class grows in China and as diets change to become more protein-based, we could easily start shipping that beef and poultry in reefer services from Miami all the way to China.”

The port already has more than 1,500 reefer plugs and is the number-one importer of frozen fish in the US. It also receives frozen shrimps and fish that come from Thailand and Southeast Asia. “We don’t want to send those reefers back empty,” says Olafson. “So one of our jobs is looking for those opportunities, and it’s a market that we think we can win because we’re ideally located to do that.”

According to Olafson, the Port of Miami is hoping to win back some of the business that it lost for the Florida citrus that is exported to Asia, specifically the grapefruits that go to Japan. “We met with MOL earlier, and they’re very interested in starting to work with perishables in Asia through the Port of Miami,” he says. “CMA CGM is also interested in bringing back service to Asia with grapefruits and other citrus. So there’s a great possibility for that export to come out of Florida.”

For Olafson, PortMiami’s biggest problem is that a lot of people don’t know it is an alternative gateway. “They think of Florida as a place of vacations and beaches,” he says. “So I think the challenge is to raise the awareness that we are at 50 feet, that we’re the first in from the Panama Canal from Asia to accept those 13,000 TEU ships, and that we have the capacity to reach 70% of the US population in one to four days. There’s a familiarity between the West Coast ports and Asia. We have an easy familiarity between the Latin American ports and Miami. Now, we have an incredible opportunity to turn to Asia.”

Looking ahead, Hacegaba says that, as long as the US economy continues to strengthen and as long as the dollar remains strong, he thinks Long Beach will continue to see an uptick in demand for cargo from China.

“We’re also hopeful that the downward trend in exports will reverse and we’ll be in a position to export more products to China,” he says. “Clearly, China remains our largest trade partner and we see that continuing for the foreseeable future.”

Everything is falling into place for Cernak, who says he has been trying to be more proactive rather than reactive.

“It’s finally moving forward,” he says. “I have all of the business community behind it and I have the political leadership behind it, so it’s nice to have that support.”

By Jeffrey Lee

Asia Cargo News | Hong Kong