METRANS Blog - Perspective Series
Hanjin Shipping Company receivership filing is a dramatic sign of the distress facing the ocean carrier industry. While small container lines have come and gone in the recent past, such as The Containership Company, which called at the Trapac Terminal in Long Beach, the demise of the seventh largest ocean carrier reflects the inability of an industry to sustain year after year of losses due to low shipping rates and ship overcapacity.
Here, in our own San Pedro Bay, Hanjin owns 54 percent of Long Beach’s Total Terminals Inc. in a joint venture with Mediterranean Shipping Company (MSC) which owns the other 46%. The terminal is one of Long Beach’s largest, a 360 acre terminal developed in the 1990’s on the old Long Beach Naval Station property. Hanjin’s partner in the terminal, Mediterranean Shipping Company, has announced a new transpacific service starting on September 15, to fill the void created by Hanjin’s exit. When the immediate disruption to shippers passes, the long term impact may be felt, close to home, in Long Beach.
The San Pedro Bay ports have not grown in the past decade. They have yet to reach the peak volumes experienced in 2006. While one or the other port may report volume increases, comparing a current month with the same month the previous year, increases and declines often represent an ocean carrier’s shift of cargo from one port to the other. The consolidation among the ocean carrier industry has long term implications for the San Pedro port complex where container facilities were historically developed as proprietary terminals to serve a prime customer. Those days are gone. Ocean carriers have been implementing a number of strategies to survive financially, achieving an economy of scale by using bigger ships and forming alliances to fill those ships. But from a port perspective, the most significant change has been industry restructuring that divested carriers of their obligations to call at specific port terminals. With vessel deployments made on a global basis, ports find they have little leverage to retain and prevent shifts in cargo from one terminal to another. Case in point- Long Beach cargo volumes declined significantly earlier this year after the ocean carrier CMA CGM shifted business to the Port of Los Angeles. This shift was triggered by CMA CGM’s acquisition of Neptune Orient Lines, the parent of American President Lines which operates a large terminal through its wholly-owned subsidiary, Eagle Marine Services at Pier 300 in Los Angeles. The mergers and acquisitions occurring among the ocean carriers, along with the market power of the mega-alliances, call into question the survival of 13 individual terminals in the San Pedro Bay port complex (14 if you consider the Hyundai Merchant Marine (HMM) operation within the APMT Terminal at Pier 400).
So what are the implications of a future without Hanjin at the Port of Long Beach? Loss of a customer is a port director’s worse nightmare. Undoubtedly, there will be a loss in revenue to Long Beach in the near term. Whether Long Beach can recover depends on who absorbs the primary share of Hanjin business and where that business lands in San Pedro Bay. Press reports indicate that HMM is positioning itself to purchase Hanjin assets including its share in the Long Beach terminal. HMM entered into a ten year agreement with APMT in 2011 to create a “terminal within a terminal” at Pier 400 in Los Angeles, with the promise of a 200 acre extension of Pier 400, giving HMM having its own terminal. The plan to expand Pier 400 by an additional 200 acres was shelved however, when the economic downturn hit and HMM’s volumes did not warrant the expanded area. An HMM purchase of Hanjin assets including their portion of the Long Beach terminal could give HMM the home it has always wanted, which could lead to a shift in cargo volume from HMM’s Pier 400 operation in Los Angeles to Long Beach. HMM’s immediate deployment of additional ships in the Trans-Pacific trade to handle cargo for Hanjin Shippers could bring cargo normally destined for Long Beach to Los Angeles. If MSC purchases out the remaining portion of the Long Beach terminal, that could drive some of the cargo from the alliance of Maersk Line and MSC (2M) from Los Angeles to Long Beach. Hanjin’s demise might also lead to further shifts among the pending alliances. It is possible to speculate on numerous different scenarios. What is clear is that it that, after a decade of no growth through San Pedro Bay and a forecast of slower growth in the future, it’s time for the San Pedro Bay ports terminal operators to take a page from the ocean carrier’s “consolidation playbook” and consider working together to increase their own market power.
Geraldine Knatz is Professor of the Practice of Policy and Engineering, a joint appointment between the USC Price School of Public Policy and the Sonny Astani Department of Civil and Environmental Engineering at the USC Viterbi School of Engineering. Dr. Knatz served as the Director of the Port of Los Angeles from 2006 to January 2014. She was the first woman to serve in this role and made a significant impact through the creation and implementation of the San Pedro Bay Ports Clean Air Action Plan She is an expert in seaport policy and management, maritime transportation, international trade, and seaport sustainability.