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Ports and Carriers Need a Productivity Tango

By William DiBenedetto, CBN Feature Editor

The challenge facing U.S. ports in a time of economic and labor uncertainty, low freight rates, high infrastructure costs, mega-ships, and an expanded Panama Canal is finding ways to maintain and expand productivity.

It's a tough conundrum, which helps to explain why the ten most productive ports are not located in the U.S. – or the Western Hemisphere for the matter. Nine of the ten most productive ports are in Asia, with the top three being Shanghai, Tianjin and Shenzhen.

According to an International Transport Forum report, the workload for terminals to service container vessels has increased 709 percent since 1975, and the average workload performed by each crane has risen by 382 percent. But the number of container cranes deployed to work a ship has increased by only 87 percent.

"At first sight, the differences in berth productivity between the top 10 ports could be surprising," said Olaf Merk, administrator of ports and shipping at the ITF. "I think there are three main explanations: automation, customer base and location. Ports with automated terminals will be able to achieve higher berth productivity levels, but it might come at the cost of terminal flexibility."

But even the largest ports in Asia and Europe are seeing a decline in berth productivity, according to Andy Lane, partner at the CTI Consultancy. In an article Lane wrote for this month's 20th TOC Asia Conference & Exhibition in Singapore, he said, "The prospects for liner shipping in 2016 and beyond look bleak right now, to say the least. The lines have achieved much over the past eight years since the global financial crisis bowled them a googly and, if not for their grand efforts to reduce costs, several would by now be history. But that might still happen in 2016, and new efforts in new focus areas are required to avoid that outcome – whether a line has been profitable or not."

The key for carriers and ports is how to best leverage new "network synergies." Liner networks "are extremely complex, and even more so within large alliances – although, contrary to some popular belief, they are not so similar to airline networks."

A major component is port productivity, Lane continues. "With today's lower fuel prices, this is arguably less important to carriers than it was 18 months ago, but it still holds a lot of value – and improvements can often be win-win for the various stakeholders involved."

He notes however, that productivity has decreased "by more percentage points than the average call size has declined in all regions except for North Europe, which achieved a modest 2 percent gain on 'call-size weighted berth productivity.' Overall, though, productivity has dropped relative to call size."

Congestion is not the full explanation for this, he explains, because "congestion cannot be endemic, as most terminals only use their quay assets 50 percent of the time, and, when actually operational, at a mere 70 percent efficiency!" Improving productivity (efficiency) will also increase capacity, making congestion less likely, networks more robust and - importantly for the terminals - sweating more TEU (revenue) through the same fixed-asset base. So why is productivity in decline, when it is win-win to improve it?"

Lane writes it is a matter of mindsets, a lack of awareness and a lack of cooperation. Mindsets embody a set of myths and misperceptions that are often touted as insurmountable constraints instead of the "wonderful opportunities" that they are. One mindset is that big ships cause demand surges and peaks. But Lane notes this has always existed: "hence the reason why terminals are only 50 percent utilized, and it is caused by lines and shippers who try to funnel a week's worth of demand through a

Photo credit: Bloomberg

1-to-2-day window – and then bemoan it. Big ships might be magnifying the challenge, but do not prevent it from being overcome."

Another mindset is that big ships cause longer crane cycle times, which of course is true. "However the impact is maybe only 3-4 percent. So if you could, once-upon-a-time, cycle 40 times an hour, now you are limited to 38.5 – but in reality achieve less than 30. There are many other causes of crane efficiency loss which create more negative impact. These can be fixed, but the width and height profile of the ships are what they are."

A third mindset to overcome is that big alliances cause and increase complexity, true enough, but Lane says this applies only to the alliance members, because ports in general deal with one party per ship — the ship operator. "Any inefficiency present will be due only to poor processes. These can be fixed, whereas the complexity of alliances cannot."

A lack of awareness: "An absence of objective and external benchmarking hides the truth of whether you are comparably competitive or not." He says a lack of awareness is also a result of a "failure to acknowledge and recognize that performance is substandard and to make a commitment towards improvement. Handling a container is handling a container wherever you are in the world!"

Finally, and here's perhaps the most crucial productivity aspect: collaboration. "Increasing productivity will result in win-win benefits, and it is therefore a shared responsibility," he says. "The key business drivers for terminals and lines are far more congruent than they are conflicting. Finding the common ground will not happen, however, without further collaboration, cooperation and constructive dialogue."

Food for thought, but until mindsets change and collaboration breaks out in real and lasting ways, ports are mostly left to their own devices when it comes to productivity.

Earlier this month, The Northwest Seaport Alliance – meaning Tacoma and Seattle – approved a $141 million project for Tacoma's Husky Terminal that eventually will allow two 18,000-TEU vessels to dock there simultaneously. Construction is estimated to conclude in 2018.

The Husky Terminal upgrades include reconstruction of Pier 4 to align it with Pier 3, creating a contiguous 2,960-foot berth, as well as the purchase of two more super-post-Panamax cranes to join two ordered previously.

The reconstructed berth will also include a conduit for future shore power, allowing ships to plug-in while at dock.

Drewry Container Intelligence says that for reasons beyond terminal operators' control, costs are rising while revenue is not increasing at the same rate. That means financial returns likely will decline, exacerbated on the West Coast by the "slowdown in growth triggered by the economic and political changes in China."

Last year, global container port growth was only approximately 1 percent, and it is not expected to rise above 2.5 percent in 2016, Drewry noted. It's time for ports and carriers to cooperate like never before.