Terminal Heat

BOX TERMINALS TAKE THE HEAT...

…BUT THE SOURCE OF THE PROBLEMS LIE ELSWHERE

Dig beneath the surface and you will see that container terminals are unjustly identifi ed as the cause of congestion problems. Johan-Paul Verschuure diagnoses the real situation

Container terminals are the only place where congestion is obvious. Pictures of full stacks lead to scapegoating of terminal operators. However, the problems are actually focused on other parts of the supply chain and even institutional. Shipping networks have rapidly adjusted to the conditions leading to dropped calls, longer port stays and rerouted volumes. In normal times these indicators suggest something is off . However, in current conditions it is showing how logistic players respond to changing conditions and how terminals support this process.

CONTRASTING DYNAMICS

Kuehne+Nagel launched its widely cited disruption indicator in late January 2022 indicating that roughly 80 per cent of global port disruption is in the US. Out of this at least 80 per cent is focused on San Pedro (Los Angeles and Long Beach). The remainder of global congestion is taking place in just a few ports. Overall the majority of ports are very busy, operating near capacity with occasional congestion, but nevetheless managing the inflow of containers relatively well.

North American TEU volumes rose by just over 13.2 per cent in 2021 in comparison to pre-Covid 2019. This is the same growth rate as was recorded by North American ports between 2016 and 2018, albeit that the growth back then was spread more gradually over both years.

Demand growth is mostly isolated to North America. In contrast, the Hamburg-Le Havre range recorded a volume growth of a more normal 5.4 per cent over the 2019-2021 period. This growth is healthy but has been accommodated by capacity developments already in place. This confirms that it’s not just available terminal capacity causing the problems.

To really diagnose potential demand problems we have to drill deeper into port activity and the core theme of ‘cause and effect.

A remarkable difference between the North American market and the Northwest European port sector has been the great variation between ports. On the West Coast only Los Angeles/Long Beach had a CAGR exceeding five per cent per year. Prince Rupert saw a decline over the pandemic and Oakland – relatively near to the San Pedro Bay ports - had stable volumes. Growth on the East Coast was much higher, mostly with CAGR in the range of 7-10 per cent over the pandemic period.

In Europe growth was spread much more evenly and at lower levels.

Available capacity in Zeebrugge, Le Havre and Wilhelmshafen enabled these ports to jump to the rescue of other ports with operational problems. These demand growth rates would not normally cause problems. Other issues were at play. Frankly, however, supply chains in Northwest Europe adjusted more rapidly to different operational conditions and lockdowns ensuring continuing operations in an efficient way.

TRANSSHIPMENT AS A CURE

The transshipment structure in place in Northwest Europe actually diluted congestion across the major ports.

Deepsea calls to the UK were partially temporarily replaced by feeder services from other European hubs when hinterland logistics were struggling to keep up. Feeder services being more flexible to berth were better able to find a slot.

Services were shuffled to ports with available capacity in Zeebrugge and Le Havre, with these ports also benefiting from a shift from Ro-Ro to Lo-Lo. Rather than direct mainline calls, feeders were used to fill up smaller pockets of capacity. Although the last minute changes in scheduled vessel calls caused major problems for the terminals, it did result in the optimal use of European port capacity. Examples of this in Europe include reports of feeder services calling at nearby breakbulk terminals and at shortsea terminals. Also, global operators having multiple terminals in the range worked together by actively rerouting volumes to partner terminals and thereby using all available capacity.

This ad-hoc and temporary reshuffling of networks resulted in a massive shift away from published schedules. Alphaliner reported, for example, a large number of dropped calls between Asia and North Europe. However, rather than

8 It is simply wrong

to lay the blame of poor supply chain performance at the door of ports – they have actually done a good job in very diffi cult circumstances

this being an indicator of the port congestion, it merely showed the logistic sector working out solutions to effectively route cargo and use pockets of available capacity.

Due to legislation in North America preventing foreign flagged vessels transporting cargo between US ports, there is no effective transshipment structure in place. With only point-to-point services, the shipping network was not able to adjust in a similar way to the prevailing challenges. Canadian ports actually saw disappointing transit volumes to the US, given the problems at the US ports.. Dropped calls in this market therefore have a different meaning than in Northwest Europe.

BIGGER PARCELS: LONGER PORT STAYS

A second indicator which acquires a different meaning in the North American context compared to Europe is the time a container vessel spends in port. Normally, the average time in port would be a proxy for productivity. Increased dwell times, in particular for empty containers, led to fuller stacks and in turn this resulted in lower productivity. Add to this absences of operational staff and vessels were alongside for much longer.

With the reliability of operations being negatively impacted for the last two years, liners in Northwest Europe adjusted their networks to reduce the number of port calls per loop. Volumes to ports were consolidated on fewer vessels. As a consequence, terminals were dealing with much larger call sizes. In addition, in hub ports, increased transshipment to deal with operational challenges served to increase call sizes further. The data for Antwerp and Rotterdam points in this direction, with this being exacerbated by the rapid introduction of much larger Megamax vessels. In 2021 the number of container vessels calling at the port of Rotterdam and Antwerp, for example, both declined in comparison to 2019, while over the same period container throughput increased. The resulting increase in call sizes is estimated to cause roughly 70 per cent of the longer than average port stays. This suggests that quay productivity remained at relatively normal levels in European ports. Other causes like last minute schedule changes, cargo owners not picking up their cargo or using terminals as storage areas were also significant contributary factors but outside the control of terminal operators. However, this was not the case in LA/LB where the number of calls grew in line with the container volumes. Therefore,

8 Kuhne+Nagel/SeaexplorerUS ports 8 Kuhne+Nagel’s

Disruption Indicator highlights the recent situation at US ports

only a small part of the increase in port stay durations can be explained by increasing call sizes.

The trend of reducing the number of ports in a loop has recently developed further with Hapag Lloyd announcing a point-to-point service between South China and Hamburg with only one call at each end. With multiple ports having increasing difficulties handling 20,000+TEU vessels and operational challenges likely to persist throughout this year, more liners will likely move towards fewer calls per loop in Northwest Europe and more point-to-point services to absorb growth. This means terminals will need to brace themselves for larger call sizes and peaks.

TRUCKER INCENTIVES REQUIRED

Truck driver shortage is also quoted as a reason for supply chain woes. However, from the statistics it is apparent that it is more about a shortage of incentives to become a trucker. Industry bodies such as the ATA in the US quoted a shortage of 80,000 drivers in the US, the RHA in the UK quoted a shortage of 100,000 and in the total EU the shortage is estimated to be 400,000 drivers. The situation in China is not much better with a reported shortage of 1 million drivers. In comparison to total numbers the UK has the highest shortage, but overall all are relatively low in comparison to the number of active drivers. What is more interesting is that (in particular in the US) the number of registered truckers is even higher than the shortage. On top of this, all these shortages were reported prior to the pandemic and seem more institutional than pandemic related. It seems that in many places it is more about creating attractive working conditions rather than a shortage of truck drivers. The grim outlook for the profession caused by the imminent introduction of autonomous driving trucks will only add to this. The way to solve this is having market forces adjust the balance. This, however, raises the prospect of paying quite a bit extra for trucked containers for the foreseeable future.

LESSONS LEARNT?

Ports are undeservedly often quoted as key choking points in the supply chain. Demand growth has been very healthy, but not in itself impossible to deal with by the sector. In fact, productivity at the quay in many places was at normal levels and only in a few places added to congestion. Forces in other parts of the supply chain are concentrated and visible inside ports.

Although a natural reaction to the stellar freight rates has been to suggest intervention in these markets, examples from less regulated and controlled markets show that logistic players can optimise networks and routings if they are offered the flexibility to do so. The market will find a new equilibrium which should make supply chains as efficient as possible. It may very well be, though, that the new price levels are not to many people’s liking.

Fewer calls per liner service loop and more point-topoint services can be expected ‘‘