Who suffered most from USWC strife?
Carriers experienced varying levels of disruption from the US West Coast port labour dispute, but despite the near universal misery there was surprisingly at least one ‘winner’.
The mood among carriers at the recent TransPacific Maritime conference was generally sombre despite the welcome news that the US West Coast labour dispute has been resolved.
As mentioned in last week’s article Is ‘back to normal’ good enough? (CIW Week 10-2015) the backlog will take months to clear as ships remain parked outside the Los Angeles-Long Beach port complex and carriers are counting the cost. Data from the Marine Exchange of Southern California (Marine Exchange) shows that the number of containerships anchored has been rising steadily since the start of the year with 23 waiting for a berthing window at the end of February (Figure 1).
Figure 1
Number of Ships Anchored Outside Los Angeles-Long Beach, 22 Oct 2014-28 Feb 2015
While the above graph does paint a clear picture of the worsening general situation, it does not tell the whole story, specifically the relative disruption experienced by individual carriers. To be able to do this Drewry has drilled deeper into the Marine Exchange data and the results reveal that some carriers have suffered significantly more than others, while one carrier could even be described as benefitting from the dispute.
For the purpose of this analysis we have limited the time period to the fourth quarter 2014. This is because we wanted to establish a rough industry-wide assessment of the congestion costs using the statement from NOL-APL that SoCal port congestion added $15 million to the company’s liner division Core EBIT loss in the last three months of 2014.
Before we go into the carrier specifics, first some general findings from our mining of the Marine Exchange data. The average vessel turnaround time (the interval between the time of arrival either at anchor or berth and the time of departure) at LA/LB during 4Q14 was 126 hours, or 5.25 days. This meant that the average ship turnaround time doubled since August, when it was 2.5 days and 3 days in Los Angeles and Long Beach respectively, according to CargoSmart, a shipment management software solutions provider.
Around 55% of all containerships calling at LA/LB in 4Q14 were turned around in 5 days or fewer, while 13% of ships stayed for 10 days or more (Figure 2). The 10,000-teu CSCL East China Sea had the longest stay, waiting an incredible 32 days to get back on its way after its arrival on 21 December. Inevitably, ships that were anchored ended up with the longest turnaround times. Out of the 51 ships that were resident for 10 days or more 45 had been anchored outside port.
Figure 2
Distribution of Containership Turnaround Times at Los Angeles-Long Beach (days), 4Q14
For the next stage of this analysis we examine where each carrier sits on the disruption scale. The two charts below reveal that APL was actually one of the least affected by vessel anchorage and long delays, while OOCL, CSCL, NYK and Hanjin took more than their fair share of the pain. It is possible that those carriers with fewer ships anchored achieved this by slowing down the vessels on the approach to LA/LB.
Figure 3
Ratio of Total Ships (teu basis) Calling LA/LB Anchored Outside Port, 4Q14
Figure 4
Number of Ships with >10 Days Turnaround at Los Angeles-Long Beach, 4Q14
On a per ship basis, on average CSCL’s vessels took 11.6 days from port arrival to departure whereas APL’s ships needed “only” 4.1 days to turnaround. However, this measure has limited meaning as even in normal circumstances the average turnaround time is largely a function of the size of ship operated and the quantum of container exchange per vessel call. In this case, APL’s average size ship was 6,650 teu as opposed to CSCL’s 9,200 teu average, which goes some way to explaining the longer time required to service the Chinese carriers’ ships.
To more accurately assess the relative standing of each carrier, Drewry has created a Los Angeles-Long Beach containership turnaround time indicator (Figure 5). This calculation involves first establishing the relationship between ship size and turnaround by dividing each carriers’ average ship size by the average time spent in port. We then calculate the implied time in days it would take each carrier to turnaround the overall average size of ship (6,086 teu) calling at LA/LB in the period under review.
Figure 5
Los Angeles-Long Beach Containership Turnaround Time Indicator by Carrier, 4Q14
Note: This indicator is calculated based on the average ship size (teu) / average time (hours) spent at port from arrival (either anchor or berth) to departure for each carrier, with that figure then applied to the average size ship (6,086 teu) calling at the Los Angeles-Long Beach during the period. Only ships that arrived 1 October through 31 December 2014 measured; Minimum 10 ships for inclusion
Source: Drewry Maritime Research (www.drewry.co.uk), derived from Marine Exchange of Southern California (www.mxsocal.org)
Source: Drewry Maritime Research (www.drewry.co.uk), derived from Marine Exchange of Southern California (www.mxsocal.org)
Again, APL comes out on top by this measure with OOCL at the bottom of the pile. What this chart shows is that it would have taken just under 4 days to turn around a notional 6,086-teu APL ship in the fourth quarter but if that same notional ship belonged to OOCL it would have taken just over 8 days.
How to explain this wide variance between carriers? Does having a shareholding in terminals cushion the blow from congestion for example?
It’s not always a straightforward question as to whether a carrier has a terminal because there are minority stakes and in some cases a terminal is operated by a “sister” company such as APM Terminals with Maersk Line or MSC with Terminal Investment Limited (TIL). However, nine of the ten carriers (Horizon Lines being the exception) with the fastest implied 4Q turnaround time had some form of interest in a terminal within the LA/LB complex. That said, so did the slowest six carriers so it seems that there is no guaranteed way to protect port operations. In any case, due to the complexities of alliance membership, carriers do not exclusively call at their own terminals so our turnaround indicator will also have included calls made by carriers at other facilities.
While terminal shareholding only partly explains why some carriers’ ships turned around quicker in 4Q14 it seems that old-fashioned customer relations played a more significant role. The biggest users of LA/LB – APL, MSC and Cosco – had three of the four quickest implied turnaround times. The interloper among that international crowd, Matson, could be described as the one winner to emerge from the USWC disruption. Drewry has heard anecdotal reports the US carrier was able to charge a considerable freight rate premium for its express service from Shanghai as its operations were largely unaffected.
It may well be that Matson has struck the winning formula for these exceptional circumstances –being constant and predictable to make life easier for terminals. By operating a reliable and independent service they are untroubled by the demands or operational weaknesses of service partners. In addition, Matson’s ship sizes have remained the same (averaging 2,800 teu) whereas its bigger competitors have dramatically upgraded; causing peaks the terminals have struggled to cope with. That is not to say operating small, expensive ships is a winning formula for the long-term.
Figure 6
Biggest Customers Cushioned from Delays
Source: Drewry Maritime Research (www.drewry.co.uk), derived from Marine Exchange of Southern California (www.mxsocal.org)
APL’s elevated status suggests that its $15 million 4Q14 EBIT congestion loss might actually be modest in comparison to the costs incurred by lines at the other end of the spectrum. However, that nominal dollar figure is probably at the top end of the total cost for the period due to the fact that APL is the largest user of the LA/LB complex.
While any industry-wide assessment must be treated with caution due to carriers’ varying USWC exposure and the level of delays experienced, a conservative estimate of known costs (see below) equates to an additional expense of $1.5 million per weekly service calling at LA/LB.
This could be considered a worst case scenario since between the trouble starting in May last year and ending a few weeks ago, some periods have been worse than others and as outlined not every ship voyage encounters the same delays. But we are prepared to stick our neck out and say that the industry lost in the region of $150 million in the fourth quarter as a consequence of the congestion. Annualised that would equate to $600 million, which to put things in perspective would buy 60 gantry cranes or build a 2 million teu p.a. capacity terminal from scratch.
What are the extra cost components?
- Waiting time ship at anchor per day
- Additional vessels chartered to keep service on track and allow for vessels out of synch and not working
- Extended time in port working the vessel (op costs)
- Delays quay side – quay rent increasing; demurrage charges not collected from shippers; boxes out of the system and not being utilised for revenue earning jobs
- Export loads not loaded – no revenue on the backhaul
- Empties not loaded and not re-positioned back to Asia and areas of demand
- Missed port calls
- Boxes not discharged at scheduled ports having to be railed to receivers at lines expense
APL is the only carrier to have put a figure on the costs accrued by USWC congestion even if it is rather vague about the details. More carriers should do the same as more transparency would increase their chances of recouping the extra costs from their customers. They are clearly hurting but the failed blanket $1,000 surcharge at the end of last year was self-defeating as it looked like an ill-thought out revenue generating scheme.
Our View
The ink might still be drying on the USWC port labour contract but carriers will continue to accrue costs through the first quarter 2015 at least. The number of ships anchored outside LA/LB was worse in the first two months of 2015 so the cost to the industry will be larger than the 4Q14 bill. Carriers should be more open with the associated costs, especially as many customers will think the issue has now been resolved.
