Presenting the Terminal Operators’ keynote address at the 18th Annual Global Liner Shipping Conference, APM Terminals CEO Kim Fejfer described the challenges facing port operators in today’s volatile market and the future requirements for success.
“The need for change has been more pronounced in the past two years than in the past twenty years,” said APM Terminals CEO Kim Fejfer. “Changes in shipping require not only investment and increased efficiency at the individual port level, but the configuration of port complexes needs to adapt to cope with current trade flows, increased ship sizes and demands for lowest possible costs. There will be clear winners and losers in the coming years.”
Global trade is challenged, growing at 2-3% unlike the ‘good old days’ of 10-12% before the 2008 crisis. The confidence in the global economy is shaped by lower oil prices, geopolitical uncertainties, the downturn of emerging markets, a sluggish European economy and slow GDP growth of 2%. This forces the shipping lines to compete on network efficiency and leverage their global alliances to achieve the lowest possible cost.
The port industry is experiencing three important trends in this changing environment: Ultra large vessels are entering the major trade lanes, triggering the cascading of large vessels into smaller trade lanes and all ports must now respond to handle them; liner industry consolidation is reshaping port call selection and frequency – with more changes expected in the structure of alliance members; shipping lines are under extreme cost pressure so they demand lower prices and better efficiency from terminal operators to protect razor thin margins.
“We see three trends in our operations: in the past we handled 13,000 TEU vessels. Now we handle vessels 50% larger – and you need to be ready to handle these 20,000 TEU ships in all your ports or watch the business move elsewhere. Trade will always find the most efficient way to flow. Secondly in the past, low cost was important. Now, the lowest cost wins the business. Next, we used to see a critical need for both high speed and flexibility. Today, liner operators are so focused on cost they want consistency and reliability.”
Larger vessels call for increased investments in ports to keep pace with the changing needs of customers. A decade ago, a large terminal with 900 meters of quay could handle three or more vessels simultaneously; but now with vessels of 400 meters in length, the same terminal, even with reinforced quayside, larger STS cranes and deeper depth, can only accommodate two ultra-large vessels at once to handle the same number of container moves. And this means considerably less flexibility for terminal operations. Now there is a need for more yard space, larger gates and more manning to handle the volume peaks in the terminal infrastructure. These result in additional costs to the terminal operator which the shipping lines are not ready to pay for.
“In today’s competitive environment, we need to become more standardized across our global portfolios, apply more technology to our terminal processes, use our scale, use more flexibility with our labor and partner with customers to get to the next level of efficiency in the industry. At the individual port complex level, there is a need for a port shakeup. At the ports of Los Angeles and Long Beach, there are 15 different container terminals with the various alliances wanting to call on their respective terminals, creating cost and waste in intra-terminal transfers. If port operators are to contribute to the efficiency of shipping lines we have to drive rationalization, consolidation and segmentation to serve the larger vessels and smaller vessels. More investment is needed in port infrastructure.”
On a global level, ocean carriers are consolidating port calls to achieve network efficiency and tailor their networks to bigger import/export gateways and super large hub terminals. This trend will create winners and losers in the terminal business. Successful ports will offer strategic locations, ideal navigational access and deep-water.
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