As 2015 drew to a close, a major news item in the shipping world was the first call on the U.S. West Coast by the CGM CMA mega-ship Benjamin Franklin. By all accounts, the visit by this 18,000-TEU behemoth went smoothly, with APM Terminals’ Los Angeles facility moving 11,200 containers over 3 ½ days before the ship moved up the coast to Oakland and then turned back west. Mission accomplished! 

These ports proved capable of handling the volume and turning around the ship in a time frame acceptable to the carrier, given sufficient warning, lead time and preparation.

In many respects, this is a success story, the culmination of huge investments in dredging, facilities and systems to support the biggest and best the ocean carriers have to offer. The port was rightfully proud of its achievement, and the Benjamin Franklin’s arrival was greeted with a blue-ribbon delegation that included Los Angeles Mayor Eric Garcetti and Gene Seroka, the port’s executive director.

But the story looks different from another perspective. The accompanying chart presents containerized imports, measured in 20-foot-equivalent units, handled annually by the ports of Los Angeles and Long Beach back to 2005, according to PIERS (a sister company of JOC.com within IHS). Volume peaked in 2006 at 8.2 million TEUs. At 7.7 million TEUs, 2014 volume trailed that of 2005 by 5.6 percent, and 2015 trailed by 6.5 percent, in large part because the ports were hobbled for the first few months of the year by the slowdown related to longshore labor negotiations. So 2016 may be the first opportunity to match the volume of 2006. 

In other words, that’s 10 years of investment with no growth to show for it. 

It’s actually worse. Although bigger ships may optimize line-haul costs, they impose significant additional costs to the terminals and other land-side operators. When volumes don’t grow, and cargo comes in ever-larger but more widely spaced chunks, coupled with the requirement to turn those big ships rapidly, the terminal needs more of everything: more land, more cranes, more shuttle units and other equipment to handle the same volume delivered in smaller, more frequent doses. 

So in summary, volume has stayed the same, there has been a lot of investment and costs have risen. No rational player would agree to such a scenario, but in truth, the ocean carriers hold the upper hand because of their ability to shift volume away from any terminal that doesn’t meet their requirements. The massive investment needed to support the mega-ships in effect became the cover charge just to stay in the game.

Although APM Terminals’ Los Angeles facility handled the Ben Franklin successfully, the story doesn’t end there. The nine cranes the terminal used to work the ship can clear deck stacks of seven boxes high. But the Ben Franklin and its mega-ship sisters can stack containers 10 high. So APMT must invest more to raise its cranes three boxes higher. Lest anyone miss the message, the next call the Ben Franklin makes in San Pedro will be at another terminal on the Long Beach side of the harbor in order to test the capabilities of an alternative facility.

At December’s JOC Port Performance North America Conference in New Jersey, the disconnect was on full display. Although carrier representatives profess to have concern with regard to the entire supply chain, they really only care how long the ship is tied up at berth. What happens to the containers before and after they clear the ship’s rail is a problem for the land-side players to deal with. 

Further, with the industry suffering from the revenue effects stemming from their headlong rush to add capacity, the pressure is on to reduce costs, including terminal rates, regardless of whether terminal costs are declining or rising.

The irony of the situation is that the very basis for the mega-ship revolution — fuel savings — was predicated on bunker prices that were projected to be twice what they are now and headed higher. Instead, we’ve entered a new era of relatively abundant fuel and, although prices can’t be expected to stay at current levels, the likelihood is that they won’t approach previous norms for a very long time.

So the real question is this: Did the first call of the Benjamin Franklin raise the curtain on a new era of shipping? Or will we look back a decade from now and see the ship as an evolutionary dead end, a dinosaur that was too large to survive in a changing world?