Marc Levinson

Tag: Ports

  • Terminal Risk

    Back in 2006, when he was considering a second run for president, Senator John Kerry visited the bank where I worked in search of support (and contributions). He spoke about the plans of Dubai Ports World to take over U.S. container terminals by acquiring the troubled British shipping group Peninsula & Oriental. Dubai Ports, now known as DP World, was (and still is) controlled by the Emirate of Dubai. Its ownership of container terminals, Kerry warned us, would make it easier for Arab terrorists to launch attacks in the United States.

    Kerry was not alone. After it became clear that Congress would block the deal, Dubai Ports sold P&O’s U.S. operations to a U.S. owner. Those assets eventually came under the control of a company now known as Ports America, which still owns them. Ports America, despite its name, is largely Canadian owned. In a delicious irony, it has been led since 2022 by a chief executive who was formerly chief operating officer of DP World’s ports and terminals. No one seems to be exercised about potential links to terrorists.

    The recent kerfluffle over the ownership of container terminals at both ends of the Panama Canal by CK Hutchison Holdings brought back memories of the Dubai Ports debate. Hutchison, based in Hong Kong, is a publicly traded company and was a pioneer in developing container terminals. After President Trump declared in his inaugural address that “China is operating the Panama Canal,” Hutchison’s management apparently determined that the time was right to shed most of its terminals and avoid becoming the target of China hawks in Washington — never mind that the notion that China could use the Hutchison terminals in Panama to block the canal seems a bit farfetched.

    President Trump now asserts that the United States is “reclaiming the Panama Canal” by virtue of New York money manager BlackRock’s role in acquiring Hutchison’s terminals. But matters aren’t quite so simple.

    If the transaction is completed, Mediterranean Shipping Company, the world’s largest container ship line, will take a significant stake in the terminals. MSC is owned by an Italian family and is based in Switzerland. Its finances are private.

    Would its role in the terminals in Panama reduce the purported security risks of Chinese influence there? The Trump Administration itself may not think so. The Administration plans to impose “service fees” on arriving vessels operated by companies that own ships built in China, which the United States accuses of “targeting of the maritime, logistics, and shipbuilding sectors for dominance.” MSC likely has hundreds of Chinese-built vessels in its fleet of 900 container ships and would be among the largest targets of those U.S. sanctions. In today’s Washington, it’s not hard to imagine someone asserting that China could use its role in providing MSC with ships to influence the operation of the terminals in Panama. If you’re determined to identify risks, you’re likely to find some.

  • What’s at Stake in the Longshore Negotiations

    The International Longshoremen’s Association, whose members operate the container terminals along the Atlantic and Gulf coasts, threatens to strike on January 15 unless employers back away from introducing more automation on the docks. The union can’t simply hold back the tide: it needs to ensure that the cost of using ports that have ILA contracts doesn’t divert cargo to Pacific ports, where the International Longshore and Warehouse Union — a union perpetually at odds with the ILA — holds sway. But whatever concessions ILA president Harold Daggett wins, he may have already accomplished something more important in the long run, turning his notoriously fractious union into a more unified one.

    So far as I’m aware, no thorough history of the ILA has ever been written. Here’s a capsule version. The union originated in the Great Lakes in the late 1800s, but it has been centered on New York since the early 1900s. For most of that time, it has been rent by internal quarrels. In 1937, its West Coast locals, deeming the ILA insufficiently class-conscious, split off to form the ILWU. Headquarters had only sporadic control over locals at other ports, including Brooklyn, where the predominantly Italian-American leadership openly ignored dictates from the Irish-Americans in Manhattan. Through the 1960s, the ILA battled constantly with other unions, most notably the Teamsters, for control of vessel loading and unloading (usually with success) and of warehousing and truck loading on the waterfront (usually unsuccessfully). The ILA’s ties to organized crime made it a perpetual subject of investigation, leading the American Federation of Labor to try unsuccessfully to replace it with a new union in 1953. ILA locals in other ports often treated directives from headquarters as optional. As the journalist Murray Kempton once jibed, the ILA was “the only anarchist union.”

    Through all of this, individual dockers had to go begging for work each morning, hoping that their connections to a pier boss, sometimes lubricated with kickbacks, would get them a day’s pay. This began to change during the 1960s, as container ships began calling at new terminals in New Jersey. In 1965, the ILA agreed to accept containerization in return for the pledge of a guaranteed income for dockers who lost work due to the new technology, almost all of whom were in Manhattan and Brooklyn. The result was a much smaller but far better paid workforce.

    The funding for the guaranteed income came from a tax on each container entering the Port of New York. This tax encouraged the shift of traffic to the South, where Savannah, Houston, Hampton Roads, and Charleston became major container ports. All these ports are in states where contracts cannot require workers to join a union and where political support for unions is weak. To protect the union’s position, some local ILA officers in those places have made side deals with port employers that the parent union has had little choice but to accept.

    Daggett’s attack on automation seems to have overcome these centrifugal forces, winning support among ILA locals from Maine to Texas. This is no minor accomplishment. A successful negotiation would likely bolster the position of the central leadership to an extent the union has never known. That could well make the ILA an even tougher bargaining partner for the shipping industry in the years ahead.

  • Automation on the Docks

    From time to time, I’m lucky enough to be able to visit container terminals: some of the people who run them are familiar with my books, and they are kind enough to give me a peek inside the gate. Each terminal, of course, is unique; the old saw “if you’ve seen one port, you’ve seen one port” is absolutely true. But there’s one lesson that’s pretty consistent among the terminals I’ve visited in various countries over the past few years: automation doesn’t always pay off.

    On October 1, the International Longshoremen’s Association, which represents dock workers on the Atlantic and Gulf Coasts, launched a strike that is at least nominally intended to block automation that could eliminate its members’ jobs. (I say “nominally” because whatever labor negotiators say about a pending dispute should be taken with a grain of salt.) This has become a hot-button topic. U.S. container ports are woefully inefficient compared to their counterparts around the world, as measured in a variety of ways. Automation is often proposed as the fix. And now that everyone seems concerned about supply-chain risk, we hear automation being touted as a way to make supply chains more resilient.

    These are talking points. In reality, “automation” does not have a specific meaning when it comes to container terminals. Technology can replace humans in many different tasks, from allowing trucks through the entry gate to operating the vehicles that move containers between storage locations and piers. Almost every terminal I’ve visited has some automated functions. There’s none at which management can simply lock the gate and let computer-guided equipment run things. As Elon Musk admitted in 2018, after acknowledging that Tesla had installed too much automation in its California factory, “Humans are underrated.”

    In most terminals, automation seems to have led to more efficiency, if efficiency is defined as container moves per worker hour. But in many cases, automation has not cut the time required to discharge and reload a vessel–the sort of efficiency ship lines care most about. More problematic, terminal operators have learned that automation isn’t always a wise investment. New hardware and customized software have to be paid for, as does the army of technology professionals needed to install and maintain them. These are fixed costs, and if the volume of containers is less than anticipated, the return on investment may be negative.

    Introducing automation, in general, is a good idea; I don’t favor preserving jobs that computers can do better than people. But it is legitimate for the ILA to be concerned about protecting its bargaining power and about compensating or retraining workers whose jobs may disappear. If union resistance leads terminal operators to think more carefully about what technology to bring to the waterfront and how workers might benefit from it, that may not be such a bad thing.

  • What Makes a High Performer?

    The World Bank puts immense effort into its Container Port Performance Index. The index, compiled annually with the help of S&P Global Market Intelligence, ranks ports based on how much time a container ship spends, on average, from its arrival at the pilot station to its exit beyond port limits after discharging and loading cargo. This is not a simple undertaking, as the authors need to adjust for differences among ports in average vessel size, the average number of container moves per port call, and other factors. To no one’s surprise, Yangshan Port near Shanghai, the world’s largest container port, ranks first in the index for 2023, released June 4. More bewildering, the largest U.S. port, Los Angeles, ranks 375, some 155 places behind Port au Prince, in Haiti, and more than 300 places behind Beirut.

    The purpose of this exercise, according to the report, “is to pinpoint areas for enhancement.” The authors contend that “development of high quality container port infrastructure operating efficiently has been a prerequisite for successful export-led growth strategies.” Their work seems intended to encourage public officials to invest in automation to boost port efficiency and move higher in the ranking.

    I’m no expert in port management, but I confess to misgivings about this approach. At one major port I visited recently, a highly automated terminal moves fewer containers per crane per hour than a less automated terminal nearby. At another, a manager acknowledged that his terminal had automated too many operations and would have been better off doing less. A third is staggering under the high fixed cost of software to manage equipment that operates far below capacity. A recurrent theme in my conversations with port and terminal managers is that automation of the various tasks in a port needs to be pursued selectively. New equipment and software do not always lower costs or speed up supply chains.

    The danger of the Container Port Performance Index is that public officials, eager to raise their port’s ranking, will encourage investments that don’t make financial sense. The authors acknowledge that their index is not the only way to evaluate port performance. One metric they might incorporate is return on investment. The ports that deserve high rankings are not those that have spent the most to become more efficient, but those that have spent wisely.

  • Reality Sets In

    Despite ample signs to the contrary, global economic institutions have remained remarkably optimistic about the state of the world economy. This week, that suddenly changed. The World Bank and the World Trade Organization both downgraded their economic outlooks. Even more significant, both finally acknowledged that we are experiencing not just a cyclical downturn, but a long-term decline in the rate of economic growth.

    “Across the world, a structural growth slowdown is underway,” according to the World Bank. “[A]t current trends, global potential growth—the maximum growth the global economy can sustain over the longer term without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s.” Meanwhile, the WTO cut its forecast for international trade in 2023 by more than half, to a scant 0.8%.

    The WTO still forecasts trade to grow by 3.3% in 2024. I expect that forecast to be revised downward as well — particularly because the organization also acknowledges that the share of intermediate goods in international trade has tumbled. If fewer intermediate goods are moving through supply chains, neither the volume nor the value of goods trade is likely to expand very much.

    Both reports attribute much of the slowdown they now forecast to geopolitical events, such as the war in Ukraine and increased tensions between China and some of its major trading partners. That is not incorrect. But as I argue in Outside the Box, slowing population growth and aging populations are likely to be long-term drags on consumer spending on goods, while technological changes will reduce the need for widely traded goods such as auto parts and components for industrial machinery.

    Meanwhile, deliveries of new container ships are at a record high, and container terminals around the world are racing to add new capacity. I’d be interested to understand why.

  • Should Ports Get Smart?

    Ports are trying to become smarter. At least, that’s what I took away from a recent conference in Seoul, where I spoke at a government-sponsored forum on smart ports.

    Smartness involves linking cranes, guided vehicles, straddle carriers, and perhaps even ships and drayage trucks with 5G communications and then employing artificial intelligence to coordinate their work. Smartness could potentially extend into other areas as well, such monitoring the weather to revamp terminal operations as a storm approaches.

    These technological advances are supposed to improve productivity and worker safety, make better use of terminal space and equipment, and reduce energy consumption and greenhouse-gas emissions. All of these goals are desirable. But in the haste to make ports smarter, a few things may not be receiving the attention they should.

    One is that smartness isn’t a sure-fire moneysaver. While a terminal may save by hiring fewer dock workers and making better use of assets, paying consultants to develop and maintain the smart system involves both large front-end outlays and ongoing costs. Extending the system to ships in port could dramatically increase complexity, but excluding ships may limit effectiveness. Cybersecurity will be a constant issue; already, the U.S. Maritime Administration is studying whether the Chinese government has hidden control over the thousands of Chinese-made ship-to-shore cranes in use around the world, and the possibility that a single hack into a smart network could cripple every crane in an entire container terminal is enough to keep terminal managers up at night.

    But perhaps the most important question about smart ports is rarely asked: how will shippers be better off? Terminals will try to recover the cost of smart systems from vessel operators, who will pass it along to exporters and importers. Some shippers may benefit if the system moves their cargo through the terminal more quickly, but those shipping low-value goods may not care about speed while being very sensitive to additional costs. If making ports smarter doesn’t save them money, it won’t look so smart.

  • “Normal” Isn’t Coming Back

    “Supply chain ‘normal’ appears on the horizon,” Bloomberg’s Brendan Murray reports. Murray presents lots of evidence that fewer vessels are queuing at container ports, fewer sailings are being cancelled, and most measures of supply-chain stress are less alarming. But the discussion at the Global Maritime Forum’s annual summit, which convened last month in the Brooklyn Navy Yard, only reinforced my conviction that slow growth of international goods trade lies ahead. In that sense, “normal” isn’t coming back.

    The hot topic at the Brooklyn meeting was decarbonization. The International Maritime Organization, a United Nations agency that attempts to oversee the unruly business of international shipping, has decreed major reductions in greenhouse-gas emissions from ships by 2050. A revised strategy, likely with more ambitious goals, is due from the IMO next year. In addition, vessel owners, especially owners of container ships that carry consumer goods, are facing pressure from their customers to curb emissions more quickly.

    Reducing greenhouse-gas emissions means finding a substitute for the petroleum-based fuels that now power almost all ocean-going ships. At the moment, though, there is no consensus about the best alternative. Some shipowners are building ships that can burn ammonia. Others are embracing liquefied natural gas. A much-touted option is e-methanol, which combines hydrogen with carbon dioxide captured from industrial sources. A few hydrogen-powered ships are already at sea. Battery power may work for short sea crossings.

    These approaches have several problems in common. They are very expensive: by one estimate presented at the Global Maritime Forum, the cost of moving a ton of freight with low-emissions fuels will be five or six times as high as with petroleum-based fuels. Ships will sail very slowly to minimize consumption of precious fuel, increasing cargo owners’ inventory costs. Ports and terminals, facing the need to provide a variety of fuels at each berth, may face large investments in fueling infrastructure so long as ship owners can’t agree on which alternative fuel to use. Port users will have to foot the bill.

    All of this will affect choices about shipping goods across the oceans. Although the sky-high freight rates of the pandemic years are behind us, the long-run cost of decarbonizing shipping will reshape supply chains. The days when international shipping costs barely mattered in making sourcing decisions are over.

  • Rise and Fall

    What do Baltimore, Keelung, Jeddah, Belfast, and Melbourne have in common? Yes, of course, all are ocean ports. But only the most obsessive maritime historians are likely to note their other connection: at some time over the past half-century, each has ranked among the world’s 20 largest container ports, only to tumble down the rankings as international trade has mushroomed and trade patterns have changed.

    Lloyd’s List, the venerable Bible of ocean shipping, interviewed me recently for an interesting piece examining how container ports have evolved over the years. This sort of information used to be compiled in an annual volume called Containerisation International, which has long since been absorbed by Lloyd’s. Linton Nightingale, an editor at Lloyd’s, drew on the Containerisation International archives to assemble a picture of the port industry over time.

    The data for 1973, the year of Containerisation International ‘s first almanac, seem almost quaint. The biggest container port in the world, New York/New Jersey, handled 1.6 million twenty-foot equivalent units (TEUs) over the course of that year — roughly as many as passed through Shanghai, now the largest port, every 12 days in 2021. The twentieth-biggest container port in 1973, Belfast, saw 237,000 TEUs move through. In 2021, the one hundredth-largest port, Jinzhou, China, handled six times as many.

    The 1973 rankings, of course, were dominated by the United States, where the modern container shipping industry had begun 17 years earlier. Only four Asian ports, three of them in Japan, ranked in the top 20. As late as 1995, no port in mainland China was on that list. Today, in sharp contrast, six of the eight largest container ports are in China, and that doesn’t count ninth-ranked Hong Kong, whose container business has contracted since it ceded the title of largest port in 2005. “Volumes handled at Chinese container facilities represent more than 40% of total trade handled by the 100 ports in Lloyd’s List’s latest rankings,” Mr. Nightingale observes.

    But the current focus on supply-chain risk is likely to bring significant changes in trade patterns, especially for manufactured goods. I expect that the list of the busiest container ports will look quite different a decade from now.

  • Too Much Stuff

    The U.S. distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago. Inventories at non-auto retailers were up 20%. One merchant after another — Target, WalMart, Costco, even mighty Amazon — has reported disappointing earnings and is marking down excess merchandise like crazy. Merchant wholesalers — a category that includes companies that import everything from washing machines to smartphones for sale in the United States — show much the same trend.

    The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to prepandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well. This trend, visible in Europe as well as North America and parts of Asia, means that fewer consumer products and the inputs required to make them are moving through manufacturers’ and retailers’ supply chains. International trade in goods, which soared in 2021, is facing a decline. Construction of new distribution centers is grinding to a halt.

    The logistics industry has been slow to pick up on the implications. Some transportation companies and freight forwarders have issued glowing forecasts for the months ahead. Many ports are expanding in expectation that the trade boom will linger, and some that have rarely seen a container ship are investing to lure vessels that may never arrive. Shipbuilders’ order books are full, including many orders for vessels large enough to carry 24,000 20-foot containers. As globalization enters an era in which manufacturing value chains matter less and consumer spending is anemic, this enthusiasm for adding capacity is hard to understand.

  • Trade Secrets

    A couple of years ago, an exec at a major freight forwarder asked me to guess how many shipments each employee handled on an average day. Naively, I guessed 60 or 70. I was wrong by several orders of magnitude. With each shipment requiring numerous steps, from booking a truck pick-up at the factory to certifying that pallets had been treated to kill pests, dealing with three shipments was considered a good day’s work.

    Keeping track of goods moving through supply chains is a headache for every company involved in international trade. Lots of money and brainpower are going into improving information flows; the May 24 announcement that the Port of Long Beach is teaming with Amazon Web Services to provide “aggregate data for companies across industries and sectors to track cargo in real time from origin to destination” is only one of many examples. On May 27, the Biden Administration named a new “supply chain envoy,” Retired General Stephen R. Lyons, to help the logistics industry sort things out. Yet so far, these efforts have done little to make supply chains run more smoothly.

    There are many reasons for this hold-up. Not everyone is keen on big solutions; some manufacturers and retailers have their own supply-chain management systems and expect suppliers and logistics providers to furnish data their way, not vice versa. Many ports, ship lines, freight forwarders, and other parties are developing proprietary information systems that may not mesh with others’ systems. And behind the scenes, there’s a struggle for control of data about individual shippers that might prove valuable in the future.

    Improving supply-chain visibility will be an arduous process. Consider the most basic query a shipper might pose through an information system: when will our goods will arrive in port? Two ocean carriers that share space on the same vessel may have different answers to that question, because they have different definitions of “arrive.” That’s not a problem technology alone can solve.