US East Coast ports facing multiple challenges, San Pedro Bay poised for growth

Since the opening of the new Panama Canal locks in 2016, the main story in the US container port market has been the steady rise in throughput at ports on the US east and Gulf coasts. This increase comes at the expense of their west coast competitors.

East/Gulf coast ports have benefited from the capacity of the new Panama Canal locks to accommodate much larger vessels, along with the shift of some production from China to Southeast Asia, congestion at ports on the west coast (especially during the pandemic-induced import cargo boom), and, most recently, moves by shippers to avoid disruption during contract negotiations in 2023. Heading into 2024, however, the tide has definitely turned, with east coast ports now facing acute multiple challenges.

Factors such as the drought in Panama and the security situation in the Suez Canal, as a result of attacks on ships in the region by Houthi rebels, have led several ocean carriers to divert cargo from their east coast to west coast services.

ILA action

Additionally, uncertainty surrounds a new labor contract that the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) will negotiate this year. The ILA aims to prevent further automation, with union president Harold Daggett already warning that the ILA will not extend the current contract beyond its expiry date at the end of September 2024.

These factors have combined and partly reversed the losing streak at west coast ports when it comes to market share, at least temporarily. For instance, the Port of Los Angeles recorded its fourth month of year-on-year growth in November (+4% to 763,262 TEU), while throughput at the Port of New York and New Jersey (NY/NJ) was down nearly 11% to 644,439 TEU.

In 2022, container throughput at NY/NJ was ahead of Los Angeles in August, September, and October. Despite this, the east coast port finished the year in second place, with the volume of containers handled less than 500,000 TEU behind that of Los Angeles.

Speaking in December 2023, Gene Seroka, executive director of the Port of Los Angeles, noted that Los Angeles had “recovered and bridged the gap to be market leader” heading into 2024. Speaking at the port’s annual State of the Port address in January, he said the west coast had recorded a “3% bump” in its market share in 2023 and it was a trend likely to continue in 2024.

This could prove to be an underestimate as at the time of writing US shippers were already concerned about the potential for strikes and other industrial action as the ILA and USMX negotiate a new labour contract. In January, National Retail Federation president Matthew Shay wrote to both sides expressing concerns that “the discussions have been on hold for months and talk of potential disruptions has increased”.

As far as can be ascertained, the ILA has decided to take a different approach to negotiations for this contract and is seeking to resolve local agreements before negotiating the master contract. In comments to an ILA conference, executive vice president Dennis Daggett said it has proved difficult in the past to get local issues addressed once the master contract had been finalised. To date, agreements have only been reached in New Jersey and Baltimore.

For the master contract, Harold Daggett has stated that the ILA will be seeking a “landmark” agreement that limits terminal automation and guarantees ILA jurisdiction in disputed areas. It is believed this is a reference to the “hybrid model” used in Savannah, Charleston and North Carolina where ports employ crane drivers directly and not through the ILA.

The union is also seeking assurances that equipment for wind farms unloaded at new facilities is handled by ILA labour, at another level, Harold Daggett appears to be on a mission to leave a legacy of an international union movement united against automation and is looking to create some sort of international coalition that extends beyond the maritime unions.

Back on the coast

The ILA will be waging its battle against automation while it watches the largest automated straddle carrier yard rollout in the world unfold at Pier 400 in Los Angeles. Automation is definitely shaping up to be a major competitive advantage for the ports of Los Angeles and Long Beach and helping them to retain, even gain, cargo.

Several large ocean carriers, including Maersk Line (through APM Terminals) at Pier 400, and Ocean Network Express at TraPac, already have significant investments in automation equipment and systems at Los Angeles.

Elsewhere in the Bay area, MSC has automation plans for the former Hanjin terminal and there are rumours that CMA CGM will automate an area of the former Fenix Marine Terminal that it acquired last year.

These various developments will benefit both Los Angeles and Long Beach in the coming years. Containerised cargo handled at the Northwest Seaport Alliance (NWSA) fell 12.1% in 2023 and the decline might have been even steeper had a strike in Vancouver, British Columbia, not given the NWSA a significant boost (+16%) in volumes in September.

For several years, the ports have been in decline. Collectively, Seattle and Tacoma have lost 1M TEU in volumes between 2018 and 2023. In 2023, Seattle saw a significant loss of volume from MSC as the world’s largest container shipping company shifted some of its traffic to two terminals in southern California.

Meanwhile, CMA CGM missed its contractual minimum annual guarantee (MAG) commitment at Seattle in 2023 and paid out almost US$6M to Seattle.

However, the port cannot recognise this payment as revenue as CMA CGM can still meet its MAG commitment for 2023 by boosting its volumes in 2024, this is significant as MAGs are designed to provide port authorities with revenue streams to fund infrastructure work, but carriers and terminal operators must carry the risk of falling volumes or shifting business.

MAGs became increasingly problematic as US west coast ports lost market share. This issue was discussed at the NWSA’s budget meeting in late 2023, where Commissioner Ryan Calkins raised concerns over utilization rates at NWSA terminals falling to levels where they could become commercially unviable.

Another Commissioner expressed concern that MAGs might protect the NWSA’s financial position in the short term, but they do not encourage the port to respond to market trends in a timely manner. Don Esterbook, deputy CEO of NWSA, responded: “Terminal operators are losing money right now, and the NWSA needs to develop different concepts to share the downside as well as the upside. It’s imperative that we get a little more creative and go to a per box fee,” he said.

From the discussions, it seems that neither the NWSA management nor its tenants are happy with the MAG requirements in current leases. However, there are differences in the tax treatment of a per-box payment structure compared with a fixed fee arrangement under a MAG, and these are a disincentive to changing the status quo. The NWSA needs to address this issue in the short term, or it risks further erosion of its cargo base. The port’s ‘optimistic’ cargo forecast has container traffic reaching 3M TEU in 2028, which would still be down 800,000 TEU on its throughput in 2018.

Moreover, NWSA has too much terminal space allocated to handling containers rather than other types of cargo, the volumes of which have been increasing. Over the period 2018-28 the number of vehicles handled at NWSA jumped from 146,000 to 332,000 units and the amount of breakbulk cargo processed increased from 207,000t to 335,000t. The NWSA is now considering whether part of T-46 in Seattle, which is currently a container terminal, can be used for this purpose.

Over on the East Coast, the NY/NJ is starting 2024 full of confidence as it looks to a new lease arrangement with CMA CGM to strengthen its competitive position. Briefing the Port NY/NJ Commission in December 2023, Richard Cotton, port executive director, pointed to the port’s increased share of the market in 2023.

“Over the period January to October, NY/NJ was the leading port in the nation for two of those months and second for three. We are now ending 2023 as second busiest for total loaded cargo containers,” he said.

Loaded cargo containers are not the same as the total TEU numbers reported in the Table (on the next page), where NY/NJ ranked third behind Long Beach. Cotton added that a highlight from 2023 was signing new leases with CMA CGM for the Bayonne and New York container terminals previously operated by Global Container Terminals. They have been rebranded as ‘Port Liberty New York’ and ‘Port Liberty Bayonne’.

He said the port’s contractual arrangement with CMA CGM is a “new lease template” based on throughput and capacity improvements. He further stressed that it “dramatically raises the bar for forthcoming port authority terminal leases and creates a strong foundation for enhanced success for the seaport’s operations going forwards”.

In another first for the port, the deal also includes revenue sharing from container storage. Together with investments in infrastructure, including dredging and raising the Bayonne Bridge, the new lease with CMA CGM “has put us in a competitive position not seen for decades”, Cotton added.

The port is forecasting handling 8.1M TEU in 2024, which would be 8% above its pre-COVID-19 performance in 2019. To maintain that competitive position, however, the port authority recognises that it needs to invest in deeper and wider channels.

Briefing the commission/board of directors, director of port development, Beth Anne Rooney, noted that the port’s 50ft channel projects were completed in 2016. These were based on a study from 1999, “but it was clear the projects have been left behind by the market. Last year 52% of the vessels that called on our facilities were larger than our channels were designed for,” she said.

NY/NJ dredging plan

In 2022, a NY/NJ Harbor Deepening Channel Improvements Navigation Study was completed by the US Army Corps of Engineers (USACE). It found “that there is justification for further navigational improvements” and recommended deepening to 55ft and widening the pathways to marine terminals at Port Newark, Port Elizabeth, and Port Jersey.

That study did not include the Howland Hook terminal as the then operator, Global Container Terminals, had “no plans for further investment that would require deeper channels”. Following CMA CGM’s take-over of GCT’s two container terminals, this is something the port wants to revisit. At a meeting in late 2023, the commission gave approval for the executive director to enter into a cost-sharing agreement with the USACE.

This approval covers pre-construction engineering and design work and cost estimates for future channel improvements to allow “the newest deep-draught container ships safe and efficient access to terminals in Port Newark, Port Elizabeth, and Port Jersey, plus a “pathway Revaluation Study” for Howland Hook.

The estimated US$23M cost of the study will be split evenly between the port and the USACE. In addition, the port will spend US$7M on project management, bringing its total cost to US$19.2M over the three-year study. Jacksonville, in northern Florida, was the only port to register growth in its container traffic in 2023 (see Table), although its numbers related to its fiscal year which ended on September 30, 2023, and the previous year had been disappointing with box volumes down 8%.

The Jacksonville Port Authority (Jaxport) has invested heavily in various infrastructural improvement programs, including deepening access channels, and worked closely with its tenants to expand handling capacity and improve performance levels.

These moves have resulted in several new services, including the port as a direct port of call, and this trend is continuing. In the spring, MSC will merge its US Scan Baltic service, which already calls at Jaxport, with its Ecuador/northern Europe operation, thus giving Jaxport its first direct link to the west coast of South America.

Meanwhile, in May, Ocean Network Express is due to start a new weekly service linking US east coast ports, including Jaxport, to the west coast of India and Pakistan. Jaxport is also actively diversifying its cargo base and targeting those business sectors it thinks offer the best growth opportunities.

Earlier this year, the port and New York-based Enstructure – parent company of Seaonus, a stevedore active in Jaxport – signed an agreement for Seaonus to lease and develop an additional 79 acres at the port’s Talleyrand Marine Terminal.

Seaonus deal

The 30-year deal will see Seaonus secure the property in late 2025 when the current tenant, Southeast Toyota Distributors, relocates to the port’s Blount Island Marine Terminal. Seaonus plans to develop infrastructure and buy equipment to handle a diverse range of cargoes, including dry bulk, general cargo (including paper products), ro-ro/vehicles, and containers. It will also develop at least 200,000 ft2 of warehousing, which will be used to store mainly forest products.

“This agreement allows us to build on our cargo diversification while also supporting the growth of an experienced terminal operator that has contributed so much to the growth of our port,” said Eric Green, CEO of Jaxport. “Enstructure is one of our longest-standing tenants, and we are proud to support their continued success in Jacksonville.”

Meanwhile, the port’s expansion program continues. Currently, US$72M is being invested in modernizing and expanding the port’s SSA Jacksonville Container Terminal. The project is scheduled for completion in 2025 and when complete will almost double Jaxport’s design container throughput capacity to 2M TEU a year.

In other developments, Southeast Toyota Distributors is constructing a 250,000 ft2 auto processing facility at Blount Island. Also in the Blount Island cargo handling complex, the port authority is expanding two berths used for handling PCC/PCTC ships. One berth is being extended while the yard area on the other is being expanded so larger ships and more vehicles can be processed.

A plus for the port has been the city of Jacksonville’s widening appeal as a distribution centre, with several companies, including Frida, the baby products company, Primark, the international clothing retailer, and Primus, which is developing a cold store, investing in new facilities close to the port.

Robert Peek, CCO of Jaxport, stressed the significance of these developments. “International brands are recognizing Jacksonville’s advantages and opening distribution centres and warehouses near port terminals, ultimately creating jobs and economic impact for the region and state,” he said. “Jacksonville’s position as America’s logistics centre continues to evolve because of the many investments and partnerships working to increase cargo handling now and into the future.”

Oakland chasing grant funding

Development in the US container port sector has seen an important change over the past three years with the dramatic rise of infrastructure grant funding at state and federal levels following the COVID-19 pandemic. As a result, the process of grant writing has become more important, and ports are expanding their capacity in this area.

The Port of Oakland has brought in Maryland-based consultancy Cambridge Systematics Inc to assist it with grant applications. In the 2022-23 period, Cambridge handled the port’s 11 grant applications and single letter of intent to apply for a grant. The port was successful with four applications totalling US$198M, which are now being finalised.

The grants included US$41.6M for a green power microgrid from the FY 2022 Trade Corridor Enhancement Program (TCEP) and US$102M from the California State Transportation Agency (CALSTA) 2023 Port & Freight Infrastructure Program (PFIP) towards the port’s Seaport Terminal Modernization Project.

At the end of 2023, the port had spent over US$500,000 with Cambridge on grant assistance support, including successful, unsuccessful and pending grants. The port considers the cost of grant support excellent value for money and the Oakland Harbour Commission has given the executive director authority to waive the port’s competitive procurement procedures, extend the contract with Cambridge through to the end of 2026, and increase the maximum compensation payable to Cambridge by US$500,000 to a total of US$1.4M.

Chasing grant funding for zero emissions equipment continues to be a high priority for Oakland. It is awaiting a decision on several grants, including a $25M grant application for a zero-emissions tug project from the California Air Resources Board Advanced Technology Demonstration and Pilot Projects (ATDPP) and a US$4M grant from the US DOT for an equipment electrification project.

As well as converting its own operations to zero emissions, the Port of Oakland is exploring how it can play a role in a wider green economy that it sees as emerging.

In early February, the port hosted its first ever “Environmental Symposium” that will bring together maritime, aviation, commercial real estate, environmental, business, government and community leaders to collaborate on innovative zero-emissions solutions.