Transpacific cargo congestion creates B.C. port opportunities

Strategic supply chain infrastructure investment needed to lure more major container shipping lines north from U.S. ports

New container cargo cranes were delivered to GCT’s Vanterm last November as part of its $160 million upgrade of the Vancouver container terminal | Chung Chow

Can it build big better? That’s a key question for Canada’s Asia Pacific Gateway as cargo congestion continues to disrupt transpacific goods movement, especially at U.S. West Coast ports.

Getting the answer right would be a win for B.C. It would pay long-term financial dividends for Metro Vancouver and the rest of the province, because the flow of transpacific cargo shows no sign of slowing any time soon, and shipping analysts see no sign of U.S. port congestion easing any time soon.

So leveraging the advantages of Canada’s Asia Pacific Gateway now makes good business sense. Major players in the shipping and port terminals sector agree.

Maersk (CPH:MAERSK-B) recently announced the opening of a new shipping hub to service Port of Vancouver containerized cargo. The Pacific Transload Express (PTE) facility in Pitt Meadows is a partnership between the world’s largest container shipping company and Canadian Pacific Railway Ltd. (TSX:CP), Canada’s second-largest railway company.

These are not bit players in the multibillion-dollar container cargo shipping game. A lot is riding on their strategic bets. So they don’t wager on longshots.

Omar Shamsie, president of Maersk Canada, described the PTE investment as “an important new Asia-Pacific Northwest chapter for customers looking for faster order fulfilment achieved through integrated logistics.”

That is shipping-speak for more efficient goods movement resulting from better ship-to-rail transfer of containers.

The transpacific trade loop needs all the efficiency improvements it can get.

An Oxford Economics survey of global companies in early September found that 48% of respondents reported that their business is currently being affected by transportation bottlenecks, material shortages and other supply-chain disruptions.

Congestion at the San Pedro Bay’s Los Angeles-Long Beach port complex has reached unprecedented heights since it began in the second half of 2020.

The daily number of container ships anchored waiting to be unloaded at what is the world’s ninth-largest container shipping hub continues to hover in the 40-to-60 range.

In its September 22 research briefing, Oxford Economics notes that ocean freight continues to be a North American supply chain chokepoint as inbound cargo shipments have hit record levels and shipping costs have jumped more than 400% since the outbreak of the COVID-19 pandemic.

The briefing points out that, while transportation logjams are the most serious stress points in the supply chain, “limited spare domestic production capacity, low inventories, sharply higher input costs (most acute for raw materials) and labor challenges are making it increasingly hard for supply to keep up with demand."
It adds that the economy faces "the greatest imbalance between raw materials and finished goods in two decades."

That is a bad-for-business bottleneck that analysts forecast will take a long time to unclog.

In its most recent update on global container port capacity, U.K.-based shipping consultancy Drewry predicted that transpacific port congestion will continue beyond the 2022 Chinese New Year and potentially into 2023.

Eleanor Hadland, senior analyst in Drewry’s ports and terminals practice, said Drewry’s original view was that the Chinese New Year break would provide “a much needed reset in the market.”  

“But it’s looking less likely that this is going to be sufficiently long given the level of disruption we’re seeing and the ongoing interruptions. So on top of all the production slowdowns and the COVID outbreaks in China, we’ve now seen typhoons, bad weather in America and in Asia. And there just is no resilience or spare capacity in the system to accommodate this level of disruption.”

She added that major retailers are restocking 2022 inventories early in hopes of avoiding a repetition of stock shortages from 2021’s supply chain congestion.

“And again, that will put pressure on a traditional low point in the calendar [2022’s first quarter], and again makes the Chinese New Year break seem less likely.”

The transpacific goods flow also shows little sign of slowing down.

Container traffic through the Port of Vancouver during 2021’s first six months increased 24% compared with the same period in 2020 and 15% above the previous first half record set in 2019.

As of early September, the Port of Long Beach had broken monthly cargo records in 13 or the previous  14 months.

Drewry sees average growth in global port handling of containers rising over 5% annually over the next five years. Meanwhile, annual global port handling capacity is projected to increase an average of 2.5% over the same period. That adds up to more potential port congestion complications, Hadland said.

“At a global level, this expectation of a tightening import capacity in a market that’s already plagued by congestion due to supply chain imbalances is a real cause for concern.”

So betting on the B.C. Asia Pacific Gateway option to navigate around the worst of the North American port congestion bottlenecks has increasing odds of paying dividends for shippers and terminals.

Other recent investments in that gateway include DP World’s expansion of its Fairview container terminal in Prince Rupert.

The Dubai-based container terminal colossus and the Vancouver Fraser Port Authority (VFPA) are also involved in a $350 million project to increase the container handling capacity of the port’s Centerm terminal in Burrard Inlet to 1.5 million 20-foot-equivalent units (TEUs) from the current 900,000, and in May, DP World (Canada) Inc. announced a long-term agreement with New Gold Inc. (TSX:NGD) to export copper through DP World’s Fraser Surrey marine terminal using specialized rotating containers.

GCT Global Container Terminals Inc., which operates container terminals in Vancouver (Vanterm) and at Roberts Bank (GCT Deltaport), has made major investments in container capacity handling and technology at both terminals.

Its $300 million rail densification project at GCT Deltaport, which has increased its rail capacity 50% and its overall terminal capacity 33% to 2.4 million TEUs annually, has helped it take advantage of B.C. port and rail efficiencies.

Marko Dekovic, GCT’s vice-president of public affairs, noted that some liner services have consequently rerouted to Vancouver to avoid the congestion in U.S. ports.

GCT and the VFPA are also pursuing separate, competing projects to significantly expand the container handling capacity at Roberts Bank.

Wim Lagaay, president and CEO of APM Terminals North America, sees much potential in Canada's West Coast ports, which are geographically closer to major Asian ports than their U.S. competitors. 
He said Canadian rail infrastructure is good, and. depending on currency exchange rates, using Canadian ports can also be cheaper than using their U.S. competitors.

Lagaay added that ocean freight liners shipping through Canadian ports do not have to pay U.S. harbour maintenance fees. 
"When you look at the growth in Canada, I think [it] is generally an exciting growth market for many, many years to come."
Netherlands-based APM is Maersk's global container terminal arm.

But there are limitations to how much leverage B.C.’s Asia Pacific Gateway has in shifting container cargo north from congested American port competitors like Los Angeles-Long Beach.

For starters, an estimated 70% to 80% of transpacific container cargo is destined for California and the immediate U.S. southwest region. Vancouver and Prince Rupert have good rail service to the U.S. Midwest and eastern North America, but north-south rail service to California is not good.

So diverting California-bound containers through Vancouver or Prince Rupert does not make economic or logistic sense, Hadland said.

“The capacity of these ports is limited by the capacity and capability of their hinterland transport links.”

She added that the potential for Canadian West Coast ports to pick up more container cargo destined for the Midwest, northern states and eastern North America is good, but for cargo bound for California “or the immediate vicinity of the California ports … they’re not much use at all.”

For that to change, Hadland said, there would need to be significantly increased investment in warehousing, transloading and road and rail capacity and port services in Canadian port hinterlands.

Dekovic agreed.

He said pinpointing the biggest roadblock to improving container cargo movement efficiency in the Port of Vancouver “is a billion-dollar question. I would argue that container cargo moves very well through the Port of Vancouver at this time. The challenges are with the infrastructure outside of the port terminals.” •

trenshaw@biv.com

@timothyrenshaw