At the 21st-century global container trade table, cards are being dealt and hands considered. There are going to be some big winners and big losers.
Port Metro Vancouver (PMV) is looking to be among the former. Thus far, things are shaping up nicely.
Along with the Port of Prince Rupert, PMV is drawing a lot of Asian container traffic north at the expense of its nearest competitor: Seattle-Tacoma.
According to the United States-based Journal of Commerce (JOC), which specializes in global trade and transportation, Seattle-Tacoma’s share of the containerized shipping market along the North American West Coast dropped to 11.7% in 2013 from 12.6% in 2011. During the same period, Vancouver-Prince Rupert’s market share increased to 14.8% from 13.5%. Los Angeles-Long Beach got the lion’s share of container traffic at 63.7% both in 2011 and 2013.
Shipping lines expect the annual global container trade, worth an estimated US$6 trillion, to grow between 3% and 5% in 2014 and around 5% next year.
While Asia-Europe accounts for around 25% of the global container trade, the Asia-North America route is also extremely buoyant.
Labour woes
Expectations for PMV are high. But complications abound, not the least of which is the labour strife that continues to flare up, most recently earlier this year when independent container truck drivers went on strike, affecting about $700 million worth of goods each week. Some of those goods were re-routed, others delayed. In either case there were added costs to be swallowed.
And despite the 14-point action plan that ended the four-week truckers’ job action, there is still trouble looming.
A group of trucking companies is asking the BC Supreme Court to set aside the rates set in the plan, arguing that neither PMV nor the federal government has jurisdiction to impose rates on the companies, which are provincially regulated. And TSI Terminal Systems Inc., which operates Vanterm and Deltaport terminals, the latter being the largest container terminal in Canada, is seeking similar relief in the Federal Court of Canada.
The plan includes proposals to institute a port-wide truck reservation system by January 2015, extend hours at marine terminals and expand provincial government audits of trucking companies to increase trucking company accountability to comply with rates and employment agreements.
The issues of port truckers’ pay and working conditions are not confined to Vancouver.
On April 28, an independent truckers’ picket line briefly shut down operations at a terminal in Los Angeles-Long Beach in what the JOC reported was part of a Teamsters strategy to organize U.S. port truckers.
In Seattle, meanwhile, where approximately 80% of the port truckers are independent operators, issues range from low pay to poorly maintained truck chassis and overweight loads. Drivers went on strike briefly in February 2012 to back demands for resolution of the issues.
But, according to Teamsters Local 174 representatives, not much has changed.
Local 174 business agent Michael Gonzales said his union is struggling to secure legislation to give truckers access to washroom facilities.
“They don’t even have access to a bathroom. It’s that horrible,” Gonzales said.
Unintended consequences
Finding a long-term fix for port truckers and ensuring long-term labour stability is critical to PMV’s future, as the transpacific flow of containers accelerates.
If the 14-point plan stands up to court scrutiny, it will solve some problems while it creates others.
PMV shippers have become extremely adept at filling containers that would otherwise head back to Asia empty with B.C. commodities like lumber and wood pulp.
In southern California about 20% to 25% of containers are sent back to Asia empty; in Vancouver it’s closer to 10%. Being able to send back full containers lowers the overall costs.
The new rates, however, could alter this.
The viability of shipping commodities via container is cost-based, and the cost of the truckers’ agreement, when implemented, will be “huge … a game-changer,” said Ian May, chairman of Western Canadian Shippers Coalition, which represents companies and associations involved in the transportation of Canadian natural resource-based products like lumber, coal, pulp and paper, wheat and sulphur.
Simply put, said May, the deal, which includes a 12% increase in truckers’ trip rates and raises the per-trip fuel surcharge to $19 from $8, will double the labour costs of using containers to ship lumber, plywood and pulp offshore. B.C.’s forest industry currently accounts for roughly 80% of container exports through PMV.
So while he said shippers were annoyed that they weren’t invited to provide input on the deal, “the nub of the problem – and I don’t know how anyone is going to get around this – is that the owner-operator container truckers have priced themselves out of the market.”
Andy Smith, president and CEO of the BC Maritime Employers Association (BCMEA), agreed that the deal’s cost will be significant.
“And what is concerning about that is, we have Seattle and Tacoma who are very underutilized, very hungry, and they will be doing whatever they can to take advantage of this.”
An old story
While they get most of the press, container truck drivers aren’t the only ones working at the port. Longshoremen handle the containers and other products that pass through PMV. Much of what goes through comes and goes by rail. At TSI, for example, 70% of traffic is handled by rail; 30% goes on trucks.
Mark Gordienko is president of International Longshore and Warehouse Union Canada (ILWU). His union represents approximately 5,000 members in five locals in Metro Vancouver and northern B.C. and on Vancouver Island. It also includes Local 514, which represents ship and dock foremen.
On April 1, the union passed the midpoint in an eight-year collective agreement with the BCMEA.
The length of the deal in the annals of Canadian port labour lore, Gordienko pointed out, “is almost unheard of.”
Stephen Edwards, president and CEO of GCT Global Container Terminals Inc., which owns TSI, concurred.
“One of our strong points is longshore labour stability [which] is recognized by the customers,” Edwards said.
But that has not always been the case.
Gordienko conceded that Vancouver’s reputation for port labour stability took a beating back in the 1970s, when there were lengthy longshore labour shutdowns, and again in November 1999, when the ILWU was locked out by employers.
Illegal work stoppages in the past have also created employer angst. In 2010, the BCMEA pointed out that there had been 35 illegal work stoppages since 2008, including vessel unloading stalled on Vancouver docks for hours because butterflies had been found in a ship’s hold.
In its 2010 proposal on how to fix chronic threats of waterfront work stoppages and achieve port labour certainty and reliability, the BCMEA stated that “labour relations in the Asia Pacific Gateway are characterized by the threat of work stoppages, government-legislated back-to-work orders and repetitive illegal work stoppages.”
“The result is an industry with an international reputation for mediocre productivity and chronic unreliability,” the BCMEA added.
Government solution
Government-imposed settlements, which the BCMEA argued had replaced free collective bargaining with “serial government intervention,” also delayed resolution of contentious contract issues.
For example, in 1970 a container clause was agreed to in the contract between the BCMEA and the ILWU that required containers destined for Vancouver to be packed and/or unpacked on the dock by unionized longshore workers. But containerization has radically changed over the years and it has largely eliminated the need to pack or unpack goods on the docks.
So employers wanted to kill the clause. Shippers and container shipping lines also disliked the requirement that containers heading for other destinations be opened and de-stuffed on the waterfront.
In 1985’s ILWU and BCMEA contract negotiations, the union said if employers wanted to eliminate the container clause they would have to guarantee all B.C. longshoremen 40 hours of work per week.
Employers rejected the proposal.
Government legislation eventually eliminated the contentious clause in 1987 and replaced it with a per-container contribution to the union’s pension fund, which now adds up to around $30 million per year. The BCMEA estimates that since the container clause was eliminated, the Container Gainshare Fund contribution has added $318 million to the ILWU’s pension plan and a further $91 million to the ship and dock foremen’s pension plan.
Tech tide rising
Just as certain as more containers heading B.C.’s way from Asia, so, too, is the rising tide of automation.
After more than four years of planning and construction, GCT Global recently opened Global Terminal, a new semi-automated facility in the Port of New York and New Jersey.
GCT Global’s overhaul and expansion will double the U.S. container terminal’s capacity using a relatively small footprint, Edwards said.
In L.A.-Long Beach, one of Port Metro Vancouver’s main competitors, an estimated US$1.2 billion is being invested in enlarging Long Beach Container Terminal, rechristening it Middle Harbor Terminal and outfitting it with container automation.
According to Edwards, GCT Global will introduce technology to its Vancouver operations as required, but has no immediate plans to bring its New York-New Jersey terminal automation to Vancouver.
Edwards said that because major global ocean carriers are switching to significantly larger vessels, port terminals face logistics and infrastructure challenges similar to those encountered by major airports when 747s and other larger passenger jets hit the market.
“Whereas a ship call in the port to Vancouver two years ago might have had 3,000 containers being moved on or off it, today it can have 6,000 containers … and the [service] expectation is that we have to do that in roughly the same time,” Edwards said.
Terminal operators must therefore increase productivity and densify use of available land “because volume comes in such large chunks,” he said.
Port Metro Vancouver’s proposed three-berth Terminal 2 expansion at Roberts Bank, which will provide annual capacity for an estimated 2.4 million 20-foot equivalent units to meet what the port estimates will be a doubling of container traffic over the next decade, is envisioned as a semi-automated, state-of-the-art terminal.
Gordienko said his union’s current collective agreement allows for the introduction of technological change and provides for retraining.
“But we haven’t dealt with terminal automation before, and when you start talking about a whole terminal being automated, that’s a different world altogether.”
BCMEA’s Smith conceded that introducing automation into an existing bargaining agreement relationship is a “difficult bargaining labour relations challenge.”
But he said the current ILWU leaders “get it that our industry is changing, and that if they want to continue with the same level of employment, we have to be competitive.”
That will require building on the goodwill achieved in the current eight-year contract and increasing co-operation between port employers and union workers.
To that end, Smith said the BCMEA and the ILWU have a summit planned for September to discuss the global port sector and the real issues and challenges they face “and talk about how we can work together.”
He said labour relations in PMV are “certainly not perfect, but it’s a hell of a lot better than most places.” •
One advantage Port Metro Vancouver (PMV) has is that it is “big-ship-ready,” according to Stephen Edwards, president and CEO of GCT Global Container Terminals Inc., whose subsidiary TSI Terminal Systems Inc. operates PMV’s Vanterm and Deltaport terminals.
Shipping companies have built large ships expecting to go through the Panama Canal, which isn’t ready to accommodate them, said Walter Kemmsies, the New-York-based chief economist at Moffatt & Nichol, a major port engineering and consulting firm that also has an office in Vancouver.
The largest container vessels can now carry anywhere from 18,000 to 20,100 TEUs (20-foot equivalent units) – enough to fill a train 77 kilometres long. Those ships travel where?
They service the busiest global container shipping trade routes, which run between Asia and Europe, and have the largest and most efficient and automated container terminals, like Rotterdam.
But the next-largest vessels can carry 8,000 to 10,000 TEUs, and Vancouver’s harbour has the depth of water needed to accommodate those ships, Edwards said.
Cost and competition pressures are also forcing major carriers to form alliances to achieve economies of scale and help shore up declining freight rates.
The result could be a greater number of larger ships making fewer visits to fewer ports.
That raises the stakes for terminal operators and port authorities.
As Louanne Wong, GCT Global’s manager of market initiatives and development, pointed out: “there will be winners and losers, [and] the people that win are going to see more cargo; so if you are big-ship-ready, you will have ships that have more cargo, and they will stay a bit longer.”
A gradual shift in Asian manufacturing centres to south Asia (India, Vietnam, Thailand) from north Asia (China, Japan, Korea, Taiwan) could be bad news for Vancouver as goods usually shipped by container move farther away. So too could be the growth of manufacturing in Mexico, which puts containers directly on rail to the North American heartland without having to be unloaded at any West Coast port.
“This is significant what is going on,” said Walter Kemmsies, the New York-based chief economist of Moffatt & Nichol, a major port engineering and consulting firm that also has an office in Vancouver.
Land is another challenge, a challenge key container port competitors like L.A.-Long Beach don’t have.
“There is a huge growth opportunity [and] we and our stakeholders are doing a fantastic job of doing more with less in terms of the amount we are getting through the terminals and the way we are making them more efficient and the way we are making rail corridors more efficient,” said Robin Silvester, PMV’s president and CEO. “But ultimately we are fighting against a trend that is going in the opposite direction, which is the loss of industrial land around the Lower Mainland.”
He pointed out that over the past 30 years, from 1980 to 2010, 3,000 hectares of industrial land were rezoned to other activities.
