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July 07, 2014

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52 THE JOURNAL OF COMMERCE JULY 7.2014 TRANS-PACIFIC CARRIERS AND PORTS SPECIAL REPORT W E S T COA S T P O RT S ca n breat he a sigh of relief after the rejection of the P3 Network by China's Ministry of Commerce — a single operational entity won't have the huge leverage they feared in negotiations over port calls and terminal charges. The trend that the P3 and other car- rier alliances have started — deploying bigger ships to fewer ports — will con- tinue, however, so West Coast ports, and individual terminals at those ports, must continue to improve productivity or risk the loss of market share to more aggres- sive competitors. "The bigger ships are coming regard- less of whether they are being operated by the P3," said Tay Yoshitani, executive director of the Port of Seattle. Cargo will continue to come to the ports in "bigger chunks," he said. China's Ministr y of Commerce rejected the formation of the P3 by Maersk Line, Mediterranean Shipping Co. and CMA CGM in part because of the dominance the alliance of the world's three largest carriers would have had in the Asia-Europe trade. The P3 would have controlled up to 47 percent of the capacity in the Asia- Europe trade, according to MOFCOM. Its market share in the trans-Pacific would have been 22 percent. More pointedly, though, China's regulatory authority was concerned because the lines planned to turn over control of capacity and scheduling to a single operational entity with offices in London and Singapore. In a traditional alliance structure, such as the G6 and CKYHE, the indi- vidual lines retain operational control. Each carrier reduces its costs because it doesn't have to contribute all of the ships in a particular service. Each p artner contributes vessels, and they all share space on each other's ves- sels. The partners also often divvy up vessel calls at two or more terminals in a region. West Coast ports were concerned that through the single operational entity, the P3 would have had greater leverage in dictating port calls, and the individual terminals where the ships would call. If the P3 adopted a take-it- or-leave-it posture, the end result would have been that some ports and terminals would win and others would lose. By vesting so much authority in a single entity, the P3, for example, could have made Long Beach a winner or a loser, said Don Snyder, the port's director of trade development. Two of the lines, MSC and CMA CGM, have equity stakes in terminals in Long Beach, while Maersk's terminal is operated by its APM Terminals sister company in Los Angeles. It's possible the P3 operational office could have decided to concentrate all of the vessel calls in one port or the other, or even at a single terminal in one of the two ports. That would have exacerbated the uneven capacity utilization that has developed at West Coast ports, Snyder said. Some terminals have lost much of their cargo, while others are congested because carriers have concentrated their calls at a single facility. The P3's demise doesn't mean port competition is over, however. Most of the 15 top container lines in the trans-Pacific are deploying large vessels with capaci- ties of 8,000 20-foot container units, and larger, and the carriers are scheduled to take delivery of dozens of additional mega-ships into 2016. Therefore, terminal operators must work with labor at their facilities, and ports must continue to build infrastruc- ture and intermodal connectors, if they are going to handle the bigger ships more efficiently, said Chris Lytle, executive director of the Port of Oakland. The Northern California port is fortunate in that it is the only large container port in that region, so all of the major carriers call there, but to com- pete for discretionary cargo, Oakland and its tenants can't fall behind other West Coast ports in productivity, he said. JOC Contact Bill Mongelluzzo at and follow him on Twitter: @billmongelluzzo. By Bill Mongelluzzo DEALING WITH 'CHUNKY' VOLUME They may not be operated by the P3, but big ships are coming to the West Coast nonetheless

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