Container trade: What if . . .
The ports of Seattle and Tacoma are both spending heavily gearing up for shipping-container volumes vastly beyond anything they’ve handled to date. They both may be chasing pipe dreams that will prove costly to their taxpayers.
Data from the Pacific Maritime Association shows that container “handle” at Tacoma peaked eight years ago (in 2005 at 1.945 million twenty-foot equivalent units, or TEUs). Seattle peaked in 2010 at 1.896 million TEUs. According to an article in Seattle Business Magazine, Seattle hopes to nearly double its container count to 3.5 million in 25 years. Tacoma is shooting for 3 million.
Everyone knows that both ports will be up against tough competition. The two ports together constitute the smaller of the two largest “load centers” for containers on the West Coast. The much larger Los Angeles–Long Beach load center last year handled more than 14 million TEUs between the two ports, more than three times the combined volume of Seattle and Tacoma.
The ports of Vancouver and Prince Rupert both are doing their best to snag containers from their U.S. peers. And all West Coast ports will face stiffened competition when the widened Panama Canal opens in 2015. This will make it possible for larger container ships, so-called post-Panamax vessels, to reach U.S. Gulf Coast and East Coast ports directly.
But what if the period of rapid growth in global container shipping is over? The head of the world’s largest container line has raised just that possibility in a recent interview with the Financial Times. Søren Skou, chief executive of Maersk, said two drivers of container growth have essentially run their course. U.S. and European offshoring of production to Asia is all but over and in some cases is being reversed. And containers don’t have room to increase market share. Said Skou: “Most of the stuff that can go in containers is going in containers today.”
The container shipping industry has been plagued by overcapacity since the Great Recession. One measure: The Financial Times reports that rates on the globe’s busiest container route, Asia to Europe, fell in the second quarter from about break-even — $1,200 per TEU — to $400. The newspaper reports that carriers have pushed the rate back up to $1,200 and plan to boost prices in August. Skeptics doubt the price increases will stick.
Maersk, the largest operator, is responsible for some of the over-capacity. In 2011, it ordered 20 “mega ships,” the so-called Triple E class that can accommodate up to 18,000 TEUs. The first of them has just now started operating between Korea and Europe. Ships that call at Seattle and Tacoma typically carry 3,000-6,000 containers.
Skou told the Financial Times that Maersk is preparing to adapt to annual container-shipping growth of 4-5% vs. the roughly 10% that was common before the Great Recession. Much slower growth and increased competition raise the odds that both Seattle and Tacoma are preparing for container expansion that may never come and could end up holding receipts for millions of dollars worth of unnecessary infrastructure investment.
As a property owner and taxpayer in both King and Pierce counties, I help subsidize both marine ports. I sure hope commissioners of both are reading the Financial Times and paying careful attention to fundamental long-term changes in the patterns of global container trade. .