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Port of Long Beach offers incentives to attract more container cargo

The Port of Long Beach is instituting an incentive program to attract more containerized cargo through its terminals, a year after the Port of Los Angeles launched a similar program.

In a memorandum to its Board of Harbor Commissioners, the port’s staff said the Los Angeles incentive program has “resulted in incremental cargo volume shifting from the Port of Long Beach to the Port of Los Angeles.”

Members of the Port of Long Beach Board of Harbor Commissioners approved the program first on Sept. 9 and again on Sept. 23 as two votes were necessary. The one-year program will go into effect on Oct. 1, at the beginning of the port’s 2019-20 fiscal year.

Container carriers will be given a payment of $10 per TEU for additional cargo that moves through the port over and above the cargo they handled the prior year and over and above the general growth in the trans-Pacific trade. So, for example, if a carrier moved 100,000 TEUs through the port in the 2018-19 fiscal year, moved 150,000 TEUs in 2019-20 and the trans-Pacific trade grew by 3% in 2019-20, the carrier would be eligible for payments on 47,000 TEUs (150,000 TEUs minus 100,000 TEUs minus 3,000 TEUs) or $470,000.

The program applies to both loaded import and export containers, but payouts are capped at $2 million per carrier. Unlike the Los Angeles program, which began on Sept. 1, 2018, and has been extended through June 2020, the Long Beach program does not offer incentive payments for moving empty containers, said Noel Hacegaba, the port’s deputy executive director. The Port of Los Angeles also required carriers to submit information to the Port Optimizer shipping portal.

Scenarios run by the Port of Long Beach estimate the incentive program could result in potential payouts of $4 million to $6.5 million to carriers. But Noel Hacegaba, the port’s deputy executive director, said those payouts will be more than offset by additional revenue the port would generate from additional cargo moving through the port.

If all the container lines at the port participated, the payouts could be even more than $6.5 million, but he said, “We’re not giving money away. In reality what we are doing is sharing revenue.”

The Port of Los Angeles said between Sept. 1, 2018, and June 30 of this year it paid out $6.5 million to carriers under the incentive program. Like Long Beach it pays carriers $10 per TEU for volume that exceeds trans-Pacific market growth.

In 2018, both the Port of Long Beach and the Port of Los Angeles had record years. The Port of Long Beach handled 8,091,023 TEUs, a 7.2% increase and a record for a second year in a row. The Port of Los Angeles also moved a record 9,458,749 TEUs, a 1.2% increase and its third consecutive record year.

But this year the fortunes of the two ports have diverged. In the first eight months of 2019, Port of Los Angeles volumes are up 5.7% to 6,311,874 TEUs, while the Port of Long Beach’s volumes are down 6.6% to 4,971,407.

The disparity “sums up the history of the gateway,” said Mario Cordero, the executive director of the Port of Long Beach. “Some months they do better and some months we are ahead. For us, 2018 was a year in which our numbers were much better than Los Angeles’. This year in the last several months there is a swing.”

He explained that as long as a carrier meets the guaranteed annual minimum volume it is required to fulfill under the terms of its lease, it has the ability to move cargo through a different terminal and port — though he noted that decision also is influenced by the ownership interest it may have in a terminal. The space-sharing alliances that carriers have formed have enhanced their ability to direct cargo to a different terminal if they can save money.

Hacegaba said while volumes in 2018 were boosted by shippers moving cargo late in the year in an effort to get imports from China into the U.S. ahead of expected tariff increases this year, that “pull-forward inventory” turned into a headwind this year.

Cordero said the exports also have been hard hit by the trade war between China and the U.S. China accounted for 39% of exports moving through the Port of Long Beach in 2017 but just 28% in 2018 and about 24 to 25% this year.

“While we remain confident in our prospects for long-term commercial success and remain bullish on our competitiveness, the combination of these factors is creating short-term volatility,” said Hacegaba. The incentive program is a short-term program, he said, to “stabilize our container volumes and frankly counteract aggressive marketing efforts by other gateways.”

In an interview last week, Cordero emphasized the need for the port to focus on the quality of its service in growing its business.

He was hopeful that a proposed memorandum of understanding between the two ports will help in efforts to improve chassis availability in the Port of Long Beach and Port of Los Angeles.

While the three major chassis providers in the two ports — Direct ChassisLink Inc., Flexi-Van Leasing and TRAC Intermodal — have formed a “pool of pools” to share equipment, Cordero said concerns about chassis availability are “front and center every time there is a hiccup here.”

“I think there is an easy cure, although admittedly it is difficult conversation and process to accomplish with the independent equipment operators, but I think there is a sense of optimism that if we all sit at the table and roll up our sleeves we can elevate this question on enhancing the interoperability of chassis.”

Cordero said the port also is seeking to “continue to be ahead of the curve in terms of being able to serve the largest vessels that come to the complex,” he said.

The port is in the process of adopting a new port master plan and Cordero said a near-term focus is enhancing the port’s on-dock rail operations over the next 10 to 12 years so that a greater percentage of cargo can move on and off the docks by rail rather than truck.

Currently about 26 to 27% of the cargo moving to and from port does so by rail as opposed to truck, and when the projects the port is embarking on are completed, he said, “we may be able to move that needle to 36%.” The port’s long-term goal is to move half of its cargo by rail.

He said the port is forecast by 2040 to be handling 18 million TEUs and “for us to be able to handle that type of volume rail amplification is paramount.”

Containerized cargo dominates the Port of Long Beach, with its six container terminals supplying approximately 76% of its revenue.

But the Port of Long Beach also handles liquid and dry bulk cargo.

He noted that some experts believe growth in containerized cargo will not be as robust in the future as it has been in the past couple of decades and that there may be opportunities for growth in moving dry and liquid bulk.

“It is something we have to explore and take advantage of,” he said, adding that the movement of bulk agricultural products, especially to Asia, could present opportunities in future years.

Although the port does have a terminal that handles petroleum coke, he does not see coal as an area of growth given the decline in U.S. coal exports in recent years.

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