Driverless Trucks Hired at California Ports Losing Market Share

This Is How a Driverless Truck Works
(Source: Bloomberg)

Next year, deckhands on ships docked at Middle Harbor on California’s San Pedro Bay won’t see many people on the wharf. Remote-controlled cranes towering 165 feet overhead will pluck containers from vessels’ holds, and driverless trucks guided by magnets embedded in the asphalt will carry cargo to robotic hoists in a sorting yard.

The automated future is part of an efficiency drive at the ports of Los Angeles and Long Beach, the first- and second-biggest in the U.S. They’ve been losing market share for nearly a decade to nimble rivals including Prince Rupert, British Columbia, and Savannah, Georgia. One reason: It takes four days or less to unload a ship at those ports and as many as six in Southern California.

“We need to redefine normal,” said Noel Hacegaba, a managing director of the Port of Long Beach, where the Middle Harbor terminal is nearing completion of a $1.3 billion modernization by operator Orient Overseas International Ltd. “We are concerned when we look at the numbers. When you’re the biggest, you have a target on your back.”

The twin ports are in a race to stay on top. A fresh threat will arrive early in 2016 when new locks and a deeper channel will give the Panama Canal room to handle big ships from Asia that want to bypass the West Coast to get to the eastern U.S.

“I don’t see that we can move increased volumes of containers with the current model,” said Chris Parvin, executive vice president of marine operations for Mediterranean Shipping Co. SA, which owns 465 ships and leases berthing space at Long Beach. “The only way we can do that is with increased efficiency, which is dependent on automation and technology.”

Stranded Ships

The Port of Los Angeles recently put an automated terminal into service, and along with the adjacent Port of Long Beach is spending $3.7 billion to boost capacity and unravel bottlenecks that strand ships in the bay and idle trucks on land. A $1 billion replacement is being built for the 47-year-old Gerald Desmond Bridge, which is too low for today’s mega-vessels.

The ports, which share a harbor, moved $470 billion in cargo last year, more than double that of the next-biggest, the Port of New York and New Jersey. Still, their grip on the lead has been slowly loosening since 2006. Los Angeles and Long Beach handled 35.5 percent of all U.S. cargo nine years ago and today are responsible for 32.8 percent.

“When Southern California loses 1 percent, it translates to a 15 percent increase for a smaller port” somewhere else, said Daniel S. Smith, a trade consultant at The Tioga Group Inc. in Moraga, California.

Discretionary Cargo

At the Port of Savannah, where shipments have grown 10 percent or more for 18 out of the past 24 months, traffic rose 51.5 percent in March, a record since Bloomberg began compiling data in 2009. At the Port of Prince Rupert, it was up 58.7 percent, after three straight months of double-digit expansion.

Business was up in Southern California in March too. Long Beach’s import traffic increased 27 percent, the biggest rise since January 2013. Los Angeles’s growth was 31 percent, the most since March 2014. In April, the L.A. port’s containerized cargo volumes slipped 6.1 percent; the month’s numbers for Long Beach haven’t been released yet.

Gene Seroka, executive director of the Port of Los Angeles, said rising volumes wouldn’t be enough -- especially considering that about a third of the cargo passing through the ports is what he called discretionary, meaning shippers could easily choose another path into the U.S.

“In any business you want to grow with or in advance of the marketplace,” Seroka said. “Loss of market share concerns us. We have to heighten our capability.”

Congestion Perils

U.S. retailers in particular have a keen interest in the two ports’ efficiency efforts. “Any delays, no matter how small or large, have an impact on retail’s ability to get products where they need to be,” said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation. As the main U.S. gateways to Asia, smooth operations at the ports are crucial to the economy, he said.

For port managers, the perils of congestion were reinforced during a contract-negotiations standoff between the dockworkers’ union and shipping lines and terminal operators on the West Coast. From November through February, as many as 35 ships were stranded in San Pedro Bay. After dockworkers slowed down cargo handling and managers cut weekend and night shifts, shippers diverted cargo and even sent goods by plane.

Operations largely returned to normal after a tentative contract was brokered in February. Dockworkers are voting on the deal now, with results expected May 22.

“The last nine months have been a catalyst for us,” Hacegaba said. “We are bullish on Southern California.”

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