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Berth productivity: one way for carriers to keep cutting costs

Berth productivity: one way for carriers to keep cutting costs

Excerpt from: JOC | By: Peter Tirschwell |  October 23 2015

With container spot rates plummeting and contract rates weakening in their wake, ocean carriers, having essentially no control over pricing, are intensifying their efforts to uncover cost savings. That’s why improving productivity at the berth, which allows lines to maximize slow-steaming while remaining on schedule, is taking on a higher priority.

Cost-cutting has long been a core competency of container lines. It’s a familiar road they have been on for years, and though the carriers have largely been fighting a losing battle on rates — with the SCFI from Shanghai to North Europe down 67 percent over the past year and trans-Pacific West Coast rates down 35 percent — much has been accomplished on the cost side.

Propellers, engines and ship bows have been redesigned to improve fuel efficiency. Larger ships of up to nearly 20,000 TEUs have been ordered and deployed to reduce unit costs, sailings blanked, ships slowed down, larger alliances formed, chassis sold off to lessors and rail routes consolidated in the U.S. market.

But the quest for cost savings goes on, especially as the pressures on the market intensify; Maersk Line in October said global growth is weak this year at 1.5 to 2 percent while capacity expansion will be in the neighborhood of 7 percent.

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Former NOL CEO Ron Widdows told the recent JOC TPM Asia Conference in Shenzhen, China, that the U.S. market was on the cusp of being inundated with cascaded mega-ship capacity as the largest ships are deployed in the Asia-Europe trade. Currently, 44 percent of capacity in the Asia-North America market is comprised of ships smaller than 7,500 TEUs, according to Alphaliner. Within carrier organizations, numbers such as those focus the attention on costs.
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Among the remaining opportunities, a few stand out. One is further leveraging of alliances into the inland arena. In his remarks at TPM Asia, Widdows described a concept with potential for Los Angeles-Long Beach where a neutral entity feeds an alliance’s rail loading information directly to the railroads, rather than the rail receiving the data individually from the carriers. This could improve the efficiency of the transfer of containers from ship to rail.

The challenge is that alliance memberships can shift in the event of carrier mergers or acquisitions, so carriers are reluctant to commit to deeper operational integration, which is why there are relatively few examples of landside cooperation among carrier alliances.

Another is outright consolidation, which Maersk Line CEO Soren Skou said in October was necessary in order to cut costs further, though he said Maersk was not on the hunt for acquisitions.

The limitation on alliance cooperation puts more pressure on factors the carriers can control or at least influence. One is productivity at the berth. Even at lower fuel price levels, there are potentially hundreds of millions of dollars in fuel savings through slow-steaming that the carriers can achieve if they are able to reduce average port stay times by just a small percentage.

But squeezing out those savings is no simple matter; if it were, the savings would have been captured years ago. Some of the solution lies in incentivizing terminals to improve productivity and thus reduce port stay times. Carriers are loathe to pay more, however, and terminals often won’t deploy additional resources without being compensated. The result: stalemate.

But there are ways carriers still can whittle away at port stay times, and any improvement, especially that achieved at no cost, will fall directly to the bottom line. In the ideal world, for example, a ship would benefit from the maximum number of possible cranes working it simultaneously, and the volume of cargo handled by each crane would be identical, thus there would be no waiting time for the last crane to finish.

In reality, carriers struggle to achieve a high “crane density” that equates to a well-distributed number of lifts across the available cranes, a practice called crane splits. What holds them back are any number of factors, such as late arrivals at the port such that the terminal isn’t able to deploy the planned-for or pro-forma number of cranes, or simply inadequate stowage planning that results, for example, in too many boxes needing to be moved by the busiest crane.

To maximize the opportunity from stowage planning, carriers must optimize crane splits for all ports in a rotation; maximize twin-lift opportunities; and avoid so-called Manhattan towers of containers on deck that need to be scaled by containers as they are lifted, according to industry consultant Andy Lane.

Another potentially large opportunity involves minimizing the time between initial arrival at the berth and the start of operations, and the time between the end of operations and the actual departure from the berth.

According to JOC Port Productivity data for 2014, the average time between berthing and start of operations is 65 minutes. Lane says this could be reduced to 30 minutes through better coordination with local authorities. Similarly, the average time between end of operations and departure is 76 minutes. “This process should not take more than 20 minutes, therefore a 56-minute opportunity gap exists,” he said.

The opportunity, Lane said, comes from carrier port agents having a focus on ship turnaround times and being measured and incentivized based on KPIs around port stay time. How proactively do they seek to minimize waiting time through coordination with local authorities? Do they proactively monitor operations and chase the terminals for earliest finish? Do they fight for maximum resources such as cranes deployed on the ship?

Contact Peter Tirschwell at peter.tirschwell@ihs.com and follow him on Twitter: @petertirschwell.