May/June 2009
Some short-term and long-term trends might lead to lower shipping rates for scrap exporters, though west coast shippers face increasingly burdensome port regulations.
By Theodore Fischer
Things are tough all over. That's one conclusion you can draw from a look at the trends in ports and ocean shipping. Every link in the chain of moving scrap overseas—the ports, the ocean carriers, and the recyclers of paper, metal, and other materials—has within the last year suffered its sharpest downturn in recent memory, with no immediate relief on the horizon.
George Adams, president of SA Recycling (Anaheim, Calif.) and ReMA's chair, dramatically illustrated this point in a late January report on the PBS Newshour with Jim Lehrer. At the Port of Long Beach, Adams stood in front of a vast expanse of port territory filled with … almost nothing. "At our peak, we were doing 300,000 tons a month," Adams told the reporter. "Right now we could play a couple of games of football here. … You don't see the trucks rolling in. I mean, we've got two trucks dumping. We should have 25 trucks dumping right now."
Business looks just as bleak for paper recyclers on the East Coast. "In the fourth quarter of 2008, the market crashed to the ground," says George Chen, president of G&T Trading International Corp. (Clifton, N.J.). "Some paper mills shut off the machines, some filed for bankruptcy, some just slowed down. It's a global issue. If overseas suffers, then China and all of Asia and Europe suffer."
The global economic slowdown does have some bright spots for scrap shippers, if they have material to move: Shipping costs are lower, and containers are more available than they were six months ago. And some long-term trends, such as growth in shipping fleets and port space, might continue to depress shipping costs. Scrap shippers complain, however, that ports and shipping firms often ignore the needs of an industry that is one of the country's largest exporters.
Price Break
Lower shipping costs are one silver lining of the dark cloud of recession. Chen calculates that the price of shipping recycled paper has dropped about 50 percent in the last year, but just about everyone everywhere has seen some kind of a price break.
"The trend in shipping costs is negative," says Helle Dupont, director of global procurement for Vanguard Logistics Services (Carson, Calif.). "Ocean freight rates have fallen continuously since September 2008, and all markets are under pressure on a continuing basis." Dupont attributes the price drop to lower volumes of freight as a result of tight credit, over-tonnage, falling prices for oil, and faltering consumer confidence. Though shipping lines "cannot cut supply back without great expenditure," she says, "they have achieved a slight measure of success in parking tonnage and thus reducing global supply."
At the U.S. Shippers Association (Houston), which negotiates transportation contracts for 17 chemical companies, "We're seeing a significant decrease in rates, and we expect this to last through '09," says Tony de Santis, executive director. "It's strictly supply and demand. There's an oversupply of ships, so the rates have a tendency to come down."
Mike Zampa, communications director for transportation company APL (Oakland, Calif.), confirms that falling prices for bunker fuel have contributed to the lower freight rates: "Early last summer, oil cost $150 a barrel; now it's down to the $30s." Despite these lower prices, however, carriers continue to impose the bunker charges they added in early 2008, when fuel costs soared. "Some carriers that belong to the [Westbound Transpacific Stabilization Agreement] are still trying to get a couple of hundred dollars per container on bunker charges," de Santis says. "We're resisting that effort because we don't think it's fair for them to charge per bunker when they're paying less than they used to." And lower oil costs are not resulting in lower transportation costs overall, he notes, because of rising costs for intermodal rail transport, terminal operation, and other forms of energy.
Containers Galore
Does the economic slowdown and the resultant decrease in ocean freight tonnage mean the end, at least for now, of shortages in containers and deepwater docks for break-bulk shipments? "Absolutely," says Mario Bruendel, general manager of Fr. Meyer's Sohn (Newport Beach, Calif.), a logistics company. "I have not noticed any shortages like we used to have a year ago. It's not really an issue anymore."
Others say shortages always depend on your location. "People always get this question of container availability a little bit off," says William Rooney, managing director of Hanjin Shipping (Paramus, N.J.). "It's more a question of where you are than whether there are enough containers or not." As one scrap metal trader put it, "There are always containers in New Jersey and Long Beach, but maybe Des Moines goes through periods of shortage and oversupply." Sure enough, Vanguard's Dupont reports that "some lines are experiencing periodic lack of equipment in the inland points in the Midwest and in the Gulf."
What's Up, Dock?
The abovementioned shortage of deepwater dock space during the economic expansion had some ports and regional port authorities planning for a bigger, brighter future. No brand-new maritime facilities have materialized in the United States or in the countries where scrap dealers send most of their material, say scrap traders and transportation pros. Zampa points out that West Coast ports have not expanded much lately "primarily because there hasn't been a lot of land to expand on," though his company just completed a two-year renovation that significantly increases its cargo-handling capacity in Oakland.
The East Coast and Gulf Coast are looking ahead—and looking south—to the expansion of the Panama Canal, a project scheduled for completion in 2014. The expansion will create a new set of longer, wider locks—180 feet wide and 1,400 feet long—running alongside the existing ones, which measure 110 feet by 1,050 feet. The new locks will reportedly double the canal's capacity for ship traffic and allow it to accommodate 12,000-TEU vessels, up from 5,000-TEU vessels currently.
Several ports are expanding with that new capacity in mind. The Port of Savannah (Ga.) has installed four new super-post-Panamax cranes, which can load vessels that are up to 22 containers wide. These additions give the port's Garden City Terminal the largest fleet of ship-to-shore cranes (23) of any U.S. facility, it reports. About 100 miles north of Savannah, the Port of Charleston (S.C.) last summer began constructing a 5,000-foot-long containment structure built out some 850 feet from the existing shoreline to the main shipping channel. This construction is an essential first step in the expansion of the former Navy base, a project scheduled to conclude in 2014, according to the South Carolina State Port Authority.
At the same time, the Port of New Orleans has embarked on a $1 billion 2020 plan that mingles short-term projects, such as increasing the capacity of the Napoleon Avenue Container Terminal by two ship berths and almost 200,000 TEUs, and longer-range plans to boost terminal capacity to 1.3 million TEUs. "Container congestion at West Coast ports and the completion of the widening of the Panama Canal in 2014 will provide the Port of New Orleans grand opportunities for attracting additional Asian cargo in the next decade," says Gary LaGrange, the port's president and CEO.
Finally, MOL America recently opened a new 158-acre terminal in the port of Jacksonville, Fla., the first Far East call for that port. The new facility will accommodate Panamax ships destined for north China, primarily Shanghai and Ningbo.
Speaking of China, the port of Ningbo—the country's second-busiest after Shanghai—plans to construct the Meishan Ningbo Bonded Port Zone on nearby Meishan Island, which will connect to the mainland with several highways. The first phase of the project, scheduled for completion in 2010, will construct two container berths that can accommodate 100,000-ton ships. By 2020, the port zone will have a capacity of 5 million to 6 million TEUs, according to the port's administrators.
Not to be outdone, Shanghai expects to overtake Singapore this year as the world's largest container port. The city has completed the main north section of the Yangshan Deep Water Port, giving the new facility a total of 16 berths and an annual throughput capacity of 9.3 million TEUs. This year, construction will commence on a west extension, creating an additional 10 to 12 berths (accommodating 7 million TEUs) that will phase in between 2010 to 2013. At completion, the port will have more than 30 berths and a capacity of 15 million TEUs.
Port Obstacles
Though bigger ports might make exporting scrap easier, not everything ports do is quite as pleasing to scrap dealers, particularly in sunny Southern California. Two initiatives the Ports of Los Angeles and Long Beach have introduced—PierPASS and the Clean Truck Program—have required sometimes costly adjustments by local scrap companies.
The ports created PierPASS in July 2005 to reduce air pollution, alleviate gridlock on freeways leading into the ports, and end traffic bottlenecks within the ports by imposing a $50 or $100 traffic mitigation fee per container entering or leaving the ports during the peak hours of 3 a.m. to 6 p.m. Monday through Friday. The program created five new off-peak shifts for delivery to all international container terminals in the two ports: Monday-Thursday between 6 p.m. and 3 a.m. and Saturday from 8 a.m. to 6 p.m.
PierPASS claims to have diverted more than 9 million truck trips from peak delivery, but it hasn't exactly endeared itself to scrap shippers. "Our argument against PierPASS was that [the ports] were saying that because [their customers] are paying to use their facilities, and their business is so good, they're going to charge their customers to build infrastructure so they can service customers," says Kevin Duncombe, president and chief operating officer of Western Pacific Pulp & Paper (Downey, Calif.). "That just didn't make sense. The reason there are long lines is because the ports are inefficient. They need more gates open more hours, and then the trucks will roll in and out."
In October 2008 the ports introduced the Clean Trucks Program, a measure intended to reduce air pollution from harbor trucks by more than 80 percent by 2012. The program essentially banned all pre-1989 trucks from the ports; trucks from 1989 to 2003 must be retrofitted to meet certain emissions standards by the end of this year. By 2012, unless new emissions control technology comes along, the ports will ban all pre-2003 trucks and newer trucks that don't meet 2007 emissions standards. This February, the ports also began imposing a $35 or $70 fee per container to create a fund to help truck owners replace older vehicles with newer, low-emissions vehicles. The National Resources Defense Council (New York) estimates that the Clean Trucks Program has already cut diesel particulates emissions in half. Scrap dealers who use the two ports have—grudgingly and at significant expense—complied with the new program. "Basically, we scrapped all our trucks and have a brand-new '09 fleet—and most of our competitors have done the same thing," Duncombe says.
Recycling as Rodney Dangerfield
What bothers scrap dealers the most aren't the rules themselves so much as the rulemaking process. "No one argues with having clean air; the arguments all along have been the way [the ports] implement these new rules. They're arbitrary, [and] they don't get industry involved," Duncombe says. "When you look at the revenue we generate for the ports, shippers of recovered commodities—whether it's metal, plastic, or paper—are the largest shippers by volume. … You would think we'd be treated a little bit differently."
Shipping companies, too, give them no respect, scrap shippers say. In part that's because the companies make less from hauling scrap than they make carrying other commodities. "Exporting from the United States to Asia is still the backhaul," says Tom Smart, assistant vice president of transpacific export trade for MOL (America) (Concord, Calif.). "The head haul, where ocean carriers make money, is bringing the import cargo in."
In addition, the economic downturn that has devastated some Asian scrap traders and consumers is generating collateral damage for shippers. "The price of commodities is dropping so fast that by the time [scrap shipments] reach Asia, the consignee doesn't want to pay for it or take shipment because the price he had planned to pay was more than what he can turn the product into," says APL's Zampa. Unclaimed cargoes sit on docks—in shippers' containers—for weeks or months until somebody figures out what to do with them.
Beyond that, transporters just don't like to handle scrap. "Scrap is a bad commodity for just about anybody" in the transportation business, says one scrap metal company executive. "Container companies, railroads, ship owners—they don't really like to move scrap if they can avoid it." Shippers admit a bias against scrap because, they say, it can damage their equipment. "An engine block can soil the bottom of a container, and sometimes it moves around and pokes a hole in the side," says Hanjin's Rooney. "I don't know the scrap business and how they can address it. All I know is that scrap can be an issue related to our equipment in terms of damage and oil stains."
On the Waterfront
Shipping companies are taking steps to minimize the damage of this economic downturn—steps that might affect scrap shippers. They're "reducing capacity on the ocean, eliminating some services altogether, idling or laying up their vessels, and tightening their belts wherever they can," says APL's Zampa.
On the West Coast, "most of the steamship lines are pulling out their big vessels and sailing pretty light," confirms Bruendel of Fr. Meyer's Sohn. "They're actually putting in smaller vessels now." Lower demand in North America for Asian imports means that "most carriers have been reducing their capacity in the Pacific because they can't afford to operate ships at low utilization," explains Niels Erich, a spokesperson for WTSA. "That, in turn, affects westbound space and equipment availability on return sailings back to Asia, particularly for heavier cargoes, like scrap." That said, this spring MOL (America) launched a Los Angeles-Vietnam direct call, a popular route for scrap companies. Currently, everybody ships to Vietnam via China, says MOL (America)'s Smart. His company will operate Panamax 6,000-TEU ships on the run, he adds.
Shipbuilders also launched a building boom while the economy was growing that will come to fruition in the next couple of years. Carriers plan to launch a flotilla of jumbo container ships, some longer than three football fields. China's Cosco Container Lines has ordered 24 ships, each capable of hauling nearly 14,000 containers. South Korea's STX Shipbuilding Co. has a vessel that can tote 22,000 containers on its drawing board.
The onset of these titanic ships—and the excess capacity they represent—should be good news for scrap shippers. "The trend could keep sea freight rates depressed well into 2010," predicts a Jan. 26 article in the Wall Street Journal. Scrap dealers hope their business gets up off the ocean floor before then. •
Theodore Fischer is a writer based in Silver Spring, Md.
Some short-term and long-term trends might lead to lower shipping rates for scrap exporters, though west coast shippers face increasingly burdensome port regulations.