Port of Long Beach: After Slangerup

The departure of Port of Long Beach CEO Jon Slangerup comes at a time when the port is facing a number of challenges related to the downturn in international trade, the cost of capital improvement projects and the implementation of a new energy program. Slangerup had won good reviews for his stewardship of the port in the aftermath of the 2015 labor slowdown and the ramping up of port operations that followed. Slangerup also came to the port with an ‘outside the box’ vision that was developed at his previous tenure at FedEx which operated with a more coordinated supply chain that is lacking in the container shipping industry. Slangerup was beginning to move the Port of Long Beach in this new direction at the time of his departure. While the downturn in the international container market has raised concerns about the long-term viability of the port’s capital investment projects, there is good reason to believe that the initiatives of Slangerup, and his predecessor Chris Lytle, will ultimately be justified. For example, the port has made a $1.3 billion investment in the Long Beach Container Terminal (LBCT) that recently began operations and is not yet operating at full capacity. The new terminal is the most automated in North America and is primarily powered by electrical sources, eliminating the dependency on fossil fuel technologies utilized at older container terminals. The arrival of 18,000 TEU ships at LBCT in 2017 will change this situation because there is no other terminal in the United States that can more efficiently handle these mega-container ships. Older terminals lack LBCT’s technological edge. At the same time, LBCT’s owner, Orient Overseas Container Line (OOCL), is entering a new alliance with COSCO, CMA CGM, China Shipping and Evergreen called “the Ocean Alliance” which will rival Maersk and MSC’s alliance (2M) in scope and number of vessels. The combined fleet of the Ocean Alliance would offer over 40 services worldwide controlling 23.5% of the world’s tonnage, according to Matt Guasco writing in AJOT last week. Together the 2M and the Ocean Alliance would effectively control 51.2% of global ship capacity. Within the Asia – U.S. trade the alliance would cover over 20 routes with an extensive network of origin and destination ports. This would give cargo owners a wide range of choices in a highly competitive trade lane. Operating over 350 container ships, the Ocean Alliance could consolidate chassis, handling equipment and operations and effectively improve economies of scale, according to Guasco. So, the new Ocean Alliance and new 18,000 TEU mega-container ships arriving in 2017 will dramatically improve the market share for LBCT and the Port of Long Beach, justifying this investment. However, the new mega-container ships will create new congestion challenges on the I-710 and related Southern California freeways causing additional truck traffic and emissions that require a road alternative. That alternative could be the shifting of some containerized truckloads off roads and onto short-sea or marine highway ships. These ships can transport containers by water to ports such as San Diego, Oakland, Stockton and even Portland and Seattle/Tacoma, enhancing the reach of the Ocean Alliance, LBCT and the Port of Long Beach. U.S. ports have resisted the marine highway concept due to concerns about economics and viability, but the potential of deploying new U.S.-built ships with hybrid technologies that lower emissions and reduce Southern California freeway congestion, as well as increasing the port’s market share, may be an idea whose time has come. The deployment of hybrid ships, partly powered by batteries that are being deployed on new ships in Scandinavia, is consistent with Slangerup’s “Energy Island” proposal to increase sustainability technologies at the Port of Long Beach. His proposal is designed to further reduce fossil fuel dependencies and reduce the threat of power disruptions to the port. The port has been developing its own solar capabilities for some time and looking to expand new capabilities that might also include offshore wind. As a result, the port was moving in the direction of becoming a major renewable energy generator. The departure of Slangerup places this initiative into question. The Long Beach Harbor Commissioners, who will hire Slangerup’s replacement, will now have to decide whether they will continue Slangerup’s sustainability initiatives or not.