As the congestion at the two major West Coast ports escalates, one global container shipping giant wants a bigger stake in getting products into the U.S. quickly and efficiently, while a freight forwarder is calling on the industry and government alike to clear a path for more terminal space and thieves made off with cargo in Los Angeles.
CMA CGM is acquiring Fenix Marine Services (FMS), a container terminal operator at the Port of Los Angeles, in a deal worth $2.3 billion that could help the France-based company improve its service quality and overall capacity.
The deal comes as the overall booking-to-receipt time for shipping containers only continues to grow. As of Oct. 1, 2021, it now takes 70 days to book a container, have it shipped overseas and received by ground transport for final delivery, according to a newly released Ocean Shipping Index from supply chain software provider E2open. This total is 13 days—or 23 percent—longer than it would be the year prior, according to the index.
The two most significant factors were a rise in time between the booking to gate-in at the port, up 43 percent from a year ago, and the ocean transit time, up 36 percent.
“You’ve got to book 25 percent earlier than what you used to, and this has had a pretty dramatic impact on the chain. If you don’t book earlier and you don’t keep ahead of it and you don’t keep in lockstep with others, you will not find capacity,” Pawan Joshi, executive vice president of products and strategy at E2open, told Sourcing Journal. “When lead times increase, I have to commit what I’m going to sell much earlier and I have to deal with the forecasting accuracy or variability at a much higher level.”
Cargo going from Asia to North America mirrors the 70-day booking-to-receipt time, a 39 percent increase from last year’s totals. Given the increasing bottlenecks at the West Coast port gates and in the oceans, CMA CGM might have seen an opportunity to take matters into its own hands in getting more visibility and control over a major terminal, and ultimately giving its importer customers a better way to anticipate lead times.
Additionally, reports of slow cargo unloading times and overall operation at these ports may lead container shipping companies to demand more autonomy in the process. While the Port of Los Angeles dismissed one report on “lazy” crane operators, Flexport CEO Ryan Petersen’s Oct. 22 Twitter thread indicated that just seven of the roughly “hundreds” of cranes were operating during his three-hour tour of the port complex. In that time, he said he saw “less than a dozen” containers get unloaded. And with the lots so full, carriers and terminals are being highly restrictive in where and when they will expect empty containers.
In particular, Petersen identified both the lack of yard space and a lack of chassis to pick up empty containers as the primary bottlenecks.
“With all the containers piling up in the terminal yard, the longshoremen can’t unload the ships,” Petersen said. “And so the queue grows longer, with now over 70 ships containing 500,000 containers are waiting off shore. This line is going to get longer not shorter. This is a negative feedback loop that is rapidly cycling out of control that if it continues unabated will destroy the global economy.”
Flexport CEO’s five-step plan
While the CGA CGM acquisition appears to be good news, especially for its customers, for now it is just a drop in the bucket in a larger, gridlocked system that won’t be alleviated any time soon.
In his Twitter diatribe, Petersen outlined five immediate steps supply chain stakeholders, including the Biden administration and California Gov. Gavin Newsom, should adopt to “overwhelm” the supply chain bottlenecks clogging the yard space.
He first recommended that the administration mandate an executive order effective immediately that overrides the current zoning rules in Long Beach and Los Angeles for 120 days, allowing truck yards to store empty containers up to six-high instead of the current limit of two. This would free up “tens of thousands of chassis that right now are just storing containers on wheels,” he said. Those chassis can immediately be taken to the ports to haul away the containers.
CMA CGM’s plans to expand terminal yard space
The FMS terminal is the third-largest in the Los Angeles/Long Beach port area, handling approximately 2.3 million 20-foot-equivalent container units (TEUs) per year. The terminal currently operates four berths, each more than 1,000 feet long and with a draft of 50 feet, and has 16 cranes, eight of which are capable of serving large ships. The terminal has eight rail tracks and more than 700 reefer plugs with 24/7 reefer monitoring. But given Petersen’s concerns, it appears terminals like FMS are going to need even more space.
By early 2022, the FMS terminal will welcome the first CMA CGM liquefied natural gas-powered 15,000-TEU ships to be deployed on routes between Asia and the U.S.
While the global supply chain may be in disarray, container shipping giants like CMA CGM, A.P. Moller-Maersk, Mediterranean Shipping Company (MSC), China Ocean Shipping Company (COSCO) and Hapag-Lloyd among others have raked in the profits amid the rising freight rates and higher shipping volumes. CMA CGM in particular saw a nearly 2,500 percent increase in its net income to $3.5 billion in its second quarter, and expects to further improve on those results in the second half of the year.
CMA CGM has been putting this capital to use prior to the FMS deal, purchasing 14 new vessels, 32 second-hand ships and more than 500,000 extra TEUs in equipment in the 12 months prior to Aug. 31. In September, the container shipping giant halted all spot rate increases through Feb. 2022, and then ordered two Boeing 777 jets to grow the group’s recently launched air freight division.
The moves mirror that of Maersk, which is purchasing two Boeing 777 jets as well and three Boeing 767-300 cargo planes, and also further expanding its global air network by acquiring air freight forwarder Senator International for $644 million. The firm has been on an acquisition spree since August, buying three e-commerce logistics firms: U.S.-based Visible Supply Chain Management, Netherlands-based B2C Europe Holding B.V. and Portugal’s fashion-oriented warehousing startup Huub.
The acquisition represents a return to ownership for CMA CGM, which sold a 90 percent stake in FMS for an enterprise value of $875 million in 2017. CMA CGM still held the remaining 10 percent stake before reacquiring the business from investment fund EQT Infrastructure III. The transaction’s closing remains subject to the regulatory approval.
“The swift recovery of the global economy has demonstrated the importance of ports and logistics infrastructure,” Rodolphe Saadé, chairman and CEO of the CMA CGM Group, said in a statement. “In order to manage efficiently our port operations on the West Coast of the United States, we have decided to acquire Fenix Marine Services. Fenix Marine Services is one of the largest terminals in this country and one of its most strategic gateways. It is a key industrial facility which will significantly strengthen our position and support our rapid growth in this market.”
CMA CGM holds 49 investments in 27 port terminals globally.
Trucker idling, container theft symptoms of a bigger problem
As of Wednesday, 159 total ships were in-port at Los Angeles and Long Beach, according to data from the Marine Exchange of Southern California. Of the 159 vessels, 102 are container ships, including 76 at anchor or loitering and 26 at berth.
Data from transport analytics firm Lytx estimates that truckers at the Port of Los Angeles and the Port of New York and New Jersey have collectively sat idling for a day’s worth of “idle time” on average, amounting to a collective 50 years across all trucks so far in 2021.
The idle time—the time in which engines are running but trucks aren’t moving—climbed by 50 percent per vehicle between the start of 2018 and October 2021, Lytx said. While the Ports of Los Angeles and Long Beach have implemented 24/7 operations for truck drivers amid the backlogs, the decision has been criticized as it has been getting minimal use due to the shortage of drivers, as well as the fact that warehouses are still closed at those extended hours.
The ports have taken even more initiative to improve the flow of the containers, instituting a 90-day policy to levy fines on ocean freight carriers if they let cargo dwell too long in the terminals.
According to the E2open index, which derives its data from its visibility into more than 40 percent of international container trade and has a network that encompasses 26 percent of ocean bookies, North American port dwell times have hovered at seven days on average since January, whereas pre-pandemic dwell times averaged five days. However, in the third quarter alone, port dwell times at destination ports in North America increased to 10 days.
E2open’s Joshi said more importers are turning to alternative ports, such as Boston instead of New York/New Jersey, due to the dwell times and backlog. But that is becoming difficult to handle on the ocean carrier side.
“The carriers find that to be more problematic, really, because they don’t have the right infrastructure there to deal with that massive volume,” Joshi said. “Even if the ports can handle it, the carriers don’t have the infrastructure to manage the containers going in and out, because they don’t have the right relationships with the dray carriers that enter and exit those ports.”
As the idling continues and both port officials and the Biden administration are attempting to clear the backlogs, the local freight carried outside the West Coast ports is apparently experiencing another problem: theft. Union Pacific Railroad, which transports goods from both major ports, said there was a rash of container break-ins as trains hauled the cargo north of the gateway, near downtown Los Angeles.
According to footage captured by KNBC Los Angeles, “thousands of boxes as far as the eye could see” were scattered along the railroad tracks near the city’s Lincoln Park area. The boxes appeared to have fallen or been tossed off cargo containers being hauled by Union Pacific trains.
KNBC reported that a FedEx container and several others had their doors wide open and boxes tipping over, given the appearance that they were broken into. The footage even purportedly shows a pair of burglars in action, wielding bolt cutters and hopping on and off of trains, as a lookout whistles to them from beyond a fence.
Union Pacific told Sourcing Journal it is aware of the thefts and is working with local law enforcement to address the issue.