Cutting through congestion

APM Terminals Los Angeles produced a record performance in 2015 under tough circumstances. The result underlines the value of mature markets to the Maersk Group.

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Mature market ports, like APM Terminals Los Angele, handle the majority of world trade. In its 15 mature market ports, APM Terminals moves more than 300,000 20-foot containers per week.

W hen the biggest vessels ever to visit US ports began to arrive in early 2015, loaded with record numbers of containers, terminal operators scrambled to ensure they could handle the cargo volume.

With labour unrest enveloping the ports at the same time, it was a combination that threatened to slow the port of Los Angeles, the nation’s largest and busiest port, to a crawl. By planning ahead, making detailed forecasts and not promising more than it could deliver, APM Terminals Los Angeles was able to handle the crunch and emerge with record business growth and impressive safety improvements.

“It was an incredibly challenging environment, to manage a labour dispute while at the same time handling record vessel sizes and volume, but we also knew it was the best opportunity for us to demonstrate to our customers we are the best terminal operator in San Pedro Bay,” says Steven Trombley, Managing Director of APM Terminals Los Angeles.

The anchors of shipping networks

APM Terminals operates 15 of its 63 terminals in mature markets – 10 in Europe and five in the US. These markets have been characterised by lower economic growth rates, and as such have been a steadily shrinking segment of APM Terminals’ portfolio in recent years.

Yet the mature market ports remain incredibly important. Ports like Rotterdam, Algeciras, Los Angeles, New York and others are anchors for the vessel networks of global shipping line customers like Maersk Line, CMA CGM and MSC.

“In 2013 and 2014, the industry had become bored with mature markets. The developing markets took all of the attention with steep growth rates,” says Wim Lagaay, Head of the USA & Europe Portfolio for APM Terminals. “While Europe didn’t have the same growth as the US in 2015, it was nonetheless a reminder of the importance of continuing to invest in these markets and of maintaining a geographical balance in our portfolio.”

In mature markets, where growth is generally much slower and where bigger and bigger vessels are calling, the need is for world-class operations. Our primary focus in those markets is efficiency and productivity for our customers.
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Kim Fejfer, CEO of APM Terminals

Mature market ports handle the majority of world trade: in its 15 mature market ports, APM Terminals moves more than 300,000 20-foot containers per week.

“In mature markets, where growth is generally much slower and where bigger and bigger vessels are calling, there is a need for world-class operations. Our primary focus in those markets is efficiency and productivity for our customers,” says Kim Fejfer, CEO of APM Terminals.

“In developing markets, it is more about finding bottlenecks in the supply chain and then helping the host countries and the industry to unlock these bottlenecks by building infrastructure in these locations.”

Tallest cranes

In the case of APM Terminals Los Angeles, having the tallest cranes in the harbour was one reason it has been the destination of choice for the largest ships, including the largest ever to visit a United States port – the Benjamin Franklin, CMA CGM’s 18,000 20-foot container ship – in December 2015. The terminal will be raising the height of its cranes again in 2016, to enable these large vessels to bring even more containers in.

With thin margins and ever-increasing vessel sizes and container volumes, APM Terminals’ focus in the mature markets is creating world-class operational capabilities.

Some of the tools for this include continuous monitoring and optimisation of terminal operations, investments in equipment and technology and enhancing partnerships with customers.

“The role of the United States and Europe has naturally changed over time, but these facilities remain a critical component of trade and our customers’ business and one that we will continue to invest in,” says Lagaay.

Cutting out the queues

In Los Angeles, the results of their efforts were becoming clear by the end of 2015. Volumes in APM Terminals Los Angeles grew by 28% compared to 2014. This included 17 vessels that came to Trombley’s terminal when they were unable to call others because of congestion.

10% contribution to profit

In 2015, APM Terminals’ five US terminals accounted for only 4% of the company’s invested capital but delivered 10% of the economic profit.

The terminal was also able to establish a new safety record for consecutive days (86) without a lost-time injury.

“We kept our eye on the long term, while monitoring volume forecasts so that we wouldn’t over commit to the carriers, ensuring a smooth transition when the contract bargaining finally concluded,” says Trombley. “Practical steps like offering extended gate hours and sustaining a strict prioritisation of import and full containers meant we didn’t encounter vessels waiting at anchor, like some of our competitors.”

Nimble and flexible

This year’s launch of 2M, the world’s largest vessel sharing agreement between Maersk Line and MSC, provided customers with an unmatched variety of sailings and port options for their cargo and also lowered the costs to Maersk Line of providing such options in these mature trade lanes.

The Asia–Europe and Asia–US trades that 2M serves are the world’s largest by cargo volume, connecting Asia’s producers with consumer markets in Europe and the US. But as critical as they are to global trade, they are also increasingly characterised by low profitability due to declining growth and over capacity. Efficiency gains and cost reductions have been passed on to customers in the shape of ever lower prices.

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It was an incredibly challenging environment, to manage a labour dispute while at the same time handling record vessel sizes and volume, but we also knew it was the best opportunity for us to demonstrate to our customers we are the best terminal operator in San Pedro Bay.
Steven Trombley Managing Director of APM Terminals Los Angeles

The 2M agreement runs for 10 years and is improving network efficiency and lowering the costs of vessel service through improved utilisation of vessel capacity and economies of scale. The expanded network also offers customers more stability and route options.

“To compete in these trades, we need to continue to be cost competitive. With 2M we could offer a much better product to our customers at much lower operational cost,” says Klaus Sejling, Head of East/West Trades for Maersk Line. “People generally think of these trades as stable because they’re mature markets, but in 2015 that wasn’t the case. The labour negotiations together with cargo volumes into the US created difficulties for our customers and therefore opportunities for us to show we can be nimble and that the network could be flexible in order to respond to our customers’ needs.”

The congestion resulting from the labour negotiations on the West Coast created a wave of demand for East Coast services. Customers needed an alternative, quickly, so Maersk Line created an Asia to US East Coast service via the Panama Canal, providing a faster option than its existing two services via the Suez Canal. In addition, two new gateways were created for Asian cargo bound for North America, one into Prince Rupert in western Canada and another into Lázaro Cárdenas, on the west coast of Mexico. Local Maersk Line offices helped customers rework supply chains from there, for example by helping to source chassis and trucking services that were in short supply. Together, these moves ensured a continuous flow of cargo into important inland destinations.

“These may be mature markets, but they can also turn dynamic and we need to be ready for the opportunities created by that,” Sejling says.

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