CMA CGM Group Donates 200,000 Face Masks to Los Angeles

By Karen Robes Meeks

International shipping and logistics firm The CMA CGM Group announced Thursday that it had donated 200,000 face masks to the city of Los Angeles to help area workers stay safe against COVID-19.

“The CMA CGM Group has nourished a close and sustainable relationship, based on trust and respect, with the United States for many years,” said Rodolphe Saadé, chairman and CEO of the CMA CGM Group. “As a leading company, our partnership reaches far beyond our business activity. In this very difficult period, it means a lot to us that we stand alongside the United States to overcome the COVID-19 pandemic.”

This is the latest in an effort by the group to lend its help during the pandemic, including fast-tracking medical production lines from Asia to North America, test-kit and ventilator air and ground transport throughout the US and sending 20 million masks and medical supplies to France in four days.

“CMA CGM is playing a key role in keeping the supply chain running during this pandemic,” said Port of Los Angeles Executive Director Gene Seroka, who also serves as the city’s Chief Logistics Officer. “We are very proud to have CMA CGM as a friend and partner, and look forward to many years of close collaboration on all levels for the benefit of trade and humanity.”

New West Coast Liner Service

By Karen Robes Meeks

CMA CGM, the world’s third largest shipping carrier, has recently launched a new weekly service along the western coast of the US, Central and South Americas.

The AZTECA service, which began May 24 in partnership with the German shipping company Hamburg Sud, will travel to US ports in Long Beach and Oakland; Lazaro Cardenas, Mexico; Puerto Quetzal, Guatemala; Acajutla, El Salvador; Corinto, Nicaragua; Buenaventura, Columbia, and Puerto Caldera, Costa Rica.

The service allows CMA CGM to link Central and South America’s agricultural food industry and empowers growers to ship perishables such as bananas and avocados to North America.

Existing connections from regional hubs allow Central America exporters to benefit from competitive transit times with Asia, according to CMA CGM, which sees the service as a way to strengthen its network on the Pacific Coast of the Americas.

FMC Approves Shippers’ Mega Alliance

By Mark Edward Nero

After what it calls an “exhaustive” review, the US Federal Maritime Commission has concluded its investigation of the proposed Ocean Alliance, comprised of COSCO Shipping, CMA CGM, Evergreen Marine, and Orient Overseas Container Line Ltd. (OOCL), the FMC announced Oct. 21. With the review over, the alliance became effective Oct. 24.

“Today’s announcement follows an exhaustive review process by the commission that thoroughly examined all aspects of the proposed agreement to assure that competition in the ocean transportation industry would not suffer,” the FMC said in a statement. “Commissioners and commission staff extensively engaged filing counsel on a number of issues, and took advantage of the opportunity allowed for under the law to issue a request for additional information, which necessitates the filing of further documentation in support of the application."

Alliance members are now permitted to share vessels; charter and exchange space on each other’s ships; and, enter into cooperative working arrangements in international trade lanes between the United States and ports in Asia, Northern Europe, the Mediterranean, the Middle East, Canada, Central America and the Caribbean.

“The commission worked very hard to balance the needs of not only the Ocean Alliance applicants, but all other parties involved in the intermodal supply chain, with the ultimate goal of safeguarding competition in international oceanborne common carriage, with the American shipping public foremost in mind,” Federal Maritime Commission Chairman Mario Cordero said.

The agreement represents a consensus of what will allow Ocean Alliance carriers to achieve efficiencies without harming the marketplace, Cordero remarked.

CMA CGM Deploying Fleet to West Coast

By Mark Edward Nero

On March 3, the CMA CGM Group revealed that starting at the end of May, it would deploy its flagship fleet of six 18,000-TEU vessels between Asia and the US West Coast. The move follows several successful trial runs at seaports in California and Washington State.

“The six 18,000-TEU vessels named after the Great Explorers will be deployed on the trans-Pacific market, the most dynamic one, to accelerate its growth,” the company said in a statement. “This decision is in line with both the growth strategy set by the Group in the United States and around the world.”

The six 18,000-TEU ships that bear the names of great explorers are: CMA CGM Bougainville, CMA CGM Kerguelen, CMA CGM Georg Forster, CMA CGM Vasco de Gama, CMA CGM Zheng He and CMA CGM Benjamin Franklin.

Last December, the CMA CGM Benjamin Franklin became the largest ship ever to call in the United States. It was inaugurated Feb. 19 at the Port of Long Beach, in ceremony that included the presence of CMA CGM Chairman and Chief Executive Officer Jacques Saadé, as well as about 450 customers, local politicians and various stakeholders.

The Benjamin Franklin, which is 1,310 feet long and 177 feet wide, also has called at the port of Seattle and Oakland in recent weeks.

18,000 TEUs is more than double the cargo of most container ships calling at terminals at West Coast ports. If laid end-to-end, 18,000 containers would stretch about 68 miles.

CMA CGM Takes Delivery of its Largest Ship

By Mark Edward Nero

French container shipping company CMA CGM Group has received the largest vessel of its fleet, a 17,722-TEU containership that was delivered March 31 in Busan, South Korea. It is scheduled to be christened May 12 in Le Havre, France.

The CMA CGM Kerguelen measures 398 meters (1,305 feet) long and 54 meters (177 feet) wide, making it longer than the Eiffel Tower and wider than the Paris monument Arc de Triomphe.

CMA CGM says the vessel will be positioned in the shipper’s French Asia Line, which links Europe to Asia. Plans are for the ship to export consumer products such as fruit, cheese and meat, as well as luxury products like perfumes, wines and spirits, leather goods and industrial products, including industry automotive, electronics and aeronautics.

Its primary markets will be Asia and the Middle East.

The CMA CGM Kerguelen is the first in a series of six ships of the same size that are expected to be delivered this year. It was named after the 18th century French navigator Yves-Joseph de Kerguelen-Trémarec who discovered an archipelago of islands that was later named Archipelago Kerguelen.

Due to advanced engine design, the CMA CGM Kerguelen is expected to emit 10 percent fewer CO2 emissions than the previous generation of vessels, according to CMA CGM.

‘Ocean Three’ Seals Global Alliance

By Mark Edward Nero

The CMA CGM Group, the world’s third largest container shipping company, announced Sept. 8 the signing of three major agreements with United Arab Shipping Corp. (UASC) and China Shipping Container Line (CSCL).

The agreements combine vessel sharing, slot charter and slot exchange, plus build upon an existing plan by UASC and CSCL to cooperate on an 18,000 TEU vessel trade agreement. The agreements, completed under the collective name of Ocean Three, cover Transpacific, Asia-United States East Coast, Asia-Europe and Asia-Mediterranean maritime trade routes.

The Transpacific trade is to consist of four weekly services to California and one service to the Pacific Northwest, while the Asia-US East Coast trade will consist of service via the Suez Canal and one service dedicated to the Gulf of Mexico.

The Asia-Europe trade is to consist of four weekly services added with two existing services, thereby offering six departures per week. The Asia-Mediterranean trade is to consist of four weekly services: two to the Mediterranean, one to the Adriatic and one to the Black Sea.

The agreements on Transatlantic trade are being finalized and will be announced at a later date, according to CMA CGM.

“This will allow us to propose to our clients a high quality and reliable alternative to existing services on the market,” CMA CGM Vice Chair Rodolphe Saadé said.

These agreements are pending authorization from the US Federal Maritime Commission.

P3 Shipping Alliance Abandoned

By Mark Edward Nero

Plans by containership operators Mediterranean Shipping Co, CMA CGM and Maersk Line to form an alliance have been abandoned after their proposal was rejected by China’s Ministry of Commerce.

The P3 Alliance was announced in June 2013 as a long-term operational vessel sharing agreement on routes covering Asia to Europe as well as transpacific and transatlantic routes to the United States, with an overall aim of making container liner shipping more efficient and improving service quality for the shippers.

Although receiving approvals from US and European officials earlier this year, the Chinese Ministry announced its disapproval June 17 after an anti-monopoly investigation.

During the investigation, the Ministry of Commerce informed the Alliance that its formation would adversely impact competition, and that the two sides had “several consultations on how to reduce the adverse impact of the concentration of undertakings to competition.”

Although the Alliance submitted “several remedy plans” to alleviate the Ministry’s concerns, the Ministry of Commerce eventually concluded that there was “no legal basis and convincing evidence” to support the remedy plans. “Therefore, according to the Anti-monopoly Law of People’s Republic of China, Ministry of Commerce decided to forbid this concentration of undertakings,” the Ministry said in a statement explaining its actions.

Following China’s decision, the Alliance members said they had ceased preparatory work on the coalition, which had expected to start operating later this year.

“We have delivered very good results on a stand-alone basis, and there are no reasons why we should not continue,” Møller-Mærsk Chief Executive Nils Andersen said, adding he didn’t rule out smaller alliances, or capacity adjustments, in the wake of the P3 rejection.

In a prepared statement, Mediterranean Shipping said it would review its options.

“We are disappointed by the decision of the Chinese Ministry of Commerce but will continue our efforts to operate more efficiently,” MSC Vice President Diego Aponte said in the statement. “We could have achieved these efficiencies much faster through P3, but with our investment in more fuel efficient vessels, further economies of scale will still be achieved over a period of time.”

Towing of Ultra-Large Containerships Tested

By Mark Edward Nero

Shipping group CMA CGM partnered with Coast Guard Sector San Francisco and other local industry partners recently to test the Bay Area’s capability to tow ultra-large container vessels.

During a May 22 exercise, the CMA CGM vessel Centaurus, an 11,400 TEU containership measuring about 1,200 feet was used to test the capability of existing tug assets within San Francisco Bay to connect to and tow an ultra-large container vessel.

The demonstration was intended as a learning experience to enhance preparedness for emergency towing operations either in the San Francisco Bay or in the approaches to San Francisco.

This exercise marked the first such attempt in the United States, according to the Coast Guard. Among the participants were AmNav Maritime, Foss Maritime and Harley Marine Services.

“This is a prime example of the forward-leaning posture of the San Francisco Bay Area Harbor Safety Committee and a testament to the commitment of our maritime community to safety and environmental protection,” Capt. Gregory Stump, commander of Sector San Francisco and captain of the Port of San Francisco said.

“There will be many important lessons learned from this exercise,” Coast Guard Cmdr. Jason Tama with the 11th Coast Guard District prevention division predicted. “It was a great example of the Coast Guard, Harbor Safety Committee, and maritime industry working together to ensure we are ready to respond to an incident involving an ultra large container vessel.”

P3 Alliance Launch Delayed Until Fall

By Mark Edward Nero

The launch of an alliance between the world’s three largest container companies has been delayed from mid-year to sometime in the fall, the companies said May 21.

The P3 Alliance, made up of shipping giants CMA CGM, Maersk Line and Mediterranean Shipping Co., was announced in June 2013 as a long-term operational vessel sharing agreement on routes covering Asia to Europe as well as transpacific and transatlantic routes to the United States, with an overall aim of making container liner shipping more efficient and improving service quality for the shippers.

Indications are that the P3 network will be operated from new management offices in London and Singapore with a staff of about 200. The proposed Alliance has already named Maersk Line’s Lars Mikel Jensen as its Chief Executive Officer.

Maersk Line has estimated that after the alliance is put into place, market control would be at about 42 percent on the Asia to Europe route, 24 percent on the transpacific routes, and 40 to 42 percent on the transatlantic route.

The US Federal Maritime Commission, after holding a summit last December with its European and Chinese counterparts, approved allowing the agreement to become effective in the US However, the coalition still faces questions from maritime authorities in Asia and Europe, which is being cited as a partial cause for the delay of the alliance’s launch.

Among the various concerns the Federal Maritime Commission and other regulatory bodies have expressed about the proposed alliance are a reported vessel reduction if alliance is consummated.

FMC Delays Consideration of Shipping Alliance

The Federal Maritime Commission on Dec. 5 decided to delay a vote on whether or not to approve an alliance between the world’s three largest container companies, Maersk Line, Mediterranean Shipping Co. and CMA CGM.

The FMC voted to approve a request for additional information from the parties to the proposed sharing plan, known as the P3 Network Vessel Sharing Agreement. The request for additional information delays the timeframe of the proposed agreement: after the parties have submitted the requested information and documents, a new 45-day regulatory review period is set to begin.

The request for more information came at the behest of Commissioner William Doyle.

“In addition to my own questions and considerations posed by my fellow commissioners, I have taken into account comments submitted to the Commission and drafted further questions addressing those filings by stakeholders, including but not limited to the concerns publicly raised by the National Industrial Transportation League, the International Longshoremen’s Association, and the Global Shipper’s Forum,” Doyle said.

Among the various concerns Doyle and other FMC members have expressed about the proposed alliance are a reported vessel reduction once the proposed alliance is consummated and a lack of significant filing with regulatory authorities in Europe, China or the US.

Cargo owners have lobbied against the agreement since it was announced saying that it could create a monopoly and put smaller shippers out of business.

A 15-day period for interested parties to comment on the proposed agreement opens this week.

The three carriers announced in June that they intended to begin cooperating in 2014 on routes covering Asia to Europe as well as transpacific and transatlantic routes to the United States.

Early estimates by Maersk Line’s chief trading and marketing officer put market control of such an alliance at about 42 percent on the Asia to Europe route, 24 percent on the transpacific routes, and 40 to 42 percent on the transatlantic route.

The three parties filed the P3 Network Vessel Sharing Agreement with the FMC in October. Pursuant to regulatory statute, agreements filed with the Commission become effective after 45 days, but the Commission can request additional information and documents from the filing parties necessary to complete the required statutory review.

Upon receipt of complete and adequate responses to the request for additional information, a new 45-day period begins.

The Maritime Commission’s scheduled to discuss the alliance proposal with officials from China and Europe on Dec. 17 in Washington DC.

Shipping Line Buys Stake in POLB Terminal

The world’s third-largest container shipping line has bought a stake in the Port of Long Beach’s Pier J. Marseille, France-based ocean carrier CMA CGM has become a partner in the lease and operations of the 256-acre terminal. It marks CMA CGM’s first investment in a port on the North American West Coast.

“Of the large carriers, CMA was the only one that did not have a home locally, POLB Executive Director Chris Lytle said. “We are glad they’ve decided to call Long Beach home.”

Pier J is the site of Pacific Container Terminal, which has a water depth of about 50 feet and is home to 17 post-Panamax gantry cranes, making it one of the few terminals globally capable of servicing the new generation of giant container ships.

Pacific Container has been operated as a joint venture between global maritime services company SSA Marine and COSCO, a China-based ocean carrier. CMA CGM, which officially announced the agreement Dec. 11, actually became a partner in the venture in November.

The port says the move should bring an additional 2.6 million container units to Long Beach and increase port revenues by about $70 million over the next five years. CMA CGM vessels have been calling at Long Beach for years, but the new arrangement gives the shipping line a West Coast homeport.

“This first new investment for our Group on the U.S. West Coast will reinforce our position in North America,” CMA CGM Group Executive Officer Farid Salem explained. “By investing in Pier J, the Group ensures that the largest vessels deployed in the trans-Pacific trade will be efficiently managed.”

CMA CGM, which operates a fleet of 395 vessels calling at 400 ports on every continent and in 150 countries, also calls at Long Beach’s Pier A.

CMA CGM Increases Investment In 'Eco-Containers'

French ocean carrier CMA CGM has boosted its pool of so-called 'eco-containers' to nearly 140,000 with the recent acquisition of another 18,000 new units.

These 'eco-containers' are produced using various techniques that work toward the goal of a minimized ecological footprint during both manufacturing and operations.

For many years, CMA CGM has been studying and implementing numerous innovative solutions to improve the eco-performance of a container.

A major focus of 'eco-container' manufacturing is the replacement of traditional container wood flooring – which has been linked to deforestation in parts of the world – with more sustainable wood products such as bamboo. CMA CGM has been offering containers with bamboo floors to its customers since 2005.

“The CMA CGM Group is still leading the way in the development of 'eco-containers.' We were the first to develop bamboo floors and are constantly on the look out for new technologies,” CMA CGM's Senior Vice-President Container Logistics and Environmental Committee member Alexis Michel said.

“The Group’s primary aim is to reduce the footprint of its activity on the environment while offering customers solutions that are adapted to their needs.”

The flooring efforts, a result of a collaboration between CMA CGM and one of its main customers, meet two objectives: to limit the use of wood from primary forest and to improve the technical qualities of the containers. Today, more than 10 percent of the carrier's box fleet is equipped with bamboo flooring. In addition, CMA CGM is currently evaluating new synthetic resin flooring.

The carrier has also invested in a series of containers made from a high tensile steel with reduced weight. CMA CGM owns 4,500 of these Light Steel containers, which saves more than 1,200 pounds on a high-cube’s tare weight without compromising its structural qualities. These require less fuel to transport and handle, thus cutting overall emissions.

Another investment has been in the high-efficiency reefers. CMA CGM has invested in 3,500 reefer containers fitted with low energy-use motors, which reduce electricity and fuel consumption by 300 percent. The carrier has also equipped 15,000 standard reefers, 20 percent of its entire reefer fleet, with software to optimize energy consumption.

The carrier also recently began testing a new water-based paint for on some 3,000 containers that will cut VOC (volatile organic compound) emissions during production by over 90 percent.

State Orders Bay Area Pilots to Provide Service

This story has been revised from an earlier version.

State officials were forced to order Bay Area bar pilots to provide pilot service to CMA CGM vessel after pilots threatened to refuse to pilot the vessel to dock at the Port of Oakland because the vessel owners did not support recent moves at the state level to increase pilot rates.

The state of California grants the San Francisco Bar Pilots Association with a codified monopoly on pilot service in the Bay Area, including language that requires all large commercial vessels calling in the Bay Area to use the bar pilots.

Rates charged to vessel owners for pilot service in the Bay Area are set by the state and the pilots are licensed and overseen by the California Board of Pilot Commissioners.

On June 15, state legislation that would have increased average compensation by 2015 to $530,000 a year for the roughly 60 bar pilots who move large commercial vessels in an out of the Bay Area, failed to pass a State Senate committee.

Despite already earning on average about $400,000 a year, the pilots claimed in rate hearings that since their last raise in 2006, their pay – based on the weight of the ships they pilot – has stagnated while expenses have increased.

Maritime industry representatives opposed the rate increases, arguing that the projected increases in shipping gross tonnage would more than compensate the pilots under the current rates.

As the pilot rate statutes were being argued before the state legislature, the Pacific Merchant Shipping Association, a Bay Area trade group that represents 90 percent of the shipping lines and terminal operators on the West Coast and one of the most vocal opponents of the proposed pilot rate increases, was informed by a member shipping line that the line had been erroneously overcharged by the pilots for pilot service.

On June 9, the PMSA sent an advisory to all of its members detailing what the pilots could legitimately charge for under the current state rate statutes.

The next day, the pilots informed the Port of Oakland that, due to the PMSA advisory, the maximum length of any ship they would henceforth provide pilot service to would be 1,140 feet, as opposed to the previously agreed – as recently as June 8 – limit of 1,205 feet. The change effectively barred carrier CMA CGM's massive 1,145-foot-long 9,400-TEU container vessel CMA CGM Norma, scheduled to arrive just days later, from calling at the port.

The pilots association later told Port of Oakland officials that the pilots would provide service to longer vessels, including the CMA CGM Norma, but only to an anchorage near the port, not to a dock at the port. Since the pilots association has a monopoly on pilot service in the Bay Area, it is unclear how the CMA CGM vessel was proposed to get from the offshore anchorage to a port dock.

On Friday, the acting secretary of the state Business, Transportation and Housing Agency, who also oversees the state Board of Pilot Commissioners, sent a letter to the head of the San Francisco Bar Pilots Association.

The letter said that the state pilot Board has been closely watching the recent rate-setting process and "is aware of recent threats to refuse to pilot the CMA CGM Norma through the San Francisco Bay to dock..."

Acting BTHA secretary Traci Stevens directed the pilots association to "take every lawful action under your authority to ensure that these threats do not materialize."

She warned the pilots association's Bruce Horton that he was responsible in his role as the association's Port Agent to "supervise and manage matters related to the official duties of bar pilots licensed by the [state pilot] Board."

Stevens ordered Horton, under penalty of legal action including disciplinary action by the state pilot Board, to "take every action under your authority to ensure that full, complete, and appropriate pilotage of the cargo vessel CMA CGM Norma from the 'SF Buoy' through the San Francisco Bay to dock..."

Stevens wrote that the letter and order were necessary because there was not enough time to conduct a public meeting on the matter and that a failure to ensure proper pilotage of the CMA CGM vessel could have "serious adverse economic, transportation, and other consequences."

A statement by a public relations firm, on behalf of Captain Horton, notes the pilots had earlier negotiated with the shipping company to bring on a second pilot, at a one-half pilotage rate, for the 1145-foot CMA CGM Norma, and that Captain Bruce had communicated his decision to complete the vessel move with an additional pilot to both the ship owner and the Pilot Commission prior to the receipt of any communication or directive from the state Bureau of Transportation & Housing.

The CMA CGM Norma, piloted by a bar pilot, arrived at a Port of Oakland dock at 1 p.m. on June 19. Though originally scheduled to arrive June 18 at 3 p.m., a delay at the vessel's previous call caused the one-day delay.

Ocean Carrier Sees Increased Trade Growth, Warns of Constraints

Frank Baragona, president of CMA CGM (America), joined the Port of Long Beach "Pulse of the Ports" panel on Wednesday to offer up an industry view from the perspective of the ocean carriers.

While bullish on the continued growth of trade heading into 2011, Baragona offered warnings about issues such as container supply, landside infrastructure constraints, and rising bunker fuel costs that could damper the perceived recovery since the disastrous 2009 downturn.

"We do see continued [US] GDP growth – and that is a positive thing – in excess of 3 percent [in 2011] coming off less than 3 percent last year," Baragona said.

"This is a good signal that consumers' confidence is recovering and people are back transacting business in the marketplace."

Baragona said that the two biggest issues threatening a sustained economic recovery from his perspective are high unemployment and the housing/access to credit situation.

Despite this, Baragona said he is optimistic of a continued slow recovery.

Turning to capacity supply and demand, Baragona said that on a global level capacity has grown on average 10 percent per year over the past decade to a 2010 level of just over 14 million TEUs.

He predicted a similar 8 percent to 9 percent annual growth rate in global capacity for the next two years, ending 2012 at about 17 million TEUs.

Despite seeing a global 14 percent growth in demand during 2010, Baragona said that 2011 would likely come in at about 8 percent demand growth and 2012 would see about the same.

"So, yes there is ample global capacity. [Global] demand is tracking slightly below capacity, so this indicates that there should be adequate supply globally to meet the demand," Baragona said.

Specifically in the transpacific, however, demand continues to track well below capacity and Baragona predicted that the trend would continue in 2011, with transpacific eastbound capacity having about 3 million more TEUs than called for by estimated demand.

Baragona said that his firm had earlier predicted a more optimistic picture for demand in 2011, but the rise in bunker fuels prices, the disaster in Japan and the turmoil in the Middle East have all put a cloud on those projections, though he remains guardedly optimistic for a positive year.

Turning to issues on the landside, Baragona said that the key concern is efficiency at the ports to deal with the 12,000-plus TEU vessel classes that are now entering service.

"We would like 150 moves an hour, but we are not there yet. These ships cannot be laid up for three or four days. They only make money when they are out steaming," Baragona said.

He added that it is not just the dock, but also the rail networks, the highways systems, the port infrastructure that all play into the needed efficiency.

From a carrier operational perspective, Baragona said that bunker fuel costs, slow steaming and the Panama Canal are all major topics of internal discussion.

Baragona called his presentation chart of bunker fuel prices per ton over the past three years "scary," adding that in just over 26 months the price per ton of bunker fuel has almost tripled.

"If anyone in this room questions the logic of a bunker surcharge, this should explain it," he said.

Baragona said that a typical CMA CGM 8,200-TEU vessel on a roundtrip from South China to Long Beach and back burns about $3.5 million to $4 million in bunker fuel per trip.

"That number continues to go every day," Baragona said. "This is why the bunker formula is so important in our service contracts. It represents 60 percent of the costs of that service."

In addition to surcharges, another method to deal with rising fuel costs is slow steaming on the backhaul, where vessels on their return trip move at speeds well below standard ocean-going vessel cruise speeds. Estimates suggest that a vessel cruising at 17 to 19 knots instead of full speed at 23 to 26 knots, can save about 5 percent to 7 percent on fuel costs.

Baragona said that the industry has been quick to adopt backhaul slow steaming. Of the 45 service loops on the West Coast, for example, the number using slow steaming has risen from one service in mid-2009 to more than 15 in February 2010 and almost 25 as of today. Baragona pointed out that on the East Coast the rise of slow steaming has been even more pronounced, rising from two service loops out of 22 in mid-2009 to 12 in February 2010 to nearly 17 as of today.

As long as bunker fuel costs remain a sizable component of the costs of ocean transport, Baragona said slow steaming on the backhaul will remain a justifiable cost reduction strategy for the foreseeable future.

Turning to the opening of the $5 billion expansion of the Panama Canal in 2014, Baragona said that "It will provide an alternative. It is going to provide options to the supply chain that don't exist today."

The problem, he said, is that it is not yet known how much it will cost to transit the canal when the new larger locks open in 2014.

"The key to this," Baragona said, "is that it will change the dynamics on the East Coast. Today, we are unable to get any ship through the canal over 5,000 TEUs. And the only way we are currently able to operate larger ship efficiently [to the East Coast] is to bring them through the Suez."

Baragona said that there will be a shift from the West Coast to the East Coast, but he hesitated to describe it as a "fundamental" shift.

"You will see a shift because not everything that moves today is time sensitive," he said.

He predicted the canal opening will allow the industry to provide larger, more fuel efficient and more economical vessels to the supply chain. In the end, he said, it will provide the customer with a trade off: between cost and time to market.

The one caveat he offered, though, was the ability of infrastructure on the East Coast in 2014 to accommodate the larger vessels that will be able to transit the canal.

It is not the case today, Baragona said. "A lot has to be done on the [East Coast] infrastructure to capitalize on the opportunity."

Another constraint that Baragona said does not get a lot of discussion is the worldwide container supply. He pointed out that 96 percent of new containers are built in China and in 2008 and 2009 China almost shut off the construction. Supply dropped from 5 million new containers a year in 2007 to 300,000 in 2010. Add to this that new and larger ships continued to join the fleet and this led, in some part, to the situation last year where shippers began to experience a shortage of available containers.

Baragona said that worldwide container supply has continued to drop in relation to the number of vessels slots – from three boxes per slot in 2000 to about two boxes per slot today.

The ideal model, he said, is an equal container pool in Asia, on the vessels, and in the US, all cycling.

Baragona said the while there will be "adequate and reasonable" vessel capacity through the whole 2011 peak season, the concern he pointed to is whether there will be enough containers.

"My advice is this," Baragona said, "Be very judicious in your contracting. Equipment availability is going to be critical. I don't think any company is immune from it and I would certainly be cautious."