Ports Vie for Increased Market Share

Stephen DeAngelis

March 01, 2011

My last post discussed the shipping industry from the shipping line perspective. Today I would like to discuss the industry from the port operator perspective. With the vast majority of the world’s supplies continuing to move by ship, those ships obviously need places to onload and offload goods. Not all coastal cities are blessed with natural harbors, large populations, or state-of-the-art intermodal transportation facilities that would make them prime ports of service. Since increased port traffic generally means increased employment, mayors, governors, and other politicians are obviously interested in helping ports in their areas get more business. With money being extremely tight, the competition to attract new business can be heated. For example, “a battle is raging between two US states over state funding for port infrastructure facilities. The conflict has been sparked as east coast ports prepare to attract increased container shipping volumes predicted to enter supply chains in 2014, via an expanded Panama Canal.” [“News: Georgia and South Carolina ‘battle’ over port infrastructure,” by Steve Hall, Procurement Blog, 17 February 2011]. Kim Severson reports that the states are “feuding like estranged brothers.” [“A Race to Capture a Bounty From Shipping,” New York Times, 11 December 2011]. Hall continues:

“A new Journal of Commerce (JoC) report notes that resentment over the growth of Georgia’s ports is fuelling opposition from neighboring South Carolina, which could upset expansion efforts for both states and possibly even push funding and traffic to other ports. According to the report, over a decade of work by the Georgia Ports Authority on its Savannah Harbor Expansion Project could be in vain if South Carolina vetos work on the Savannah River that forms the border between the two states. South Carolina politicians have vowed to block the river work on environmental grounds. ‘If Georgia and the corps (of engineers) don’t reverse course, you’re going to see this thing litigated in federal court for many years to come,’ State Sen. Larry Grooms, chairman of the Transportation Committee and the South Carolina State Ports Authority’s Review and Oversight Commission told JoC. JoC predicts that such delays could be ‘disastrous’ for the entire region, pushing traffic as well as tens of millions of dollars in funding somewhere else in the Southeast. While South Carolina’s container trade grew 12.5% during the first 11 months of 2010, container volume at Georgia ports expanded 14.7% over 2009 with nearly 2 million TEUs, according to data from PIERS, a sister company of The Journal of Commerce. However the report notes that the Savannah River will need a deeper channel if it is to attract increased volumes of Panama Canal traffic. ‘Without approval for (the deepening project), our ports are out of play,’ GPA’s executive director Curtis Foltz said.”

In yesterday’s post, I noted that ships are getting larger. Large ships mean deep drafts and deep drafts means that many ports must dredge or re-dredge their harbors to accommodate them. As the staff at Supply Chain Digest puts it, the “Panama Canal expansion is [a] great development for importers and East Coast ports – if only they could handle the megaships” [“As 2014 Suddenly Looms, US Ports on both Coasts Look to the Future with an Uncertain Eye,” 9 February 2011]. The article continues:

“When voters in Panama approved a multi-billion dollar investment in 2006 to expand the Panama Canal to accommodate larger cargo ships, its target completion date of late 2014 seemed a long ways away, and who knew then whether the massive infrastructure project would be completed anywhere near on time. … In October, Rodolpho Sebonge, an official at the Panama Canal Authority, told the audience at the annual CSCMP conference in San Diego that the project was actually well ahead of schedule. Suddenly, 2014 doesn’t seem so far away any more, and the looming impacts to global logistics are likely to be large. That is in part because the size of cargo ships the new Canal will be able to handle.”

The article notes that “the original design goal was to enable ships carrying 8000 TEU to get through the Canal. That was later raised to 12,500 TEU vessels, as the ‘megaship’ trend became a growing factor in ocean shipping. Now Sebonge said, ship makers are figuring out how to get 14,000+ TEU ships through and meet the physical constraints.” I’m not sure whether the enormous Triple-E vessel discussed in yesterday’s post will fit; although great care was taken to keep its outer dimensions close to those of the current E-class. It will carry an amazing 18,000 TEUs. The article continues:

“The impact on the cost to get containers through the Canal using these larger ships will be substantial, reducing costs by as much as $75-100 per container per voyage. … The Canal expansion will have major impacts on ports on both US coasts, though exactly how this will play out remains uncertain for sure. On the West coast, especially the LA/Long Beach port complex, port operators are worried that many importers will decide to bypass their ports on ships coming from Asia and head through the Canal directly to East Coast or Gulf Coast ports instead. Currently, the majority of Asian traffic goes to LA/Long Beach, where it is largely moved by rail and sometimes truck to the Midwest and East coast, providing a better transportation path given the current costs and time required for an all-water route.”

The article reports that “analysts at Business Monitor International noted two years ago, current Asia to US shipping lanes ‘will change dramatically when the expansion of the Panama Canal is completed. Shipping companies in Asia will be able to use the canal to bypass the West Coast and sail directly into Gulf of Mexico and East Coast ports such Charleston, Jacksonville, and Norfolk, allowing post-Panamax vessels that currently only call at West Coast ports to use an all-water route to reach the East Coast. This would be considerably cheaper than using water followed by rail to transport goods, while also offering companies more control over their supply chain.'” Although this eventuality should make West Coast ports nervous, Kim Severson, in the article cited earlier, writes:

“In Los Angeles, port officials dismiss any concerns. ‘The Port of Los Angeles is not expecting increased cargo diversion as a result of the Panama Canal expansion,’ said Rachel Campbell, a spokeswoman. Some shipping companies and manufacturers have already shifted their supply routes from the West Coast to the East after labor problems and an influx of freight in 2004 that caused gridlock among ships in Los Angeles. Officials in Panama are also expected to charge higher tolls for the canal to pay off the national loan that is financing the expansion. Those costs to shippers could offset potential savings in improved logistics.”

Nevertheless, the Supply Chain Digest article reports that “the Port of Long Beach is investing $3 billion over the next 10 years to modernize its port and reduce bottlenecks for shippers” in an attempt to hold on to customers (the port lost “about one-third of its cargo business last year, primarily due to the recession and the drop in imports.”) West Coast ports are hoping that East Coast ports continue to squabble and that necessary infrastructure improvements to handle bigger ships don’t materialize — making them unsuitable to handle the megaships for years to come. The editorial staff at Supply Chain Digest believes that “East Coast ports aren’t ready.” They explain:

“The so-called ‘post-Panamax’ ships require depths of up to 50 feet of water to navigate the entry ways to the ports when fully loaded. The only East Coast port that has that capacity now is the one in Norfolk, VA. Recognizing that which port(s) will emerge as the major East Coast or Gulf Coat shipping hubs is on the line, the other ports are trying mightily to expand their ship handling capacities.”

The article points out that costs associated with needed infrastructure improvements are enormous. We all know from daily headlines that as a result of the Great Recession states are hurting are for cash and they have little hope of getting additional funds from the federal government. The article provides a rundown of projects currently on the drawing board:

Mississippi State Port Authority at Gulfport … is undergoing a $570 million expansion.

Port of New York/New Jersey: Has current $2.3 billion project under way to deepen its harbor to 50 feet, but to be able to handle the larger ships it must also raise the Bayonne Bridge that fronts the channel to the port. An additional $1.3 billion is required for that project.

Port of Mobile: Undergoing $600 million in upgrades, including a new container terminal and a turning basin for large ships.

“Port of Savannah: Midway through an eight-year, $500 million expansion that will nearly double its container capacity. Now it wants another $588 million to dredge 6 feet from the Savannah River along 35 miles between the ocean and the port.

Port of Charleston: Looking for $400,000 in federal money for a feasibility study by the Army Corps to determine if the port can be deepened from 45 to 50 feet. If the answer is Yes, hundreds of millions more would be required to complete the project.

Port of New Orleans: Has plans for a $250 million expansion, but has invested only $33 million of that itself. Looking to the Federal Government or private investors for the remainder.

Port of Miami: Has received Federal permission to dredge and deepen its port, but needs $75 million to start the project’s first phase.”

The article underscores the fact that Federal dollars (once available as discretionary funds or through earmarking) are simply no longer easy to obtain — and you can bet that West Coast politicians aren’t going to help East Coast ports get the money. The article concludes, “There is a lot at stake for all of these ports, and whether the states even in their generally dismal financial conditions will step in if the Federal support isn’t coming through to help secure [their] shot [as] a major hub status remains to be seen.”

The U.S. is not the only place where ports are competing for business. Ports in southern Europe are arguing that they are more cost effective than their better known and more widely used counterparts in the north [“Head south for greener port performance, says university,” by Damian Brett, IFW, 28 February 2011]. Japan, which restricts cargo handling to an eight-hour day, is examining the possibility of extending port hours to increase port volume and efficiency [“Extending port hours ups volume,” The Daily Yomiuri, 28 February 2011]. The Philippines is trying to transform Subic Bay into an international shipping hub [“SBMA moves to transform port into int’l service, logistics center,” by Jonas Reyes, Manila Bulletin, 28 February 2011]. And India is planning on making Chennai a major shipping hub [“Chennai Port to Become Major Transhipment Hub,” Dredging Today, 28 February 2011]. All of this activity confirms that most people involved in the shipping industry see a fairly bright future. We’ll just have to wait and see if ports are going to be ready to receive the big ships that are on the way.