The widening of the Panama Canal's locks has ports and shippers alike strategizing for the inevitable impact on their supply chains.

Have you ever stopped to wonder how often in your life you’ve been cautioned or asked to be ready for something?

As a child, you were asked whether you were ready for school and even your scout troop encouraged you to always “be prepared.”

Later, as life and its demands grew more complicated, getting ready, being ready, or exclaiming, “I’m not ready!” were almost a second occupation.

Even Hamlet said, “The readiness is all.”

But it’s likely there are very few places where readiness-and the anxiety that accompanies it-is more prevalent today than in the minds and offices of port officials overseeing expansion.

After a pause brought on by the global economic meltdown, the operative phrase in the industry once again is, “Are you ‘big ship’ ready?” And, tens of millions of dollars are being spent every day across the U.S. to answer that question in the affirmative.

For each of the ports whose activities are profiled below, the desire to grow with an eye to the future is born of the intersection of three factors: the improved economy, the ongoing Panama Canal expansion, and the return of big ship mania that received a huge boost in February with Maersk Line’s $1.8 billion order for ten 18,000 TEU ships.

Their goal is market share, and the fear, as always, is of losing it to the other guy.




 

An innovative leasing deal at the Port of Virginia

Five years ago, long before anyone had the slightest inkling of the economic crisis to come, the A.P. Moller-Maersk Group opened a $500 million private terminal in Portsmouth, Virginia that was widely perceived as being a game changer.

Then, just as the teeth of the crisis were digging in, and after a year of negotiations, the Virginia Port Authority took on a long-term lease to operate that terminal.

“I guess you can say it was one of those reverse public-private transactions,” says Russell J. Held, Deputy Executive Director, Development, Virginia Port Authority.

“We don’t know anywhere else where a private company came in, put up the infrastructure and then had the public entity take over the lease, but that’s just what we did,” Held says, his voice carrying with it a mixture of pride and exuberance.

The deal, which placed the facility in the hands of Virginia International Terminals, the VPA’s operating arm, illustrates a surprising penchant for innovation as well as ambition.

“Growth and development in Virginia isn’t a matter of anticipating some new trend,” Held says. “We’re all about being ready now…(and) the only way to be in that position is to work and grow steadily over time.

“When we say we’re ready, we’re also saying that it’s a result of what we’ve been doing all along,” he adds.

The VPA took over the APM lease in July 2010, and immediately began the process of moving its existing operations from its aging Portsmouth Marine Terminal, to what Held describes as “the most efficient, modern terminal, certainly in North America and probably in the world.”

The move was completed a full two months ahead of the VPA’s April 1, 2011 target date.

But if the APM lease was a recent bonanza, the Virginia Ports Authority’s efforts to solidify its position as an East Coast maritime powerhouse actually started eight years earlier, when it began a $600 million renovation of its biggest facility, the Norfolk International Terminal (NIT).

Early on, the decision was made to purchase cranes with a reach of 26 rows across a container ship. Even now, nearly a decade later, the biggest container vessels on the water are only 22 rows across.

“As a result of that decision, when a (company such as) Maersk announces that it has ordered these 18,000 TEU ships, we can take them,” Held says.

“Of course, I don’t know how wide they are, but they are not more than 26 rows across, I can guarantee you that, and they are not going deeper than 50 or 55 feet, or else they won’t have anywhere in the world to go,” he says.

“Best of all, thanks to the lease agreement, we don’t have one facility to serve them but two-NIT south or APM,” he notes.

To Held, good fortune is a by-product of taking the long view.

“Without that, I don’t know that we’d be in a position to handle these developments on the water side,” he acknowleges.

In the meantime, the port authority has also seen significant developments on the land side, including the creation and opening last September of the Heartland Corridor, $150 million public-private partnership between the Norfolk Southern Railway, the Federal Highway Administration and three states to improve freight rail service between Norfolk, Virginia, and Chicago, Illinois and Columbus, Ohio.

In anticipation of the project, on-dock rail was included in the design of the APM terminal. The port authority is now in the second phase of expanding on-dock rail to NIT.


 

The Port of Baltimore eyes expanding consumer demand

Not surprisingly, given its central position on the eastern seaboard and what might be defined as the Philadelphia to Washington, D.C. corridor, the Port of Baltimore’s expansion efforts have been largely spurred by consumer demand.

“It’s a huge consumer market, and most of consumables that are brought here-the autos and containerized cargo-are consumed within a 200 mile radius of our port,” says Mike Miller, director of maritime commercial management for the Maryland Port Administration.

To better position itself to handle the new up-tick in container traffic, the Port Administration has entered into a public-private partnership with Ports America Chesapeake, which is now operating Baltimore’s Seagirt Marine Terminal.

As part of that deal, Ports America is developing a fourth berth at the terminal expressly to handle the new post-panamax vessels. The new facility, which is expected to be completed by 2014, will create 2,700 permanent jobs related to cargo handling, according to the Port Administration.

“A public-private partnership is good because most of your port facilities are funded, from a capital standpoint, by the state,” Miller says. “We draw our money from the transportation trust fund, which is part of the Maryland Department of Transportation, and as you know, most states are out of money.

“We knew that for Seagirt to continue to compete and be ready for the Panama Canal expansion, we needed to accommodate the larger vessels,” Miller remarks. “We did not have money to build the new berth and could not get appropriations from the state, so we decided, even though it was a down economy, to test the waters of a public-private partnership.”

Ports America Chesapeake has long had a presence in Maryland and both sides quickly saw the merits of working together. Particularly enticing to the authority was Ports America’s being owned by Highstar Capital, an independent and very stable infrastructure investment fund manager.

“As a result, we were able to get the berth built, built now, and with other people’s money, so to speak,” Miller says. “It’s a perfect arrangement.”

“They broke ground in March 2010, two months after they signed the deal with us, which is a 50-year lease and concession, and the berth is two years ahead of schedule, meaning it will come online in 2012, a full two years before the expanded canal opens.”




 

Gulfport uses Hurricane Katrina to jumpstart expansion

Of those port authorities that are expanding for the future, probably none is in as unique a position as the Mississippi State Port Authority, which saw its facilities flattened by Hurricane Katrina in 2005, and has since been engaged in a $570 million port restoration project.

“About 70 percent of our port was knocked out by Katrina,” says Don R. Allee, executive director and CEO of the Gulfport, Mississippi authority.

“But since the month after the storm, we’ve been very aggressively replacing and restoring our port, (as well as) planning for the future,” he says.

The port restoration funds were part of a $5 billion community development block grant the state of Mississippi received from the federal government in the aftermath of the hurricane. With it, the Mississippi State Port Authority has not only been able to get facilities up and running again, it’s actually allowed it to dramatically increase its footprint,  growing its capacity from about 250,000 TEUs a year to nearly a million TEUs a year.

 “The future that everybody talks about is growing our business, and that’s exactly what we’re striving to do,” Allee says. “In that respect, I think an expansion of that magnitude is a pretty bold statement to both the cargo community and the shipping community.”

Able to serve and hold onto long-time customers like Dole, Chiquita and Crowley Maritime after the storm, Gulfport has also held onto its position as the third busiest container port on the Gulf of Mexico, after Houston (number one) and New Orleans (number two).

To position itself to capture its share of the impending flow of cargo through the new wider locks at the Panama Canal, Allee says Mississippi’s port has to think like the shipper or owner of cargo.

“We’re not just a port, we’re a partnership,” he states.

“The other part of that is looking at who’s really doing what they said they are going to do,” Allee continues. “There are a lot of port improvement projects that are merely on paper and aren’t moving as aggressively as our projects, and I think the fact that we are backing up what we said we were going to do bodes well for us.

As bad-really bad-as Katrina was, Allee says the destructiveness of the hurricane’s storm surge has effectively allowed the port to work from a clean slate as it strives to position itself for the future.

“Many times, ports, when they have growth opportunities, it’s a good news/bad news situation,” he says. “They have to relocate a tenant, or interrupt a business stream to allow for demolition or construction.

“We, by comparison, literally had a clean slate: Our sheds were knocked out, seven of our 10 working docks were rendered useless, but we treat it as a ‘making lemonade out of lemons’ type of scenario,” he says. “Our carriers understood what happened and the attitude was, we survived Katrina, we can survive some operational abnormalities for a time.”




 

A prime position for the Port of Charleston

The Port of Charleston lays claim to the only new terminal permitted and under construction in the Southeast, a three-berth facility currently under development at the former Charleston Navy Base in North Charleston.

The new terminal will increase the port’s capacity by more than 50 percent and is anticipated to more than satisfy regional demand for years to come.

Originally permitted in 2007, development was delayed by a lawsuit filed by the South Carolina Coastal Conservation League, litigation that was settled last year. To date, the South Carolina State Ports Authority has spent a little over $100 million bringing the project to fruition.

“There are nothing but green lights ahead,” says Byron Miller, the ports authority’s long-time spokesman. “No more delays, no more lawsuits and development is well underway. We’re moving forward with the critical path projects.”

The most recent contract the ports authority has awarded is a multi-million dollar demolition contract, removing old barracks from the former military facility. The most recent completed project at the site was the $50 million development of a containment wall at the site.

“There’s no doubt that the great recession, or whatever you want to call it, caused a number of projects in the port sector to pause and be re-evaluated, and that adjusts demand,” Miller says. “Two thousand ten was a much better year than 2009 for ports-I don’t know how it could have been worse, frankly, and in our case, our container volume was up 17 percent in 2010 from 2009.”

The South Carolina State Ports Authority believes that the new terminal gives the Port of Charleston a tremendous advantage in the marketplace-the ability to add that capacity as it’s needed to support future growth. Phase one of the project is expected to be completed in 2018.

The port’s ten year capital plan is just shy of $1.3 billion, and of that, the new terminal is about half, with the rest being dedicated to improvements and enhancements of existing facilities.

“We have ample capacity at existing terminals and the ability to expand that,” Miller says. “For example, just recently, we moved to a single gate model, which has harmonized and simplified how cargo is processed through the interchange lanes at our terminals. That immediately added a 10 percent bump in capacity.

 “At the same time, we just recently signed a contract to acquire a new IT system, which again, will enhance efficiencies at our terminals,” he continues. “Not only will this allow us to provide better service to our customers, but it will allow us to handle even more cargo efficiently into the future.”

 Like many in the East Coast port community, Miller has long maintained that the Panama Canal expansion presents a golden opportunity to ports ready to seize it; recently, while still expressing optimism about the market’s prospects, he hastened to add that perhaps some have made more of the expansion than it deserves.

“The reason I say that is not that the canal expansion is not important, but we’re seeing the effects of the expansion already,” he explains. “Charleston has the deepest water in the Southeast, the deepest channels, and we’re already seeing ships that are too big to go through the Panama Canal. In fact, we’ve handled over 300 ships too big for the Panama Canal already, and that’s going to continue.

“So the ships are getting and will continue to get bigger and that means two things: One, the canal expansion will have and is already having an impact on cargo flows, and two, draft-meaning harbor depth-becomes the key issue,” Miller says.


 

The Port of Seattle enjoys healthy trade balance

The Port of Seattle has been undergoing expansion in one form or another for much of the past decade, the most significant being the reactivation, a year and a half ago, of Terminal 30, a cruise ship terminal that was converted back into a container facility because of demand.

 “That’s the most recent major project,” says Linda Styrk, the port’s managing director. “Then we had a multi-year project upgrading the docks at Terminal 18, which is our largest facility at about 200 acres, and what we have in terms of expandability right now is our Terminal 25 south; it’s probably the equivalent of about 16 acres that’s contiguous to Terminal 30, so that as demand grows for that terminal operator, they can access that additional acreage, and at our Terminal 5 facility we have something similar, which we call the option area, where there are about 15 acres additional into which they can expand.”

But for all that, most of the Port of Seattle’s future growth is going to be through densification of facilities. For instance, two of its terminals are all-wheeled operations, meaning everything gets landed on a chassis, so storage of containers is only one layer high throughout the terminal.

“So you can imagine if they changed their mode of operation to a stacked type environment, where they could stack containers five to eight high in the yard-you could multiply that density by those numbers,” Styrk says.

Seattle handled 2.1 million TEUs in 2010, and Styrk says she’s confident the port could handle 3 million TEUs within its current footprint, and perhaps as many as 4 million TEUs simply through the implementation of additional operational efficiencies.

“Beyond that there would need to be additional off-dock container facilities,” she says.

Among the factors driving growth in the Seattle market are carriers who have brought new services into the port-the most recent being Mediterranean Shipping Company (MSC), which began calling on the port in January.

This follows the entrance of Maersk into the market in 2009 in partnership with CMA CGM, this activity complementing the several alliance partnerships that have long operated in Seattle’s harbor.

“Last year our growth was 35 percent, year over year, and a lot of that was attributed to having multiple incremental port calls-68 in all, I think-to handle excess demand from Asia into the U.S.,” Styrk says.

“Basically, these were ocean carriers who had their regular weekly service here, but that wasn’t enough to satisfy the demand, so they actually added a vessel in the service, just to handle that extra volume,” she explains.

The majority of that surge in cargo was intermodal traffic-consumer goods, electronics and garments-which then moved from the port to Chicago and beyond.

“The other thing is, we all focus on the import a lot because that’s really the driving force on the deployment decisions by the carriers, but the good fortune that we have here in Washington state is we generate a lot of local exports, and there are also a lot of intermodal exports that come through our gateway,” Styrk says. “So when a carrier makes a choice to put in an inducement call like that, they know that they can always fill up the outbound portion of the voyage because there’s so much export demand here.”

Many of the exports moving through the Port of Seattle are perishable items, like apples, pears, potatoes, huge seafood activity related to the Alaska seafood market, hay and grain, wood products and aircraft parts moving to and from Boeing’s facility in Everett, Washington.

Not surprisingly, the Port of Seattle, being located on the Asia-facing side of the country, has a somewhat different view of the Panama Canal expansion than its colleagues and competitors on the East Coast of the U.S.

Mainly, this grows out of the fact that while the largest ships currently navigating the Panama Canal top out at about 4,400 TEUs, the Port of Seattle is already handling 10,000 TEU vessels.  Now that the ships are getting even bigger, with Maersk’s recent announcement that it has commissioned a 14,000 TEU vessel, the expectations in Seattle is that the biggest ships will call on it, and there will be a cascading of smaller ships 6,000 TEU to 8,000 TEUs to other ports.




 

Staying competitive at the Port of Los Angeles

After a five-year hiatus while it searched for and assessed locations to put spoil material, the Port of Los Angeles is in the final phase of a 13-year, $370 million main channel deepening project. The deepening is expected to wind up prior to the Panama Canal expansion’s opening in 2014.

According to Phillip Sanfield, spokesman for the Port of Los Angeles, the project is “kind of the lifeline to maintaining our competitive edge.”

“It keeps us ahead of the game during these critical years where we face competition on a number of fronts,” he says.

When the project is completed, the port will be at 53 feet at both the navigation channel and its berths.

Another $350 million is currently being spent on terminal expansion projects at China Shipping and TraPac (Trans Pacific Container Services, Inc.).  At TraPac, the work includes extending its wharves to 4,600 linear feet, deepening their water depths at several of their berths, installing more cranes, and building a new on-dock rail facility, among other things.

“That’s one of our major expansions,” Sanfield says.

At the port’s west basin, China Shipping is nearly doubling the size of its terminal to 142 acres.

The two projects combined will create 19,000 permanent, direct and non-direct jobs.

In addition, the port is developing a new liquid bulk terminal, its first new facility of this kind in decades, in the outer harbor. The terminal, to be operated by Pacific L.A. Marine Terminal LLC, is slated to have a capacity of 4 million barrels. PLMT is a subsidiary of Houston-based Plains All-American Pipeline.

The port is also working on a number of rail and roadway projects to enhance the efficiency between the port and the inland destinations for its cargo. Among these is a $125 million on-dock rail facility at the port’s west basin. Once completed, all of the container terminals at the port will have on-dock rail.

In the meantime, BNSF has proposed building a new near-dock rail facility, while the Union Pacific Railroad has proposed expanding its existing near-dock rail facility. Environmental impact assessments are expected for both proposals later this year.

“The way we view this is we are the nation’s premiere trade gateway today, and it’s not just the port, it’s the rail and the infrastructure and the Alameda Corridor and on and on,” Sanfield says. “And over the past couple of years, we’ve been spending more than $1 million a day to continue that-even during the economic downturn.

“Now, what’s driving port expansion? Well, to a degree it’s consumer demand and expected consumer demand in the future,” he explains. “But also, we were spending this money when things were dark, economically-speaking, in 2009 and the second half of 2008. We did not stop or slow the capital improvement budget, which over the next five years is at about $2.5 billion.

“So it’s really about staying competitive and staying at the top,” Sanfield says. “We understand that there’s a lot of competition out there and there are a lot of different ports in this country and that there are a lot of eyes on the cargo that moves through the LA/Long Beach area.

“As a result, both individually, as the Port of Los Angeles and the Port of Long Beach, and together, we are working on some infrastructure projects and lobbying for rail and other improvements that help both ports stay at the top,” he says.

In 2010, containerized volume at the Port of Los Angeles increased by 16 percent over 2009, allowing it to make up most, though not all of the volume it lost during the recession. This spring, China Shipping will throw a spotlight on its development efforts in Los Angeles by bringing in a 13,000 TEU vessel.

“That’ll be the largest ship that we’ve ever had here,” Sanfield says. “And while it’s not a regular call, it will illustrate that we can accommodate the larger vessels. We’ve got the room here logistically-not just the water depth, but the room at these berths-so we already have some of these larger ships coming in and with the completion of the main channel deepening, they’ll be able to call at any of our berths here.”

Ask five or seven different experts what the 2014 opening of a widened Panama Canal will mean to the Port of Los Angeles, and you’re likely to get five or seven distinct answers. When it comes to the port itself, its officials are taking any threat to its position as the nation’s largest gateway seriously.

“That’s why we’re working hard on every front not only to maintain, but to grow our business,” Sanfield stresses.

About half the cargo that comes through the Port of Los Angeles stays in the western U.S., while the other half is discretionary cargo that moves from L.A. to points throughout the U.S.-Chicago, Dallas, St. Louis and points east-by virtue of the Port of Long Angeles having intermodal access to 14 major freight hubs and the nation’s largest on-dock rail assets.

The latter is the cargo that’s generally considered in play when it comes to the Panama Canal.

“That is why it is so critical for our infrastructure to be top notch, not only today, but a year, two or three years from now,” Sanfield says. wt

 

Contributing writer Dan McCue lives in Charleston, SC, where he writes on global trade, foreign direct investment, and port-related issues.