Executive Overview: East Coast Ports

October 1, 2007
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U.S. exports usually don’t get much recognition vis-à-vis imports, unless you’re talking about certain sectors such as airplanes or farm goods. But this year, they’ve been the darling of East Coast seaports, many of who have seen a healthy rise in eastbound trans-Atlantic volumes, which is helping to offset a ton of overcapacity in the trade lane.

 Last year, five ocean carriers-Zim, CMA CGM, China Shipping, and Evergreen’s Hatsu and Italia Marittima brands-launched new services in the trans-Atlantic that contributed to overcapacity in the trade lane. Fortunately, a decision earlier this year by Norasia to discontinue their service in the trans-Atlantic coupled by Maersk Line’s scale-down of capacity helped restore some balance.  

The weak U.S. dollar and strong European economies have really begun to drive export growth, and likewise, eastbound trade volumes on the trans-Atlantic. Specifically, in Western Europe, U.S. exports of low-value commodities like paper, wood products, and certain chemicals are boosting volumes, while in Eastern Europe demand is growing for American-made machinery, construction equipment, and automobiles. Overall, the euro zone is expected to grow by close to 3 percent this year and 6 percent in 2008. Emerging European countries are likely to expand by 6.4 percent this year and 6 percent in 2008.

In another sign of shifting trade flows, Maher Terminals announced in August that it was suspending its Saturday gate operations at its New Jersey terminal because of underutilization. Although Maher had hoped to have 500 deliveries per Saturday shift, the average only amounted to 156. “It is not practical to sustain the Saturday gates with this level of activity,” the company stated. However, Maher, which handles about half the containers moving through the ports of New York-New Jersey (www.panynj.gov), said it would continue to operate its extended gate hours on weeknights.

Furthermore, China Shipping Container Line (www.chinashippingna.com) has disbanded its ‘round-the-world service to the East Coast, which included calls at Halifax, New York-New Jersey, Norfolk, Savannah, and Miami. However, the carrier is preparing to initiate another all-water service to the East Coast.

Despite the current market conditions, the larger picture is decidedly upbeat, say maritime executives. And, the ongoing expansion at major East Coast ports means future trade volumes-both imports and exports-are heading much higher.

 



The Suez solution

Although many ocean carriers have seen increased bookings for all-water service from Asia to the U.S. via the Panama Canal, the Asia-U.S. routes via the Suez Canal have been getting more popular, in big part because of the pending labor negotiations on the West Coast.

Shippers are making sure their supply chains are diversified in advance of next year’s contract talks so as to avoid the meltdown that occurred during labor negotiations in 2002. In fact, the East Coast all-water market could even feel a pinch due to many shippers’ contingency plans.

According to the Trans-Pacific Stabilization Agreement (TSA), “It is also likely that many shippers, especially larger accounts, will advance some of their cargo to earlier ship dates via all coasts, potentially contributing to a spike in volumes in advance of the expiration of the current union contract between waterfront employers” and the International Longshore and Warehouse Union, the ocean carriers’ group stated.

Pier 1 Imports is one example of a major shipper that’s making more use of the Suez Canal. Although the transit time is a little longer from Asia to the U.S. via the Suez Canal, the rates are lower than having to transit the Panama Canal or rely on mini-landbridge to the East Coast. In addition, it makes sense for many big retailers with distribution centers on the East Coast, like Pier 1, which has DCs in Chicago and Columbus, to lock in favorable rates now, before competition heats up or labor negotiations break down. An executive with Virginia Port Authority (www.vaports.com) explains that big retailers can live with the longer transit time (typically one week more) and can build it into their supply chain schedules. Their chief concern is schedule reliability, not fast transit time, he says.

The Georgia Ports Authority’s (www.gaports.com) director of trade development concurs that the Suez Canal will continue to get more attention. He estimated in a recent interview that over 350,000 TEUs from Southeast Asia, which are currently moving through Hong Kong or Busan to the U.S., could eventually be shipped through the Suez Canal to the East Coast. Further, he said that only cargo originating in North China would eventually move through the Panama Canal to the East Coast, and that cargo from Southeast Asia and maybe even South China would move predominately through the Suez Canal.  

“There just isn’t room canal-capacity-wise or ship-capacity-wise to take it through the Panama Canal any more,” he remarked.

Meanwhile, the Port of Savannah has reached a new record for the number of containers handled and total tonnage, reports Georgia Ports Authority. In fiscal 2007, the port handled 2.338 million TEUs, an increase of 14.5 percent over the previous fiscal year. The Port of Brunswick also experienced significant gains, particularly in bulk commodities. “We are on track to triple our container capacity at the Port of Savannah and more than double the number of automobiles handled at the Port of Brunswick due to ongoing expansion programs,” said Stephen S. Green, chairman of the Georgia Ports Authority’s board of directors.

The Port of Savannah has become the second-busiest container port on the East Coast and fourth in the U.S.

In August, APL (www.apl.com) launched its new weekly Suez Express service from South Asia. The service boasts the industry’s fastest transit times from Asia to the U.S. East Coast via the Suez Canal.  

According to Bob Sappio, APL’s senior vice president, “As container volumes grow and the transport system becomes overburdened, shippers are finding it harder and harder to eliminate variability from their supply chains. The Suez Express will replace variability with dependability.”  

The service includes calls in Singapore; Colombo, Sri Lanka; New York-New Jersey; Charleston; Savannah; Norfolk; Jebel Ali, UAE; and Port Kelang, Malaysia.

While increasing activity through the Suez Canal will continue to fuel growth at East Coast seaports, the non-stop rise in U.S. imports coming through the West Coast combined with all-water service to the East Coast means East Coast seaports have plenty on their plates.

Last month, APM Terminals held a formal opening at its new $450 million facility in Portsmouth, Virginia. The deep-water terminal will double cargo handling capacity at Hampton Roads, which moved just over 2 million TEUs in 2006. It also has some of the most advanced technology of any port in the U.S.-rail-mounted gantry cranes for stacking and unstacking containers that will be entirely remote controlled.

The port claimed another milestone recently with Virginia International Terminal’s switch to ultra-low-sulfur diesel fuel three years ahead of a federal mandate requiring the use of the cleaner-burning fuel. The general manager of Virginia International Terminals, a private terminal operating company of the Virginia Port Authority, said he expected the benefits to outweigh the costs, even though the fuel costs more per gallon.  

Milestones are being reached elsewhere along the East Coast, including the Port of Baltimore (http://www.mpa.state.md.us), which achieved a new high ($37 billion) last year for the total value of cargo moving through the port. General cargo also set a new record at the port. Equally important, the Port of Baltimore was one of the first U.S. ports to receive radiation equipment to screen cargo containers, and this year, 100 percent of imported containers will be checked for radioactive and nuclear materials before exiting the port.

The Port of Baltimore exemplifies the importance of exports to the U.S. economy and to the vitality of East Coast seaports. Earlier this year, the Maryland Port Administration received the Presidential “E” Award for excellence in exporting for increasing its export business over the past several years.  

“From 2002 through 2006, general cargo exported from the port’s public marine terminals grew by 42 percent. Some specific export categories increased over 100 percent,” said Maryland Secretary of Transportation John D. Porcari.  

Although softening trade volumes are being felt at the Port of Charleston (www.port-of-charleston.com), officials there are gearing up for long-term growth. Plans for a new 280-acre, 1.4 million TEU container terminal are moving forward now that a state administrative law judge has dismissed an environmental group’s challenge to the project. In addition, the port has hired a sale representative in India to help develop more business for the port. Already, the Port of Charleston’s trade with India has grown five-fold since 1999, making India the port’s third-largest trading partner.  

“India is a major market for the Port of Charleston,” noted Bernard S. Groseclose, Jr., president and CEO of the port. “Charleston enjoys a dominant market share in this trade and our action to retain a sales representative in India shows our commitment.”

Mediterranean Shipping Company (www.mscgva.ch), meanwhile, has chosen Charleston as the site of its South Atlantic headquarters, which in addition to Charleston will oversee MSC operations in Savannah and Jacksonville.  

“MSC has grown exponentially in recent years and will continue to grow as we add new generation mega-containerships,” said Sergio Fedelini, a vice president with the world’s second-largest box carrier. “We looked at many locations, but we couldn’t find any better alternative than the Charleston region.”

Without a doubt, the consensus among shippers and carriers is that while there’s been some softening in the market along with shifts in trade patterns, the time is now to prepare for overall growth in the market.

Three of the four members of the Grand Alliance-Hapag-Lloyd, NYK Line, and OOCL-have launched two new all-water services to the East Coast by way of the Panama Canal. Both routes originated in China and call the ports of New York-New Jersey, Norfolk, and Savannah.

In Florida, the Port of Jacksonville (www.jaxport.com) has signed an agreement with The Tower Group for construction on phase two of the new TraPac Container Terminal at Dames Point. The second phase of construction is expected to begin in October. The Tower Group is responsible for construction of 11 buildings at the new terminal, including an administration building, maintenance and repair facilities, a U.S. Customs examination station, entrance and exit structures and labor facilities. The Tower Group will also pave the adjacent 17 acres around the buildings and build TraPac Way, the facility’s entrance from New Berlin Road. The terminal is scheduled to open some time next year with the first call of a MOL vessel from Asia.

In addition, it was announced this summer that First Industrial Realty Trust has acquired a 537-acre land site in Palm Beach County for an inland port. The inland port is served by rail and will provide customers efficient access to air- and seaports, Interstate 95, and the Florida Turnpike, especially with the recently completed turnpike interchange for the Beeline Highway.

“The acquisition of this 537-acre parcel in Southern Florida, the largest land acquisition in our company’s history, reflects our strategy to invest in markets with growing populations and increasing supply chain needs from rising international trade,” said Mike Brennan, president and CEO of First Industrial. “The South Florida market is particularly attractive for industrial development due to its growing economy, increasing port activity, high occupancy rates, and excellent distribution workforce.”

The Ports of Miami, Everglades and Palm Beach are all projected to increase cargo activity and the Port of Palm Beach will be undergoing an extensive expansion program to address rising import and export volumes. In addition, nearby highway expansion projects will facilitate even greater transport flexibility to and from the park. wt

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