Ports

The East Coast Port Alternatives, June 2005

June 1, 2005
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Problems beget opportunities. For the East Coast maritime sector, the West Coast congestion that is driving shippers crazy affords an opening to exploit. That's why East Coast ports are enthusiastically contemplating big-scale improvements to provide a viable alternative for shippers seeking to avoid the persistent congestion that delayed many inbound Asian shipments transiting Southern California ports during much of last year's peak season.

We're already seeing a pickup in East Coast business from shippers eager to avoid, or at least minimize, these persistent, costly snafus. If this is to be more than short-term opportunistic gains and rather a substantive 'sea change' in America-bound shipping routes, the challenge facing the East Coast facilities is demonstrating they are sufficiently flexible, agile and economical alternative all-water service from Asia to make up for the extra transit time required and limitations imposed by the Panama Canal.

Primary beneficiaries of all-water service to date are major ports on the eastern seaboard, specifically Savannah, Charleston, Norfolk and New York. Smaller ones, such as Jacksonville, continue to cater to a specific niche while contemplating potential expansion. "East Coast ports are filling up with all-water traffic. That change is well underway," says James White, former executive director, Port of Baltimore. "I think East Coast ports, as time goes on, will get a larger share of Asian cargo."

If so, these incremental shipments will be a welcome infusion indeed. Prior to the high profile back-ups off the Port of Long Beach, maritime traffic to the East Coast-primarily import shipments from Europe-has been largely stagnant. While East Coast ports will always be tied to the traditional European trade lanes, the vivid memories of fully-loaded containerships sitting idle in anchorage at Los Angeles-Long Beach are prompting shippers to rethink traditional routes. Delivery delays from the West Coast last year in peak season were averaging five to seven days with bottlenecks at port exacerbated by railroad under-capacity. The net result: the preferred mini-land bridge routings (from West Coast ports to the eastern U.S. by train) are being called into question.

The most vulnerable and highly prized inbound Asian cargo is medium- to high-value imports ultimately destined for coastal and inland points in the east and lower Ohio Valley. Relying exclusively on West Coast originations for these shipments is a risky proposition.

"Big shippers (ultimately) will have a presence on both coasts" to process or store inbound shipments, says Brent Dibner, president of Dibner Maritime Associates LLC in Chestnut Hill, Massachusetts. Congestion delays mean it's no longer practical for shippers to operate a single, national inbound gateway near Los Angeles-Long Beach (the entry point for 40 percent of the nation's import containers), he says.

What will this mean to shipping routes? According to Dibner, as many as 10 to 12 additional East and Gulf coast ports over time may also attract some new, all-water traffic migrating from the West Coast. Even if West Coast ports manage to improve performance, increased demand for all-water service will continue to grow significantly, stretching capacity to the limits (a 10-12 percent increase in container traffic across the Pacific is expected in 2005). Despite capacity limitations, all-water capacity this year to the East Coast is expected to grow faster than traditional, direct Asia to West Coast ports.

"Thinking of these delays as temporary would be the wrong view," said Keith Hitchcock, Director, Global Ocean Fleet Services for United Parcel Service. Correspondingly, UPS is a major buyer of bulk space for customers using all trade lanes,

All-water service to the East Coast competes with traditional, but recently less reliable mini-land bridge (doublestack trains) transit that offers little flexibility should shipments be delayed.

East Coast ports officials are anticipating a dramatic, medium-term growth in related traffic once larger ships ply the route. The process has already begun. For the first time in 2003, all-water Asia-originated cargo overtook European shipments as the primary source of inbound cargo for ports in New York (which handled about 4.4 million TEUs, or 20-foot equivalent unit containers) and Virginia (1.8 million TEUs). Moreover, Asian cargo could account for half of New York's container traffic by 2010, up from 41 percent in 2003 and 34 percent in 2002, says Peter Zantal, the New York Port Authority's general manager, sales and marketing. "The wave, which has been building for a while, grew a little faster than we thought it would," he admitted recently. Thus far, Savannah has been the biggest winner-in percentage terms-in attracting all-water cargo. It was the first to target that traffic.

To win incremental business, East Coast ports are promoting their advantages to both shippers and carriers. All-water service is decided by trade-offs: slower transit because of the longer routing is weighed against the high probability that the cargo will arrive on schedule and cost less to transport. However, the time advantage may be tilting more eastward than before. During last year's peak season, door-to-door service to some U.S. locations was quicker via all-water service than through congested West Coast ports.

Typical all-water service from Asia to the East Coast takes about four to seven days longer than an expedited direct ocean service via mini-land bridge connection, says Tom Capozzi, senior managing director, marketing, for the Port of Virginia. All-water carriers recently have reduced the gap by introducing more efficient ships, cruising at 25 knots, up from 16 knots made by older vessels.

The upside of longer time in transit is lower transit charges, about $300 to $600 per box. "Lower price is one of our big selling points," says Savannah's Morris. But the real inducement for most shippers is greater reliability. That's what makes East Coast service a preferred option or viable alternative, says UPS's Hitchcok, especially if goods are destined for flexible consignees who can't tolerate unpredictable delays. The Port of Virginia's Capozzi agrees: "We are selling transit time integrity."

Sure enough, all-water service shippers are starting to deploy redesigned supply chains so they can process imports through a second gateway on the East Coast. Consignees' established facilities near West Coast ports should continue processing inbound containers destined for locations west of the Rocky Mountains, but, "It's a good idea to start thinking about (using) an additional one," says Hal Diterle, vice president, ocean trade for DHL Danzas Worldwide (which buys significant trans-Pacific capacity).

"It's good to have a balanced transportation network," counsels Virginia Ports' Capozzi.

Such a network means consignees must be able to expand or settle into new distribution centers and quickly schedule alternative routings when necessary. Some of the nation's biggest and most innovative shippers (like Wal-Mart and Target) started hedging their transportation bets five years ago by establishing East Coast storage and distribution operations (flexibility is particularly important for Wal-Mart because about 90 percent of the items it sells, and virtually all the low-cost ones, travel to the U.S. in ocean-going containers loaded at Chinese factories). Real estate distribution investments came after port authorities in Georgia, South Carolina and Virginia heavily promoted readily available, low-cost real estate.

Other positives for the East Coast include the recently approved six-year master agreement with the International Longshoremen's Association (the fall 2002 lockout of West Coast dock workers "really woke up everybody," according to Tom Capozzi).

In response to the recent surge in demand for all-water service from Asia, several major ocean carriers this year plan to increase capacity by adding a modest number of medium-sized vessels to the route. Carriers say they're still on schedule to deliver on plans to redeploy or rotate in larger, medium-sized ships from the Pacific to all water service in 2006 or 2007, thereby increasing all-water containership capacity. "The new vessels will open up a lot of new capacity that's coming to the East Coast" predicts Savannah's Morris.

Who the players are
Port of Savannah (www.gaports.com)

Attract shippers and the carriers will follow. That's been the successful strategy pursued by the well-managed Port of Savannah. At first glance, Savannah's distance from major markets and its original reputation for handling breakbulk timber exports make it an unlikely candidate for what it has become the fastest growing East Coast port.

Container traffic increased by 32 percent two years ago and continues at a more moderate rate. The port, which gets 15 weekly all-water calls, last year handled about 1.65 million TEUs and projects a 5.5 percent increase in 2005.

These days Savannah bills itself as America's 'Retail Port' in light of its prominence as the receiving point for major retail shipments. "We essentially went after the big retailers," says Robert Morris, a spokesman for the Port of Savannah. "To do this, distribution centers and supply centers had to come first."

Early on, Savannah heavily promoted to big box retailers the readily available, low-cost real estate-with easy access to the port, interstate highways and railroads-for distribution centers to serve the fast-growing southeast. It also stressed that there was lots of non-union workers available to staff those facilities. Wal-Mart and Pier One, which recently announced plans to expand Savannah-area operations, were among the first to put down roots. Others that followed include Bass Pro Shops, Bombay Co. and Target.

Savannah offers the shortest transit to and from Asia, via all-water service, among competing East Coast ports. Given its southern location, Savannah is the first inbound port call or the last outbound one on all-water Asian routes.

Shippers appreciate Savannah's generally congestion-free interstate highways that translate into low ground transportation costs for local shipments. Drivers can make eight to ten trips each day with containers between the port and nearby warehouses-several times more than at bigger, competing ports.

Availability of all-water service is the primary reason that Evergreen Hardwoods of Seattle imports wood panels destined for southeastern customers via Savannah, where it has a warehouse. The company-which provides hardwood veneers, panels and whole logs primarily to furniture makers-originally imported all of its Asia-originated shipments through West Coast ports.

Officials also say that using the port's new intermodal container transfer facility cuts dwell time for transiting containers. The upshot: railroads offer expedited overnight service to Atlanta, and two- to four-day transit to such inland destinations as Memphis and Chicago.

By 2011, officials expect to have completed the deepening of Savannah's 42-foot channel to 48 feet, so it can handle even larger container ships. "We think capacity for all-water service will increase significantly and we are prepared for it. Bring it on," Morris says. To handle additional traffic, Savannah now is spending $100 million to add berths and cranes. Within about a year, it will have four new large-capacity cranes: two are installed and two are on order. Storage capacity at a newly paved Garden City Terminal lot was recently increased with long-terms plans to boost Garden City's throughput capacity to 4.35 million TEUs by 2014, up from the current 2.5 million.

Port Authority of New York and New Jersey (www.panynj.gov)

No East Coast port is working harder than New York to accommodate the surge in new traffic, much of it coming via all-water route from the West Coast. New York is investing massive amounts of cash to reduce delays for both carriers and shippers. The goal: accommodate bigger ships and the large amount of cargo they carry to stimulate growth.

New York's lure is simple. It's the closest port of entry to major East Coast consumer markets and a viable gateway to a portion of the mid-Atlantic and Midwest markets. In addition, cargo transiting its wharves can reach almost one-third of the population within 24 hours.

All-water Asia-originated cargo overtook European shipments as the primary source of inbound cargo in New York two years ago and could account for half of the container traffic by 2010 (up from 41 percent in 2003). New York currently has 21 weekly all-water service calls, with six coming via the Suez Canal.

Last year, New York handled about 4.4 million TEUs-a 10 percent increase from the prior year. It is working hard to ensure similar gains. The Port Authority of New York and New Jersey and operators of four marine terminals there will spend a total of $1 billion as part of a half-way completed five-year capital expansion project to double capacity by 2007. This includes new cranes, better rail facilities and new and enlarged wharves.

Dwarfing even this massive investment is the ongoing $2.25 billion project to deepen the harbor to accommodate the next generation of ships with a 50-foot draft, many of which will be used in lucrative trans-Pacific service beginning in 2006 and 2007. The project, the cost of which is being split by the Port Authority of New York and New Jersey and the Army Corps of Engineers, will continue round-the-clock for at least a decade. Begun more than four years ago, the effort has deepened the channel to about 45-feet deep.

The Port Authority is undertaking a $600 million ExpressRail project to build or expand on-dock and near-dock rail terminals. The goal is to triple to 750,000 by 2008 the number of containers carried annually by rail to and from the port to relieve local road congestion.

Virginia Port Authority (www.vaports.com)

The Virginia Port Authority, as well as private concerns, is expanding capacity to meet increased demand for terminal space generated, in large measure, by new inbound Asia container traffic, says Tom Capozzi, the port's senior marketing executive. Norfolk's all-water Asian traffic increased 9.9 percent in 2004, following gains of 14.5 percent and 10.3 percent respectively in 2002 and 2003. Increases this year are predicted in the 15 to 18 percent range.

MaerskSealand has budgeted a total of $450 million for a new terminal on 250 acres of port authority property in nearby Portsmouth, Virginia, the first major privately developed terminal in the United States. When Maersk moves into the new facility late in the decade, the port authority will inherit its vacated 300,000 TEU capacity facility.

Competing head-to-head with New York for these fast-growth new shipments destined for the mid-Atlantic and Midwest states, the Port of Virginia has the advantage of being served by the deepest ice-free channels on the East Coast. When the harbor is dredged to a 50-foot depth by this fall, Norfolk will be the first East Coast port able to accommodate a fully loaded 8,000-TEU ship.

The Virginia ports have had success luring some major retailers to establish nearby regional distribution centers. In the recent past, some 13 million square feet of new warehousing space has been added to service the mass marketers who account for 40 percent of containerized imports at the Port. Wal-Mart, for example, now is expanding by 50 percent its 2-million-square-foot distribution center in James City County, Virginia, and soon will occupy a 225,000-square-foot, third-party cross-docking facility in Chesapeake, Virginia.

The port is spending $300 million during the next six years to increase by 30 percent Norfolk International Terminal South's storage and throughout capacity. To do so, it's adding eight new post-Panamax cranes and 70 straddle carriers that can quickly haul away containers from shipside. When the NIT South renovation is complete it will be home to eight of the largest cranes in the world and the wharf will be a state-of-the-art facility capable of handling the heaviest cargo in the world. "NIT South will be the most modern marine terminal in the United States," predicts Linda Ford, Director, Port Promotion.

Port of Jacksonville (www.jaxport.com)

'Think Port of Jacksonville, think Puerto Rico' is the perception that the Port of Jacksonville, or JAXPORT, officials are trying to change. Not that they don't value the port's large, bedrock Puerto Rico business-they just want to attract traffic to and from other markets in Latin American, the Caribbean and Europe. "We are slowly starting to find our way more broadly into South America and Europe," says Robert Peek, port spokesman.

Served by three railroads-CSX, Florida East Coast and Norfolk Southern-and three major interstate highways, JAXPORT is also is working hard to expand its moderate automobile and break bulk cargo traffic and host its first all-water service from Asia.

But JAXPORT still thrives as the main hub for Puerto Rico for operators such as Horizon Lines, Crowley and TrailerBridge.

Last year, Jacksonville handled 727,660 containers, up about 5 percent from the year prior. About 70 percent of those containers traveled to and from the predominant Puerto Rico shipping lane.

JAXPORT, like its competitors, has spent liberally to upgrade container handling and breakbulk facilities. It's also pushing to deepen the St. John's River to 41 feet from the current 38 near its breakbulk terminal. Dredging the entire river to a depth of 45 feet is a long-term goal, Peek said.

Port of Baltimore (www.mpa.state.md.us)

Baltimore is a secondary player in the all-water Asian service sweepstakes, which is both good news and bad. 'Good' because Baltimore's Asian traffic is modest, compared with competing East Coast ports, largely due to the fact that it remains focused on handling two-way movements primarily between mid-Atlantic and European-based firms. That focus makes sense given that Mediterranean Shipping Co., with a 10-year contract to use the port, is Baltimore's largest customer. In addition to container traffic, the port also has 20-year auto contracts with Wallenius Wilhelmsen and Mercedes Benz, making it the second-largest East Coast operation handling this type of traffic.

And, the strategy is working. Baltimore last year processed a total of 528,935 TEUS, up 5.3 percent from the year prior.

The 'bad' news is that when measured against competing East Coast ports, Baltimore is at a logistical disadvantage, being 125 miles inland from the ocean, up the Chesapeake Bay, which means increased sailing times. In 2004, Baltimore reported only modest success attracting additional Asian-originated cargo. "Our increase was not significant," said James White, the port's former executive director.

However, increased inland sailing time also means that Baltimore is the closest inland port to the Midwest. Moreover, Interstate 95, the major East Coast artery, is within a five-minute drive from all port terminals. The port is serviced by two Class 1 railroads, CSX and Norfolk Southern, which can accommodate Baltimore's substantial breakbulk and project cargoes, especially steel shipments. "We are the most productive port in the US," claims White. "We have capacity. We turn ships quicker (than competitors)."

Baltimore, like its competitors, also is making substantial investments to attract additional cargo. It recently added 12 high-capacity rubber-tired gantry cranes at its Seagirt Marine Terminal. They speed container handling at two modern container terminals covering a combined 845 acres. Still under consideration, however, is a challenging plan to dredge the port's berths to 50 feet, the depth of the main channel, and an $80 to $90 million project.

South Carolina State Port Authority (www.port-of-charleston.com)

Last year, the South Carolina State Ports Authority (SPA) handled over 2500 ships and barges at its seaport terminals in Charleston, Georgetown and Port Royal. In the Port of Charleston, the SPA handled 1.86 million TEUs in 2004-a 10 percent gain over the previous year. Top commodities across Charleston docks include agricultural products, consumer goods, machinery, metals, vehicles, chemicals and clay products. Georgetown, a dedicated breakbulk and bulk facility, handled 1.03 million tons of cargo in 2004. Salt, cement, steel, aggregate and forest products are leading cargoes. Port Royal, meanwhile, specializes in breakbulk and bulk cargoes, principally cement and fertilizer.

The Port of Charleston is the busiest container port along the Southeast and Gulf coasts and ranks fourth nationally. On the entire East and Gulf coasts, only the Port Authority of New York & New Jersey handles more containers than Charleston. In addition, the Charleston Customs district ranks as the nation's sixth largest in dollar value of international shipments, with $39 billion annually.

The $150-million Charleston harbor-deepening project completed in May 2004 took the inner harbor channels to 45- feet at mean low water.

Sidebar: Breakbulk is big business for smaller, specialized ports

Breakbulk tends to be cyclical by its very nature, but the business has really felt some swings in recent years. More cargo has continued to move to containers, ship charter rates have climbed steadily, and the steel industry-a big breakbulk commodity-has fluctuated sharply.

Most in the industry are cautiously optimistic about the medium-term outlook, though. The antidumping tariffs placed on steel imports by the Bush administration in 2001 have been largely scaled back and steel imports are picking up. Exports of wood pulp and forest products are also making some gains. Another considerable piece of business is coming from the oil and gas industry, which will probably be substantial for a while.

Most major ports handle a significant volume of breakbulk, but the smaller, niche ports that specialize in breakbulk can certainly hold their own. Here are a few of the important niche ports on the East Coast that handle breakbulk cargoes:

Port Everglades (www.porteverglades.org)
Originally formed in 1911 to ship farmers' produce north and west from Fort Lauderdale, Port Everglades has since grown into a deepwater facility located approximately half a mile from the Atlantic shipping lane with a quick entry channel and a low-congestion design. In addition to a thriving cruise business, some 5800 ships annually call at Port Everglades, bearing waterborne commerce that approaches 24 million tons in liquid, dry bulk, breakbulk and containerized cargoes.

Port Canaveral (www.portcanaveral.org)
The central Florida port is focused on cruise ships and cargo, especially breakbulk cargo. The port's mainstays include cement, petroleum, aggregate, fresh produce and other perishables, frozen food, single-strength juice and juice concentrate, milled lumber, steel, newsprint, and special project cargoes. Shippers benefit from the port's smaller size, which lends to more personalized treatment and quicker response time to special requests.

Port of Providence (www.provport.com)
The big news at ProvPort, the deepwater port in Providence, Rhode Island, is the completion of a long awaited dredging project, deepening it so that three of the six berths are now available at 40 feet. With 105 acres of on-dock rail, open storage areas and covered warehouses, ProvPort is a fully licensed, bonded deep water port specializing in dry, liquid bulk, and breakbulk commodities. Among principal products moving through ProvPort are chemicals, heavy machinery, lumber, coal, scrap metal and steel products. China has historically been a main trading partner.

North Carolina State Ports Authority (www.ncports.com)
NC Ports, which includes the ports of Wilmington and Morehead City, plus inland terminals in Charlotte and Greensboro, continues to show strong growth in key commodities and recently received its first shipment from South America (forest products). Top trading partners are Brazil, China, Japan, Korea, Hong Kong, India, Venezuela, Canada, United Kingdom, Italy, and Scandinavia. Primary exports include chemicals, food, phosphate and general merchandise. Top imports include animal feeds, chemicals, fertilizers, metal products, lumber, rubber, steel, furniture and general merchandise.

Philadelphia Regional Port Authority (www.philaport.com)
Philadelphia and its international seaport maintain a preeminent position in several areas of trade, such as the importing of perishable cargoes from South America and high-quality paper products from Scandinavia. In October 2002, the ports was named the nation's 14th Strategic Military Port by the U.S. Defense Department, making it one of only 14 U.S. ports permitted to handle U.S. military cargoes destined for different points around the globe.

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