Two years ago, booming trade backed up major ports around the world-not just Los Angeles/Long Beach, but in Rotterdam, England and elsewhere. By all accounts the situation has eased. But, all the experts agree that, while the problems in Europe are being addressed, congestion in U.S. ports is anything but solved. To be sure, there is some division of opinion: some say things will get worse before they get better; others say they will just get worse.

That 'worse' could happen sooner rather than later.

One U.S. railway official suggests that last year's easing of congestion was misleading. “Quite honestly,” he says, “what happened after 2004 is that many steamship lines pulled their services out of southern California, moving them further north. That took the pressure off.” Those lines, he adds, are coming back: “In 2006 and 2007, potentially, you're going to see the same types of problems you had in 2004, if not worse.”

The longer term is no more cheerful. One industry analyst, John Vickerman of Transystems, argues that three-quarters of major U.S. ports his group studied will suffer “significant capacity problems” by 2010.

And, America's congestion is not just a problem for America. Lim Hyun-churl, First Secretary, Maritime Affairs and Fisheries, at the Korean Embassy in Washington D.C., said, “We are very concerned about this. The ships of large companies are very punctual in their calls-they go to Los Angeles, to Kobe, to Busan to Dubai. If the ship is grounded in Long Beach, the total schedule is messed up.”

There is an ocean-full of container traffic heading every which-way. By one estimate, the 85 million containers shipped in 2004 will grow to 243 million in 2024, nearly triple today's volume. The question is: how can that cargo and those ships be prevented from snarling U.S. ports?

Washington D.C. attorney Jonathan Benner, a specialist in maritime matters, offers a weary metaphor: “Despite the fact that we are the largest maritime trading country in the world, we're doing second-, third-, or fourth-rate job of keeping up with the world conditions affecting terminals and waterways.”

By most measures, U.S. ports are notably less productive than their Asian or European counterparts. One source reports that Asian ports now handle 18,500 TEUs annually, per acre of port facility, compared to 6,800 in Europe and 3,900 in the United States. To be sure, there are those who take issue with magnitude of discrepancy, pointing out that that the volume in Asian ports reflects their heavy engagement in trans-shipments. A container that gets unloaded from one ship and soon thereafter loaded onto another, in effect, counts twice.

Even with these qualifications, however, the fundamental truth is incontestable that a clear productivity gap exists.

The reasons are many

Ports are not only avenues of trade; they are intersections for jurisdictions. Are ports a local issue, a private issue, a business issue, or a federal issue because of the federal government's dominant role in interstate commerce? The correct answer is 'all of the above.'

Should the customer carry the costs of renewal and expansion, or the shipper, or the port operator, or the federal government because ports are part of national infrastructure? Again, there is no simple answer.

Jonathan Benner comments, “Those questions are not clearly answered anywhere in the law or in experience in the United States; it has always been a mix. There is always a lot of tugging and pulling around port development.”

In this respect, the U.S. may be at a disadvantage to nations that do more to orchestrate economic development. Theodore Prince, Sr., of Optimization Alternatives Ltd., a Texas company specializing in terminal operating software, says: “Look at China. They decided they needed to build a rail yard in Shanghai, and five months later 1,500 acres are ready-with integration to the port, rail and highway network. That just doesn't happen here.”

In terms of specific issues impeding U.S. port development, one set of problems is broadly financial, another broadly political:

Lack of investment capital. When the topic is port improvements, the numbers that get bandied around are huge. A port is a bundle of things-the waterway itself, the terminals and the rail lines and highways running inland. None of this comes cheap. Theodore Prince suggests that over the next twenty years, $5 to $10 billion of investment is needed in rail, and another $15 billion for highways-just at Los Angeles/Long Beach.

Few expect such sums will be forthcoming. Rob Quartel, former member of the U.S. Maritime Commission who now heads FreightDesk Technologies, said, “I think the ports are going to find that they can't get the money they think they need to do the expansion they think they need from public agencies.”

The best source of funds, Quartel added-and others agree-would be the world's major private port operators: “Foreign capital is best because these people operate a lot of facilities and enjoy economies of scale.” Foreign investment could bring value of a second kind: experience.

Efficiency, Quartel stated, “is strongly related to the experience of the company-use of software, ability to bring in security, handle re-supply, to know what's coming and going.” But such capital might not be available in great amounts. U.S. terminals often bring a lower return on investment than non-U.S. facilities, something known even before the termination of the Dubai Ports World deal arguably cooled foreign capital's interest in investing here.

Lack of political influence. The U.S. maritime industry, Jonathan Benner says, is “invisible“ in terms of political clout.

In part, this reflects the negligible level of U.S. commercial shipbuilding and the dearth of U.S.-owned major carriers-phantom industries carry little weight on Capitol Hill. Following from this, Bennett points out, the level of maritime expertise in Congress is limited. The number of members of Congress or of Congressional staffs who are deeply knowledgeable on maritime matters is small, Benner noted, adding: “Spending a lot of money on port improvements is not a high federal priority.”

Lack of public understanding. If there is no industrial lobby on Capitol Hill for better ports, neither is there a vocal public constituency. Jeffrey Heller, a Norfolk Southern executive who focuses on international and intermodal trade, noted, “The person who walks into a Wal-Mart in Columbus, Ohio, doesn't care how their PlayStation got there; they just want to know it's there.”

Thus far, that consumer almost always finds the goods he or she wants on the shelves. In practice, congestion in U.S. ports has meant very little dislocation in the actual delivery of consumer goods.

While anyone who drives in metropolitan America is aware of traffic congestion, the costs and annoyances of port congestion are pretty much off the screen. Heller added, “Many people are conditioned to think that it's reasonable to spend those millions dollars on a mile of highway, but not to spend it on an interchange that leads to a terminal. It will take years and a huge effort to educate people.”

These matters-lack of investment capital, low political visibility, little public understanding-act as barriers between the shipping industry and the 'outside world.' But great and pressing problems exist within the sector itself.

Particularly controversial are the labor contracts and work rules that govern U.S. ports. The chief reason for low port productivity, Rob Quartel said, “is labor work rules.” Theodore Prince hedges that judgment: “Labor is certainly an issue. But I'm not sure if you waved a magic wand at labor issues, that you would solve all the problems.”

Beyond wage rates is the question of safety issues. Safety practices in U.S. ports, Prince notes, are more rigorous than in Asian ones-for example, on how to handle multiple containers, or how high containers may be stacked. Still, Prince judges U.S. standards as reasonable. “Look at construction. You don't see bamboo scaffolding here like in Asian ports.”

Part of the problem, as noted, is simple infrastructure issues. Neil Davidson, a port specialist with the London-based Drewry Shipping Consultants Ltd., thinks the biggest bottleneck in the U.S. system is “the carrying capacity of the rail lines to carry intermodal freight.”

With infrastructure, nearly every port has its wish list. John Abisch, head of the Miami-based shipping firm Econo Caribe, commented that the number one thing that could improve the productivity of the Miami port would be to create a more direct way to get trucks on and off the port facility. He stated, “You have these 40-foot trucks going through downtown Miami-there's just too many lights where it's stop and turn, stop and turn, to get to the port.”

When it comes to infrastructure, problems are often not so much solved as moved. One observer noted: “They built the Alameda corridor, and all they really did was move the governing constraint 26 miles. You can get out of the port and to Los Angeles lickity-split, but now you're beginning to see problems with getting out of L.A.”

But the problems with intermodal go deeper than traditional highway and railway infrastructure. Containerization offers an inherent efficiency, and is broadly credited with dropping the real costs of international trade; in theory, containers can move cleanly from ship to rail or truck, then inland for delivery. But far too often, that efficiency is not being realized. Some observers are blunt in their assessment. Theodore Prince said, “At some of the ports, when it comes to intermodal, it's strictly amateur night.”

To Prince, the central problem is lack of coordination: “I just don't think they've ever really looked at it as a system. You have a lot of different parties, everybody seeking to optimize their particular piece, but nobody really saying this is how we optimize the network.”

That lack of coordination reflects a good amount of tunnel vision in the constituent parts. People in marine terminals, Prince said, are traditionally more focused on the ocean than on the land: “They don't want to hear about the rail issues.”

He cites this example: If a ship sails from Hong Kong a day late, chances are it arrives on the West Coast a day late. But if a cargo leaves Los Angeles by rail a day late, it might be four days late getting into Chicago.

And, optimized or not, the components within that intermodal network are often at odds with their customers. “The reality is that shippers-the guys who own the cargo-have spent so many years being browbeaten by the ocean carriers and, to a lesser extent, by the rail lines, that they don't really trust them,” argues Rob Quartel. “So a big piece of the problem relates to the tenuous relationship that you have between shippers and carriers.”

What needs to be done

What needs to be done? Many say a massive campaign to educate political leaders and the public is required. U.S. ports, Jonathan Benner stressed, “are a vital issue of national security. Despite the lunacy of much of what was said on the Dubai ports issue, that debate was useful in that it did focus on the fact that the maritime infrastructure is a vital national asset.”

Rob Quartel questions whether ports face capacity limits: “There's a big difference between capacity and capability. Capacity, at current productivity levels, may be constrained, but if you raised capability to a world standard, then capacity is probably not constrained for a long time. If you increased American throughput, we would not have a capacity constraint.”

Theodore Prince suggests that on-dock may need to be rethought: “The reason on-dock is so important to the ports is that they can't get the units out the gate fast enough. But on-dock is the high labor, high capital solution. At Los Angeles/Long Beach, you have maybe 12 terminals with on-dock rail: think of the opportunity cost of 50 acres of land in that port. In many cases, the optimal thing is just to load the containers as they come off the vessel onto a train, 20 cars, 400 units, and run them out of town to the middle of nowhere-Clovis, New Mexico, say-and re-handle them there.”

Major infrastructure improvements are taking place, both in the ports and inland. Norfolk Southern, for example, is in the early stages of a $150 million effort to clear its Norfolk-to-Chicago route for double-stacked container trains, a task it hopes to have completed in three years.

While such steps will add capacity, the U.S. ports and the inland rail and truck routes that carry container traffic face the unenviable task of needing to run faster just to stay in place.

How rapidly might matters get worse? Jonathan Benner comments: “That's a really good question. Things are getting worse as a function of the volume of trade. The capacity of the ports and at the water's edge is just not growing as fast. It's like someone being told they have arterial disease, but they refuse to spend the money to get their arteries cleared.”

Sidebar: Former U.S. Maritime Administrator Sees Pending Port Crisis

On May 1, John Jamian stepped down from three years as acting administrator, U. S. Maritime Administration. Previously, Jamian served as a state legislator in Michigan; as executive director of the Detroit/Wayne County Port Authority, and as chair of the American Great Lakes Ports. He is moving on to be president of the Seaway Great Lakes Trade Association. In the following interview, Jamian touches upon his term in office.

WT: Obviously, port congestion and port security remain the focus of attention.

Jamian: First, on security, we've been through something of a genesis. For a long time, the Department of Transportation was focused on transportation needs; then, after 9/11, the focus was just on security. Now, we realize that that cargo efficiency and cargo security go hand in hand. We can't let security needs eclipse the efficient movement of transportation.

WT: And port congestion?

Jamian: As the explosion of imports continues to ramp up, our country will be in crisis in twenty years if we do not pay greater attention to the infrastructure required handle it. My background is the ports business. I'm pleased that at MARAD, we've not only been very involved in understanding congestion chokepoints, but in beginning a dialog within the Department of Transportation so that all the modes-the federal highway system, the federal rail system, the Maritime Administration-can collaborate on finding the needed public/private solution.

WT: Among sea, rail, truck, is there a resistance to collaboration?

Jamian: No, not a resistance. Twenty years ago, the way people did business-industry and government-was based on their own 'book' of business. Now, as transportation becomes more seamless, we need to change those habits; we all need to transition to respond to the global supply chain.

WT: How big a piece of this is public education?

Jamian: A huge piece. There are perceived threats to the national port system from containers coming in. There is concern about who owns what in the port system. And, on top of that, we have a lot of public interest-both good and bad-in regards to port congestion. Take those together, we realize it was highly important to have a much better grip on what America's 300-plus ports mean to this nation's economy. And, so we greatly expanded are statistical and economic work.

This nation was founded by maritime; our economy is dependent on maritime. As congestion or security concerns bring the ports to greater public attention, we want to be able to demonstrate to the economic impact our ports have. That includes West Coast, East Coast, Gulf Coast, Great Lakes and inland waterways.

Education, incidentally, isn't just of the general public.

WT: Meaning?

Jamian: We have three supreme environmental challenges facing the maritime industry today: smokestack emissions of noxious gases; gray water discharge over the side of a vessel, and ballast water discharge from a vessel. What is happening is that individual states are moving to create their own legislation in these areas, legislation not consistent on a national basis. So a ship trading up the West Coast from California to Washington-or a ship coming down the St. Lawrence Seaway past New York, Ohio and Michigan-would be moving through differing environmental standards.

We need to create a federal pre-emption. We have not done a good job of explaining to state legislators that, while we all want to be good stewards of our environment, a patchwork of legislation and regulation from state to state will have a costly effect on this nation's economy.

Sidebar: Ports in Asia and Europe are Building for the Future

Charlie Lim, maritime and fisheries attaché at the South Korean Embassy in Washington, D.C., leans across his office coffee table to emphasize the importance of Busan (formerly known as Pusan) port to his country.

South Korea, he says, is small-about the size of Indiana. Three-quarters of its land is mountainous, unsuited for agriculture. It has no oil, no natural gas and little coal. His nation, he says, has “only two resources, human beings and logistics.” South Korea, Lim emphasizes, must trade to live.

Busan port is South Korea's window on the world, among the most active container ports in the world, a considerable share of that traffic trans-shipped from China.

South Korea is now opening that window wider. In January 2006, service was inaugurated at the first three berths of Busan New Port, fifteen miles from the existing facility. By 2011, the number of berths in the New Port will rise to 30, increasing and South Korea's container traffic to an estimated capacity of 15 million TEUs.

Busan New Port is part of a thoroughgoing effort to expand trade and commerce. New Port will contain Distripark, with a 200-acre Free Economic Zone where, Lim notes, “you can import materials, fabricate your product and export them to your customer, without those materials ever leaving the port and without having to pay any tariff.”

This kind of concerted port development effort is characteristic of places like Korea, Singapore and Hong Kong, where the flow of trade is the heartbeat of the economy. And, that kind of concerted development helps explain why the world's six largest container ports are all in Asia. Singapore, with an estimated 23.2 million TEUs in 2005, leads the pack, following by Hong Kong [22.4 million]; Shanghai [18.1 million]; Shenzhen, China [16.2 million]; Busan [11.8 million] and Kaohsiung, Taiwan [9.5 million].

Much of this flow represents the flood of export products leaving China, particularly from its rapidly expanding southeast.

The centrality of trade is nowhere clearer than in Singapore, which in 2005 passed Hong Kong to claim honors as the world's busiest container port. The city-state is well positioned to do so: from its docks, PSA Singapore Terminals offers connections to 600 ports in 123 countries. PSA, a corporate spokesperson announced, would add fifteen additional berths at Pasir Panjang by 2011, which will raise PSA's capacity in Singapore to 31 million TEUs. These berths “have been planned to accommodate the needs of future mega-ships.”

Expanding ship size-and rising container capacity-requires greater port efficiency; otherwise, vessels will have to prolong their stay in port. Singapore and Hong Kong are not only the top two container ports in terms of volume, but in productivity, as well. In part, this reflects Singapore's leadership in applying innovative software to the needs of the shipping community. One example is PORTNET®, the world's first nationwide business-to-business e-commerce system, enabling customers to book berths, order marine services, transact bills, receive alerts, and view multiple dimensions of operational statistics.

It's not just Asian ports that are being aggressively upgraded. In Europe, a wakeup call was delivered by the unwelcome onset of port congestion in 2004. One keen eye tracing developments in Europe is that of Neil Davidson, port specialist with the London-based Drewry Shipping Consultants. “Since 2004,” he noted, “all the major European ports have made considerable effort to improve their capacity.” That, he added, was a well-directed effort: “In northern Europe the bottleneck has been the actual port facilities themselves. That's been the restricting factor.”

The Port of Hamburg-Germany's largest, ranked ninth in the world of container traffic-has set the target of raising its capacity from a current 8.5 million TEUs to 14 million by 2010. Bengt van Beuningen of the Port of Hamburg Marketing Association pegs the cost of those improvements at $2.5 billion, roughly split between public and private sources. At Hamburg's Eurogate Container Terminal, five huge cranes-the largest in Europe-went into service last autumn. These, said Europort's Corrina Romke, will allow the facility to handle ships of over 8,000 TEUs. Similar cranes will be in operation on two other existing berths, with two new berths in the planning (at completion, Europort's container capacity will expand from 2.6 million TEUs to 4.2 million).

At the Port of Rotterdam, the world's seventh largest container port, congestion also helped spur action. Port spokesperson Minco van Haazen said congestion “was a short term occurrence, 18 months or two years ago. The reason was that there was more growth than predicted. The solution: first, more personnel; second, more hardware, which was already on order. As soon as both were in position, congestion ended.”

The Port of Rotterdam is a crucial economic asset in The Netherlands, where it accounts for an estimated 315,000 jobs and 10 percent of the nation's GNP. At present, Rotterdam can handle container ships of up to 12,000 TEU capacity; with improvements, that figure will rise to 15,000 by late 2007. Further, the port is now seeking bids on a glass fiber network dedicated to port use. All terminal facilities are privately owned, which, van Haazen noted, “has always been the case.”

One longer term development is the Second Maasvlatke, a westward extension of the port area into the sea, which carries an estimated $2.5 billion price tag and a completion date of 2012. Also on the horizon is the widening of the main highway, the A-15, east from the docks as well as supplemental freight rail lines.

In London, Drewry's Davidson foresees a pending shift in investment patterns-away from the ports themselves and toward inland transportation. In Britain, he said, government permissions granted for new port developments “have actually incorporated the need for developers to pay to upgrade roads and rails to the ports-sometimes, as much as 100 miles away.”

Taking a broader view, Davidson sees the congestion issue as dormant for the time being, but one that could well recur. “We've done some projections for various parts of the world and the primary upshot of that is, yes, there's more capacity coming on stream. But once you look out beyond 2009 or 2010, more development projects will need to come forward to meet the demand. Otherwise, there's going to be problems in northern Europe and many other places in the world.”