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Published: September 2017
Rising with the economic tide
Economic growth has lifted container volumes across the largest US container ports on all three coasts.
East coast US ports were widely predicted to gain market share over their west coast rivals, as a result of the expansion of the Panama Canal. This trend is already clear to see in the volumes of containers handled, but the picture is not as simple as it may seem. Other infrastructure improvements have encouraged shippers to look east, while US trade is booming, so all ports in the country are enjoying more business.
Cargo volumes at all US ports are rising, but there is little doubt that the east coast ports are gaining most. There has been no wholesale shift in shipping patterns over the first year of the enlarged Panama Canal’s operation, but the different rates of growth for east and west coast ports is clear to see. If sustained over several years, the trend will result in a big shift in port demand across the country.
The Panama Canal expansion opened last June, with the new set of locks allowing vessels of up to 14,000 TEU to pass, compared with the previous limit of about 5,000 TEU. As a result, larger vessels are now being used on a number of weekly services that connect East Asia with the US eastern seaboard. It will, of course, still be faster to transport goods from Asia to the eastern US via west coast ports, and then road or rail, but cargo for which transport costs are more important is more likely to be handled by east coast ports.
East on top
As the accompanying table (on page 38) shows, all big US ports are handling rising numbers of containers. For the purposes of comparison, we have restricted our analysis to the biggest ports in the country, comprising four on the west coast, six on the east coast, plus Houston on the Gulf of Mexico, which – because of its position in relation to the Panama Canal – could be regarded as an east coast port. All 10 ports handled more container traffic in H1 2017 than in the same period last year.
The notable omissions are Jaxport, which does not report H1 statistics, and the Port of Wilmington in North Carolina, which has a 600,000 TEU capacity container terminal. One of the port’s main carriers was Hanjin Shipping Co, and it was badly affected by the line’s bankruptcy last year. Throughput in the first five months of the year was down by 40% to less than 60,000 TEU, according to a report in the Journal of Commerce that cited Piers data.
Wilmington is getting back on track, however, and has announced four new container services so far this year, with ZIM most recently adding Wilmington to its Z7S all-water Asia-US East Coast service rotation sailing through the Suez Canal. The other carriers are Maersk Line and MSC, which added a transatlantic service to Bremerhaven, Felixstowe, and Le Havre, THE Alliance, which added Wilmington to the EC2 all-water Asia-US East Coast container service, and StreamLines (a division of Seatrade, known for its specialised refrigerated container operations), which added Wilmington to its Blue Stream weekly service.
Wilmington has also been buoyed by the return of its intermodal rail offering, in the form of a new CSX daily intermodal service connecting Wilmington and Charlotte. To prepare for this growth, North Carolina State Ports Authority has ordered two Neo-Panamax ZPMC STS cranes, with an option to purchase two more.
Back with the big four, with the exception of the New York/New Jersey (NY/NJ), the east coast ports mostly recorded more rapid growth than all west coast ports. Charleston, Savannah and Houston enjoyed double-digit annual growth, while Oakland achieved just 2.7%. The country’s biggest container port, Los Angeles, experienced the biggest growth of all the west coast ports, at 8.4%, taking its container turnover up to 4,482,548 TEU in H1 2017.
The 6.2% rise in container traffic for NY/NJ hardly represents a bad year, even if it is the slowest rate of the four largest east coast ports. NY/NJ stands to benefit from the raising of the Bayonne Bridge, with all its major terminals, except Global Terminals Bayonne, being beyond the bridge.
The US$1.6B raising project, which was completed in June, saw the Bay onne Bridge’s roadway lifted by 64ft, to increase the air draught for vessels to 215ft above the high tide level. The Port Authority of NY/NJ financed the work from its own resources, via fees and tolls, but shared the US$2.1B cost of dredging its navigation channels with the US federal government.
The bridge, which spans the Kill Van Kull Strait, and which connects New Jersey with Staten Island, now gives air draught clearance to vessels of up to 18,000 TEU. Other east coast ports should benefit from the raising project because it encourages shippers to use post-Panamax vessels on their east coast services. Marc Bourdon, president of CMA CGM Americas, said that the twin developments of widening the Panama Canal and raising the Bayonne Bridge “opened up a whole new era for the shipping industry. You’re going to see an intensification of volumes coming through the east coast”.
That intensification is already evident. During the course of this year, east coast ports have repeatedly registered record monthly TEU totals, as well as records for the size of container vessels handled. Most recently, in early September, CMA CGM’s 14,400 TEU THEODORE ROOSEVELT became the biggest container ship to use NY/NJ, when it called at APM Terminals’ Port Elizabeth facility. The terminal’s previous record was a 9,600 TEU vessel.
The Port Elizabeth terminal is currently part way through a US$200M development programme, which is expected to be completed next year. Some berths are being redeveloped and dredged to 50ft (15.24m).
The THEODORE ROOSEVELT, which was launched at the end of July, was undertaking its maiden voyage on the Ocean Alliance South Atlantic Express (SAX) service, linking Shanghai, Ningbo, Yantian, Hong Kong, Savannah, Charleston and Norfolk (Virginia), to which NY/ NJ has now been added as the first US stop.
Vessels operating on the route will take 27 days to travel from Shanghai to NY/NJ. On 22 August, the ship set a record as the largest vessel to transit the enlarged Panama Canal. Aside from the largely symbolic initial first visit of the THEODORE ROOSEVELT, Port Elizabeth will probably handle the SAX service when its upgrade is complete, but other terminals will fulfil that role until then.
The bridge raising could also change other call patterns, to the benefit of NY/ NJ. Bourdon said: “New York is an attractive and an important port, partly because of the density of population in the Northeast region. It’s a gateway for the Northeast region, and parts of the Midwest.”
Down the coast
Operators of the other east coast ports argue that the widening of the Canal is only one reason for their success, relative to the west coast. Joe Harris, senior director, communications, at the Port of Virginia, said: “Our success is the result of a number of equally weighed factors, and the Panama Canal is among them.”
He cited increasing traffic via the Suez and Panama canals, realignment of the ocean carrier alliances, more cargo being routed to the east coast because of port diversification, expanding double-stack rail connections into the Midwest, faster processing at Virginia’s terminals, and the ongoing expansion of Virginia’s two main container terminals. Rail volume has, in fact, been growing faster than port volumes. In TEU terms, Virginia handled 7.3% more in fiscal year 2016-17, while rail volumes rose 11%.
For all but one of the 12 months that followed the opening of the expanded Panama Canal, Virginia Port Authority achieved record turnover at its two container terminals, Virginia International Gateway and Norfolk International Container Terminal. Virginia’s handling capacity will increase by 40% between now and 2020, as a result of US$670M of investments at both facilities.
The cost advantage of sea transport over land transport is likely to grow, as a result of the use of much larger container vessels. Some argue that this trend has been pushing trade to the east coast ports for some time. Erin Dhand, corporate communications manager at South Carolina Ports Authority, commented: “Ports have seen a shift in recent years as many shippers direct their freight to the east coast, to reduce inland transportation costs. We expect to see that shift continue, as south-eastern ports offer proximity to growing consumer markets for imports, as well as a strong manufacturing base for export volumes.”
According to Georgia Ports Authority, 34% of the cargo handled at the Port of Savannah so far this year transited the Panama Canal. The port will be able to handle 14,000 TEU vessels on a regular basis from 2020. Jorge L. Quijano, CEO of the Panama Canal Authority, commented: “The further development of the infrastructure on the east coast is very important, because it entices these vessels to come through the canal as well.”
At a stroke, the proportion of the Midwest over which west and east coast ports compete has moved westwards. It is now as favourable to transport cargo from China to Ohio, for instance, via the Panama Canal and NY/NJ, as it is via any of the west coast ports. According to joint research by the Boston Consulting Group and freight forwarders CH Robinson, up to 10% of the cargo transported from East Asia to the US could be switched from west to east coast ports by 2020. Dustin Burke, a partner at Boston Consulting, said: “The catchment area between the Appalachian mountains and the Mississippi River is now competitive for different port options.”
The widened Panama Canal is having other effects, too. Neil Davidson, senior ports and terminals analyst at Drewry Maritime Advisors, commented: “Since the opening of the expanded Panama Canal, the main shift we’ve seen is from (Asia-US East Coast) services via Suez switching to (Asia-US East Coast) via Panama.”
The Panama Canal is not the only growth story in town, however. Across the board, the higher cargo volumes being recorded are the result of rising consumption, with the US economy growing by an annualised 3% in Q2 2017. President Donald Trump’s threats of increasing duties on imports of many goods do not seem to be having any impact on trade volumes thus far. US imports and exports were both 6% higher in H1 2017 than in the same period last year.
Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation, said: “Consumers are buying more, and retailers are scrambling to import more merchandise to keep up with the demand. Docks have been busier than ever as ships unload cargo headed for store shelves, and that’s a good sign, both for retail sales and the nation’s economy.” This is benefitting all ports, and this year is expected to be the busiest on record for US container ports.
The overall increase in cargo volumes means that west coast ports are not suffering. In late June, Los Angeles became the first port in the Western Hemisphere to handle 9M TEU within a 12 month period. Rents for industrial units around the port of Los Angeles are at record levels, and, at US$9.65/ft2, are the highest close to any port in the country. Other west coast ports may not share LA’s 1% vacancy rates, but they are not far behind. However, research by property managers JLL found that 65% of the 25.4M ft2 of new “port-related industrial space” under development is on the east and Gulf coasts.
The east coast ports are not the only competitive threat for US west coast ports, with the Canadian ports of Vancouver and Prince Rupert also looking to increase their market share. The Fairview Terminal at Prince Rupert is operated by DP World, and now has a second berth and three new STS cranes, taking its total complement to seven. Opened in September 2007, Fairview Terminal handled 736,663 TEU in 2016, getting close to its capacity of 850,000 TEU. Phase II increases total capacity to around 1.35M TEU.
Almost all of the terminal’s business leaves for inland destinations by rail, and most of the container volume is US cargo, as the CN rail line serving the port goes to Chicago. Rail service has grown from one to 15 trains a week, and now accounts for about 20% of CN’s intermodal business. CN has said it is “committed to selling 80% of the new capacity within three years”, which would add another 400,000 TEU to the current business.
Port Metro Vancouver, which has four container terminals with on-dock rail facilities, has seen throughput surge this year. To the end of August, the Canadian port had handled 2.1M TEU, up 10% on the same period in 2016. With an expansion at Vancouver’s largest terminal, Deltaport, now nearly complete, the port has the capacity to handle over 3M TEU/year....