Depth isn't everything

"US ports and more relevantly the terminals need to continue to focus on what is needed to increase productivity/vessel turn-around times to 'global standards' or beyond," Andy Lane, CTI
First in: Virginia is targeting first and last call business. Credit: USACE
First in: Virginia is targeting first and last call business. Credit: USACE
Railroad: CSX's shift in strategy has put the development of an inland port at Rocky Mount in jeopardy. Credit: jalexartis
Railroad: CSX's shift in strategy has put the development of an inland port at Rocky Mount in jeopardy. Credit: jalexartis
"We are excited about the potential for growth of inland ports, notably those connected to railroads," Steve Saxon, McKinsey
Off the coast: Georgia is moving quickly to set up inland ports. Credit: GPA/ Stephen B. Morton
Off the coast: Georgia is moving quickly to set up inland ports. Credit: GPA/ Stephen B. Morton
Boom time: South Carolina hails the success of Inland Port Greer. Credit: SCSPA
Boom time: South Carolina hails the success of Inland Port Greer. Credit: SCSPA

US East Coast ports continue to dig deep for business. Martin Rushmere reports

“Dig for victory”, a World War Two slogan exhorting western allies to produce more food, is being channelled for a different purpose on the US East Coast.

Ports are staking much of their marketing appeal and drive for business on going ever deeper, aiming for channel entrances of up to 54 feet and berths of 50-52 feet. Virginia, Charleston, Savannah and Florida are the ports most notably emphasising the need to go deeper in the drive for business.

Others are more muted about the depth drive, including it in a wider offering of attractions for shippers and terminal operators.

All recognise that New York/New Jersey continues to be the main player, but are shrewdly casting their nets further afield. And inland ports are very much part of this.

South Carolina hails the success of Greer, with spokesperson Erin Dhand calling it an “incredibly successful effort to extend the reach of the Port of Charleston 212 miles inland. The port originally planned to handle 100,000 annual rail moves by year five of operations, and achieved that goal in year three.

“Chosen for proximity to rail, interstate and the airport, Greer offers access to 100 million consumers within 500 miles in the Eastern U.S., making it ideal an ideal for overnight distribution,” she says. “Since it opened in November 2013, the facility has become a powerful economic development tool and played the role in recruitment/expansion of numerous companies.

“The inland port is now a critical component of the intermodal container logistics landscape in South Carolina and the Southeast region,” says Ms Dhand. “It has a rich mix of exports, imports and empty container movements. Its success prompted the port to design a second inland port facility, Inland Port Dillon, which will open in March 2018 to serve growing markets in North and South Carolina and into the Northeast and Midwest.”

Greer handled 10,648 rail moves in September. With 30,401 moves handled during the first quarter, the facility's volumes since July are nearly 16% higher than the same period last year

Inland rally

Not coincidentally, Georgia is moving quickly to set up two inland ports, at Cordele and Chatsworth. Although styled an inland port, Cordele is really a direct 360 kilometre rail route for agricultural goods to the Garden City terminal, while Chatsworth (“Appalachian Regional Port”) will have a 500 kilometre line to Savannah and have the capacity to move 50,000 containers a year when it opens in 2018 (doubling that capacity in 10 years). Sitting almost on the Tennessee state line, its position is seen as another facet of the enduring rivalry with South Carolina, competing to serve neighbouring states.

Virginia’s inland port, the first in the country and 100 kilometres west of Washington DC, has a 78,000 teu capacity.

Inland ports are predicted to become important throughout the country, say the authors of a McKinsey report just published on the future of container shipping over the next 50 years.

In follow-up remarks, one of the authors, Steve Saxon, told Port Strategy: "We are excited about the potential for growth of inland ports, notably those connected to railroads. Rail has a strong role to play in moving containerised imports already today in US and this is growing in other countries such as India and China.

“The key will be to reduce the inefficiencies which we see today with inland moves. Today, customers and shipping lines complain about boxes getting lost when they move inland. Improved sensors, visibility, and data exchange will make this a thing of the past, and should encourage the adoption of inland ports,” says Mr Saxon.

Surprise changes in railway strategies can bring a severe jolt to planning. North Carolina, overshadowed by its southern neighbour and Georgia, had been counting on the establishment of an inland port at Rocky Mount to revitalise its international commerce. But railway partner, CSX, has announced a complete shift in intermodal strategy without telling its partners, which will probably lead to the project being cancelled and possible court battles over the money spent so far.

Down deep

South Carolina is basing much of its future prospects on going ever deeper. By 2022, the entrance channel is planned to be 54 feet and the inner channel 52 feet.

Ms Dhand says the state “currently doesn’t handle significant volumes of transhipped cargo, but given its harbour depth as well as capacity for volume growth and infrastructure for handling big ships, we see opportunities for growth in this segment in the future".

Significant increases in volumes are being recorded by Georgia, with Savannah’s Garden City terminal handling more than 1m teu from July to September. Savannah will have 36 ship-to-shore cranes by 2020 and says this will allow Garden City to move 1,300 containers an hour to and from vessels.

Virginia is taking an aggressive approach. Port authority spokesman Joe Harris says one of the main aims is to become a destination for first port of call. “Currently we have a combined 10 first-in and last out calls and we focused on building that total. We have an excellent opportunity to increase these types of calls with the work we are doing to expand our terminals.

“Our target depth is 55 feet and our width goal is to make way for two-way ULCV traffic,” says Mr Harris. The two main terminals are getting a $670m investment to increase annual container throughput by 1m teu (40%) in 2020.

“Our philosophy is that cargo goes where it is treated best,” says Mr Harris. “As a result, we are focused not so much on competing with other ports, but continuing to develop a progressive, modern, efficient, economical and safe port/harbour complex that attracts cargo and serves as a catalyst for commerce in Virginia and a global gateway for our larger Midwest market." 

The focus is sustainable growth, taking advantage of a strong economy and leveraging expanding assets to drive business across its terminals. “Continuing to diversify our cargo mix is important and part of our over-arching sustainability effort; diversifying our cargo portfolio increases service flexibility and will help to weather economic cycles."

That said, containers account for the majority of Virginia's business and that will continue to be the case as the port goes forward. In parallel, however, it is working to attract more ro-ro, breakbulk, oversized and project cargo to the port. "We are experienced and well-equipped to handle those kinds of cargo at Newport News Marine Terminal, a terminal dedicated to non-containerised cargoes," says Mr Harris.

Additionally, the port has Portsmouth Marine Terminal, a flex facility that is handling containers but one that can be repurposed and marketed to handle non-container business.

West Coast concerns

For all these ports, one of the enduring concerns is competing with the US West Coast. From abroad, an analyst cautions against becoming too preoccupied with 'big ship' mentality. Andy Lane, a partner in CTI Consultancy in Singapore, says: “I think that the ports did get a little carried away, in expecting 12,000 or even 14,000 teu ships to start to call immediately after the opening of the new (Panama) locks.

“This has largely not happened, and will not happen on a grand scale for many years. If as an Alliance you were offering three weekly 4,500 teu services Asia-US East Coast, unless you gain a huge additional slice of the market, combining those into a single 12,000 teu service would not yield the required departure frequency which shippers desire.

“What has happened,” Mr Lane continues, “is that most alliances have combined three 4,500 teu services into one 8,000 teu and another of, say, 6,000 teu – so they reap the economies of ship size scale, but also maintain a product which they can actually sell and fill."

He expects that average ship sizes on Asia-US East coast trades will continue to increase, but largely in-line with generic market growth and not because of infrastructure ability. Many of the US East Coast ports had been accustomed to handling 4,500-6,000 teu ships, although several were already being served by 8,000-10,000 teu services deployed through Suez Canal. They needed to dredge deeper and expand terminal facilities to be future-proofed, but they might have "slightly overdone it". Then again one large project could also be considered as more optimal than two smaller ones staged over a number of years.

In Mr Lane's experience, the US East and Gulf coast ports can generate higher crane productivity levels than the US West coast ports, however the call sizes on the US West coast will be double or treble of those on the US East/Gulf coast. "This is due to larger vessels being deployed on the Asia-USWC, and magnified by fewer ports calls," he says.

An Asia-US West Coast service might call at one to three ports only, but Asia-US East Coast would call at three to five ports. The higher call-size on the West Coast results in a higher crane intensity, and potentially a higher berth productivity than is experienced on the US East Coast/Gulf Coast. In “relative” efficiency terms however, the US East/Gulf coasts are more “efficient”.

“All in all, US ports (on all coasts) and more relevantly the terminals need to continue to focus on what is needed to increase productivity/vessel turn-around times to 'global standards' or beyond," advises Mr Lane. Denser yard stacking and use of more automated equipment will generate a far higher utilisation of prime coastal land space and maintain greater consistency in terms of costs and efficiency levels. Ports also need to remain cognisant that growth is going to be modest moving forwards, and with the very common mutterings of advanced robotic and additive layer manufacturing, coupled with near-shoring, stagnant or even contracting demand is not an unrealistic outcome. 

For the very long term, the McKinsey report on 50,000 teu ships bears reading. The authors told Port Strategy that there will be a “continued drive for ports to move out of cities” - with the old sites being turned into leisure and commerce “lifestyle” centres - but there will not be a need for larger container yards. Instead, autonomous trucks and smooth data flows will be the big difference in clearing yards quickly and reducing congestion, they said.



SHIFTING FORTUNES FOR US PORTS

Intermodal costs in the US are significant, driven by the vast distances and coupled with high unit costs per mile (compared with the rest of the world). There is also a  isparity in ocean freight costs, where Asia-US East Coast is often $700-$1,000 per feu more expensive to the shipper than the Asia-US West Coast services and routes. These rates are also highly volatile, and the relationship between the costs from Asia to the two coasts is dynamically changing on a monthly, if not daily, basis.

Further, there is a significant difference in transportation time to the US hinterlands depending on cargo origin and coast of discharge/entry, which may influence shipper routing preferences. Total transportation cost remains the main selection criteria, and lines and shippers will determine their service structure and supply chains based on cost as a primary factor

Says consultant Andy Lane: “Before the expanded Panama locks were opened, Suez had more than 50% market share of Asia-US East Coast capacity. Even though in some cases the distance (and transportation time) was longer. The fact that you could deploy 10,000 teu vessels (versus 4,500 teu through the Panama Canal) made the Suez product attractive from a cost perspective.

“Since the new locks opened, we have seen the market share change to maybe 25% via Suez and 75% via Panama on the head-haul. However, on the backhaul for the Asia-Panama-US East Coast services, many of these go via the Cape to save the canal toll costs which are higher than the cost of the additional fuel needed to travel the extra distance around Africa. In the backhaul, transportation time is generally less important than in the headhaul, as the cargo is of lower value and the additional cost of inventory too low to make a significant overall cost difference."

Mr Lane believes that the market has seen a minor change and adjustment in market shares where the US East Coast has benefited at the expense of the US West Coast due to the new Panama locks, a shift that has been partially influenced by negative perceptions of the stability of US West Coast ports. The impact however has not been of the magnitude that was being suggested by some before the new locks opened.

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