The Outlook for East Coast Ports
By: Ron Derven, contributing editor, Development
A surge in activity at East Coast ports may come more from disruptions at West Coast ports than from the Panama Canal expansion.
AS EAST COAST PORTS prepare for the opening of the new and improved Panama Canal, indications are that those ports may indeed pick up volume. But much of that volume may come from shippers fed up with West Coast delays, rather than from the expanded canal itself.
“If you would have asked me six months ago, I would have said that the East Coast ports would gain maybe 5 percent to 7 percent annual increases in imports from the new canal. Now I think they will gain 10 percent to 15 percent, on average,” declared Jon DeCesare, president of World Class Logistics Consulting Inc. in Long Beach, California.
DeCesare suggested that when the expanded canal opens in 2016, many shippers will reroute freight to East Coast ports via the canal because they need more reliable service. He said that the workhorse vessel coming through the canal will be the 9,000-TEU-plus capacity cargo ship, one that can hold more than 9,000 20-foot equivalent units (standard 20-foot-long by eight-foot-wide intermodal containers).
Right now, the canal can handle ships with up to a 5,000-TEU capacity. When the new locks are open, the canal will accommodate ships carrying up to 13,000 TEUs. Maersk, the largest container shipping company in the world, already has cargo ships (the Maersk E-Class and Triple-E container ships) that are too large to use in the expanded canal, even before it opens. Those ships are serving Europe and Asia via the Suez Canal. When the Port Authority of New York and New Jersey completes the raising of the Bayonne Bridge to 215 feet, Maersk will likely send its 14,000-TEU-plus ships to the East Coast as well, through Suez.
Choosing a Coast
Whether or not shippers send cargo ships to the West or East Coast will be driven largely by costs, according to Philip L. Kianka, executive vice president and COO of Chambers Street Properties, a Princeton, New Jersey-based developer and owner of distribution centers. He underscored, however, that shippers are greatly concerned about West Coast port disruptions.
William Waxman, executive vice president with CBRE in New York, agrees that shipping preferences will be based on hard economic realities. The current flurry of excitement about the opening of the expanded Panama Canal next year reminds him of the widespread “Y2K” panic back at the turn of the century, when people were concerned that a coding problem in computers would create worldwide havoc when the date changed from 1999 to 2000. “Then, at 12:01 a.m. on January 1, 2000, everything was very much the same as it had been the day before. I think the frenzy over the new Panama Canal will turn out much the same as Y2K.”
Waxman’s reasoning is based on what he calls “the line of indifference,” which he described as an invisible, fluid line about 300 miles to the west of the U.S. East Coast. Economics dictate that retailers send goods destined for consumers east of that line through East Coast ports; to reach those on the other side, they need to ship via the West Coast and then use the landbridge (overland route) to get cargo to other markets.
An important part of that landbridge is the KC SmartPort in Kansas City, Missouri, which is serviced by five Class 1 railroads, four interstate highways and a U.S. Customs entry port. Chris Gutierrez, president of the inland port, said that his organization continues to pay close attention to developments regarding the Panama Canal, but suggested that the West Coast ports, with their vast infrastructure, will continue to play a key role in the import-export life of the country.
“The East Coast will see more freight move all-water to serve the East Coast markets,” said Gutierrez. “A big thing for the East Coast will be the Suez Canal. It is not getting as much attention as the Panama Canal right now, but it is a growing trade route for freight that comes into the East Coast [ports].”
Post Panamax Distribution Centers
What impacts will increased numbers of big ships coming to the East Coast via the new Panama Canal — and the Suez Canal — have on new and retrofitted warehouses? Industry experts say that even if TEU volume stays the same, shippers will deliver goods in bigger ships, which means there will be fewer ships arriving but more containers per ship to offload. According to CBRE’s Waxman, when this occurs, two things happen: The cost per item drops, and demand is created for bigger buildings to hold the additional inventory. He calls this phenomenon “surge volume.”
Chambers Street’s Kianka sees two trends emerging. He, too, believes that many companies will migrate to large, million-square-foot warehouses. At the same time, he sees big e-commerce firms seeking out and using smaller (100,000- to 200,000-square-foot) warehouses located closer to major population centers, to gain better access to consumers and improve delivery times. These smaller, infill distribution centers can be more expensive, but if they enable a retailer to deliver goods on a 24/7 basis, the cost differential can be worthwhile, he noted.
Port Winners and Losers
Which East Coast ports will be the winners and losers with the opening of the new Panama Canal? Those interviewed see all of the ports benefitting. Waxman suggested that Newark and Norfolk will benefit most from the opening of the canal because they are located near large population centers and adds that Miami, the closest port to South America, could benefit from increasing South American traffic while Houston should continue to flourish because of oil, gas and plastics shipments. If Newark begins to develop labor problems, Savannah could be a winner.
Kianka thinks that Norfolk and Baltimore are ahead of the curve in getting ready for the canal opening. Chambers Street also likes the Port of Charleston and has a number of assets in that market. Kianka does not think that “first-in wins,” however, because decisions will always be based on economics. “Suppliers and third-party logistics providers will look at all of the options and choose the port that makes the most economic sense,” he said.
Jack Ellenberg, senior vice president for development and projects with South Carolina Ports in Charleston, said that the benchmark for a port being Post-Panamax ready is the ability to handle ships with 48 feet of draft, 24 hours a day, seven days a week. Using that benchmark, only five ports are currently Post-Panamax ready, according to Ellenberg: New York and New Jersey, Baltimore, Norfolk, Charleston and Miami.
Ellenberg noted that big ships carrying about 9,000 TEUs already are servicing the East Coast, but that the giant, 14,000-TEU-plus vessels won’t call on the East Coast until the Bayonne Bridge is ready. The ability to reach the huge consumer market around the Port of New York and New Jersey will make it economically feasible for those ships to come to the East Coast. Once they can reach the Port Newark Container Terminal, they will arrive there fully loaded with imports, then off-load and on-load cargo at Newark and at other ports along the coast. Ellenberg is rooting for New Jersey to complete the bridge project, so that the giant ships can begin visiting Newark, Charleston and other East Coast ports.
West Coast Port Issues: More Than Labor Strife
Delays and tie-ups at West Coast ports are indicative of bigger issues than labor problems, according to Jon DeCesare, president of World Class Logistics Consulting Inc. in Long Beach, California.
“Do not misinterpret what is happening on the West Coast” he cautioned. “It is not just the longshoremen’s contract. It is also the arrival of 10,000-TEU-plus container ships. One would think that international steamship companies would have been prepared on the water and in the ports to handle these giant ships, but terminals throughout North America are unprepared to handle these mega-vessels.”
He said that the ports should have been automated prior to the big ships’ arrival. With old systems and old union work rules in effect, the cargo arriving on the big ships cannot be handled fast enough. One of the biggest challenges facing the West Coast ports, however, is a shortage of drayage drivers, the truck operators who haul containers from the ports to Southern California warehouses around five to 75 miles away. Federal and local regulations, as well as the Great Recession and extensive delays at the terminals, have resulted in a huge decline in the number of drayage drivers. Those drivers are “an essential link in this chain, but … a link that is completely rusted and broken,” DeCesare added.