Some cargo diverted from West Coast ports during recent congestion crisis will stay on eastern seaboard, according to area port directors.
Leaders of Southeast ports at an industry roundtable this week said they expect U.S. importers to permanently shift a portion of Asian freight volume to the East Coast in the wake of the recent meltdown on the opposite coast that led to massive congestion, supply chain disruptions and financial losses for shippers.
The nine-month impasse in labor contract negotiations between dockworkers and waterfront employers that ended Feb. 20 led many cargo owners to use alternative ocean routes to bypass gridlock at West Coast ports. East coast container ports from New York/New Jersey to Houston have been key beneficiaries of those decisions, with cargo volumes recently rising by double-digits and western ports reporting volume declines of 10 to 30 percent. Beyond temporary damage to cargo interests of hundreds of millions of dollars, western officials and port-dependent business fear the union-organized work slowdown that worsened underlying systemic inefficiencies has created a long-term perception among retailers and manufacturers that West Coast ports are unreliable and delays will continue to crop up.
There are “some good opportunities for incremental growth and marginal market share gain for the East Coast and Gulf,” Curtis Foltz, executive director of the Georgia Ports Authority, said Tuesday at the Port of Jacksonville’s annual logistics and intermodal conference.
Rival ports may be able to pick off some cargo from Los Angeles, Long Beach, Oakland, Seattle and Tacoma because shippers realize that the much of the congestion out West is unrelated to the International Longshore and Warehouse Union contract, said Foltz, the longest-tenured director of a major seaport in the United States. Problems with mega-vessels dumping concentrated piles of containers on unprepared terminals, poorly allocated chassis and labor, long turn times for trucks, a shortage of truck drivers and rail capacity issues all pre-date the labor strife and remain to be resolved.
JaxPort CEO Brian Taylor was less reserved in his estimation of the diversion trend.
“There is going to be a monumental change here,” similar to what happened after the 2002 West Coast port lockout when shippers diversified ports of entry to reduce the risk of having inventory held up at a single pinch point, he said.
Over the past decade, retailers opened more distribution centers near ports such as Savannah, Norfolk and New York/New Jersey or within striking distance of others. Analysts estimate that the West Coast lost about 10 percent of its market share to ports on the East Coast.
Taylor referred to a recent American Shipper research report, in which a third of retailers and a quarter of manufacturers surveyed said they planned to make structural changes to their supply chains and shift at least 20 percent of business to East Coast DCs. Companies that already have warehouses in the Northeast and Southeast will be able to change more easily, but the survey suggests that many beneficial cargo owners are contemplating occupying new DCs on the East Coast.
And, Taylor said, more companies are looking at the Suez Canal rather than the all-water route through the Panama Canal to get their freight to those import warehouses.
“The combination of those two things, I think, bodes very well for East Coast ports in the coming few years,” the former liner executive said.
JaxPort’s Asia-Pacific container business for fiscal year 2014, ended Oct. 1, grew 20 percent, although the overall increase in TEUs was only 1 percent.
“There is going to be a material shift to the East Coast,” North Carolina State Ports Authority CEO Paul Cozza agreed. The Port of Wilmington is a relatively small player in the container market, posting 252,369 TEUs in volume for the fiscal year ended June 2014. But in the second half of the year, the port experienced a 21 percent gain in container volume versus the same period in 2013.
The Port of Savannah, the nation’s fourth largest container port, has experienced warp-speed growth during its current fiscal year, which runs mid-year to mid-year. Container traffic is running three times the projected growth of 4 percent to 5 percent, and two-thirds of that growth is associated with diverted cargo.
On Monday, the GPA reported box volumes jumped 14.2 percent in February to 284,037 TEUs. The same day stevedores processed 9,800 truck moves through the gate of the giant Garden City Terminal.
Foltz said Savannah, the nation’s fastest growing port the past decade, is on track to handle about 400,000 TEUs more than it did last fiscal year (3.14 million TEUs).
“We’re handling volumes that we didn’t anticipate until 2018. Our March run rate on an annualized basis puts us at volumes we expected to handle in 2025,” he said.
Despite the surge in containers, Savannah has not experienced any deterioration in operations. The ability to maintain cargo fluidity could be a factor in hanging onto new business, Foltz suggested.
Some beneficial cargo owners who are trying Savannah for the first time “like what they’ve received in terms of service reliability, performance, predictability, and proximity to the consumer,” he said.
In fact, Israeli carrier ZIM has indicated that customer satisfaction with ad hoc “sweeper vessels” to the East Coast via the Suez Canal is forcing it to consider adding a regular service between China, Southeast Asia, New York/New Jersey and Savannah using post-Panamax vessels.
Foltz said Savannah was prepared for the unexpected influx in volume because the port authority and state of Georgia had the foresight to invest heavily in infrastructure and create one big terminal with the scale to achieve better efficiency than several, disconnected smaller terminals.
Carriers do not give much warning when they introduce big ships into service, so it helps to be ahead of the curve with the necessary cranes, wharf upgrades, rail capacity, roads and cargo handling equipment, he said.
The GPA operates under a 10-year planning cycle that is updated every two years. Officials study economic trends and project future box volume, identify needed projects to accommodate that growth and develop a financing plan.
“Our board directed us to invest in capacity that exceeded our projected demand by 20 percent at any point in time,” Foltz said.
Future plans include the purchase of additional cranes and consolidation of container storage areas to create more space, which will increase annual throughput from 4.5 million to 6.5 million TEUs. By 2024, Savannah is expected to feature about 30 ship-to-shore cranes, up from 22 today, and 169 rubber-tired gantry cranes compared to 116 now.
Both the Norfolk Southern and CSX railroads serve the Garden City Terminal and move about 19 percent of Savannah’s container volume. Foltz said the port authority expects intermodal usage to reach 25 percent through continued enhancements that will allow it to expand its geographic reach and because of ongoing truck driver capacity constraints.
The GPA continues to make improvements to its truck operations to make sure shuttle drivers can quickly get in and out of the facility with their loads, the port director said. The port has three gates and 40 lanes, including 25 pre-check lanes with technology to help process trucks. And it worked closely with the Georgia Department of Transportation to secure funding and plan the Jimmy Deloach Parkway extension, a 3.1-mile limited access roadway providing a direct connection to I-95 that is expected to be completed within the next year.
(The port directors’ roundtable at the JaxPort conference can be seen in its entirety on YouTube.)
Southeast ports expect to capture more West Coast cargo
