Ports Prepare for GrowthBy Joanne Costin
Article Date: 02-01-2010
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Dealers in port cities stand to gain from expanding global trade
The global recession of 2008 and 2009 served to remind us of our interconnected world. Ports play a huge role in helping the U.S. participate in the global economy. More than 99 percent of U.S. overseas trade moves in and out of the country by ship.
Despite dips in the volume of goods moving through our ports in 2008 and 2009, ports are betting that the upward trend of years past will resume and are investing heavily in infrastructure improvements. Between 1995 and 2008, world container traffic more than tripled from 137 million 20-foot equivalent units (TEUs) to 387 million TEUs – an annual rate of about 8 percent. Currently, over a quarter of the nation’s gross domestic product is accounted for by international trade. The U.S. Department of Transportation projects that freight moved through U.S. ports will increase by more than 50 percent through 2020 and the volume of international container traffic will more than double, compared to 2000.
Rising trade with Asian partners has fueled the growth of waterborne shipping. Waterborne shipping is an economical option for many companies. It costs half to two-thirds less than other forms of transportation. To handle the increase in volume, marine transportation companies are turning to larger vessels that require channel depths of 50 to 55 feet – depths that few U.S. ports have.
Expansion of the Panama Canal, on track to be completed in 2014, is also fueling improvements at U.S. ports. This $5.25 billion project will enable the largest container ships to bring more cargo by water means into the Gulf and East coasts from Asia, creating more choices for carriers and shippers. Gulf and East coast ports believe they have an opportunity to cut into the dominance of West Coast ports handling freight from Asia. Faced with this threat, West Coast ports are working on their own expansion plans.
U.S.ports have a lot at stake. Not only must they remain competitive with other U.S. ports, but with nearby ports in Canada and Mexico. The result is a flurry of new projects taking place at ports around the nation. Infrastructure improvements top the list – new terminals, new piers, longer piers, wider harbor widths and deeper channels, all of which bring opportunity to their local construction equipment dealers.
In most cases, ports are owned by local or state public agencies that are responsible for maintaining and developing terminal facilities for intermodal transfer of cargo between ships, barges, trucks and railroads and for ferry and cruise ship passenger unloading and loading. The federal government, through the U.S. Army Corps of Engineers (USACE), is primarily responsible for maintaining and improving the navigation channels heading into and out of the ports. Landside connections, the roads and bridges connecting the port to the highway system are funded largely by federal highway or surface transportation funds through the states.
“For the most part, the biggest problems, in terms of the infrastructure, are the connections on both sides of the port facility,” said Kurt Nagle, executive director of the American Association of Port Authorities, which represents port authorities in the U.S., Canada, the Caribbean and Latin America. “The bottom line is that all three of those things (port, waterside and landside connections) have to be adequate and sufficient to make the entire port system work well and be adequate to accommodate the trade.”
“The Corps of Engineers has not received adequate funds to even maintain the waterside connections at the depths and widths that they are currently authorized and supposed to be, much less have adequate funding to improve those channels to meet demand and larger vessels,” said Nagle.
“On the land side, those connections into and out of our facilities have not received their fair share or level of funding to make those connections efficient,” he added.
However, Nagle and other port leaders are optimistic that the tide may be shifting and that federal funding for port improvements will be increasing.
“On the landside connections, I think there is a growing awareness and recognition, certainly within Congress and within the DOT, that there needs to be a greater focus and prioritization to freight transportation,” said Nagle. “Our anticipation would be that reauthorization would provide significant improvements to the freight transportation system, including roads into and out of ports and significantly increase funding for that.”
Ports Vie for TIGER Grants
In February, the Department of Transportation Secretary will award $1.5 billion in TIGER (Transportation Investment Generating Economic Recovery) Discretionary Grants for capital investment in surface transportation projects. Grants will be awarded on a competitive basis to projects that have a significant impact on the nation, a region or metropolitan area and can create jobs and benefit economically distressed areas. Ninety-five U.S. ports have applied for $3.32 billion in funding under the program. In all, more than 1,380 applications were received requesting $56.5 billion. In June 2009, Transportation Secretary LaHood said to the House Appropriations Committee on transportation that a “significant” amount would go for port infrastructure and related freight transportation projects.
Also under the American Recovery and Reinvestment Act, the U.S. Army Corps of Engineers announced plans to spend more than $870 million on improving coastal navigation, which primarily involves dredging the ports to maintain or deepen their existing channels.
West Coast Ports Will Invest to Maintain Dominance
The West Coast boasts America’s two leading container ports, the Port of Los Angeles and the Port of Long Beach. The Port of Los Angeles moved 8.5 million TEUs in 2009, earning it the designation of the busiest port in the nation. Long Beach is right behind, moving 6.5 million TEUs. Both ports are operated by their respective cities, and rely on revenue derived from fees to support their operations.
“We are going to be doing a lot of capital development in the next five years, both us and our neighbors at the Port of LA,” said Doug Thiessen, managing director of engineering for the Port of Long Beach. The Port of Long Beach will be spending $200 to $300 million annually over the next five years to update its facilities, making them greener, more efficient and capable of accommodating the largest ships in the world. The Port of Los Angeles will spend approximately $300 million per year. “Strategically, we have to invest,” said Thiessen. “There is going to be a race for that cargo.”
Environmental considerations are paramount at the ports of Long Beach and Los Angeles as many projects face opposition from environmental groups. To mitigate the impact of expansion, the ports are taking a proactive approach to reduce emissions with the addition of shore-side power, exhaust control technology, and cleaner fuels at berth.
The Port of Long Beach is requiring terminals to use clean diesel fuel and replace cargo-handling equipment to meet EPA’s tougher Tier 4 standards for diesel engines. Contractors must use ultra-low-sulfur diesel in construction equipment and will require cleaner engines, oxidation catalysts, alternative fuels and electric equipment wherever feasible. Electric dredging equipment is also being required. As of Jan. 1, 2010, trucks entering the port must be newer than January 2007.
A 10-year, $750 million, Middle Harbor Redevelopment Project in Long Beach will modernize and combine two aging shipping terminals. The program will add on-dock rail capacity, shore power hookups and allow the new terminal to move twice the cargo with half the air pollution. Phase I construction is scheduled to begin in early 2010. Cargo volume will increase from 1.6 million TEUs to 3.3 million TEUs.
Site work is underway on a new $300 million Port Administration LEED Platinum building and campus in Long Beach as well. The headquarters tower will go out to bid in the Spring of 2010.
The Environmental Impact Report on the Gerald Desmond Bridge Replacement project is expected to be released in February 2010. The $1.1 billion proposal calls for a new six-lane cable-stayed bridge that would replace an existing deteriorating bridge, allow additional clearance for ships and ease traffic flow. Thiessen believes construction would start in 2011, although opposition is expected. The port has applied for a $30 million TIGER grant to help fund the project.
Construction is also underway on an $800 million renovation of Pier G, which will include construction of a new terminal, maintenance and repair facility and expanded on-dock rail yard.
For Thiessen, the silver lining of the recession is that the port is starting to see some interesting alliances in support of expansion. “It is amazing how it takes a recession to realize how important some of these projects are,” he added.
Local dealers have taken notice of the uptick in port activity, but because the Southern California market is so large, its impact is somewhat limited on their business. “The market in general is so dead that the activities at the port stand out,” said Wayne Kellard, regional sales manager for Quinn Company, a Caterpillar dealer serving Central and Southern California.
“The big driver is emissions,” added Kellard, whose customers have purchased new equipment to meet the requirements of working at the port, despite having other machines in their fleet.
While most of Quinn Company’s business at the port has been from contractors, as they target the ports more, they are finding additional opportunities with port tenants.
“This is an area that we have not given enough attention to in the past,” said Kellard. “Our opportunity continues to grow and looks promising for the future.”
Bigge Equipment Co, a large global crane distributor headquartered in San Leandro, Calif., has also seen an increase in sales to the port industry over the past few months, and expects sales will increase over the next few years due to federal stimulus money and new emissions standards. The company just recently became an authorized dealer for Cleaire Advanced Emission Control Systems in California.
Demand for specialized lifts and transportation among port customers is also on the rise. “The power industry is the No. 1 supplier of large-to-oversized components delivering to the ports,” said Andrew Wierda, marketing manager for Bigge Equipment. A trend toward larger prefabricated components is driving the demand, especially in the petrochemical and refining industry, where components can weigh anywhere from 100 to 700 tons.
With construction and shipping trends both driving equipment needs, West Coast ports should provide a great opportunity for dealers in the near future.
SavannahReadies for Growth
The Port of Savannah is the fastest growing port in the nation and one of Georgia’s most valuable economic drivers. It is the only port in the U.S. where exports match imports. At a meeting in October 2009, then Executive Director of the Georgia Ports Authority (GPA), Doug J. Marchand, detailed the progress of the Savannah Harbor Expansion Project (SHEP).
“We are encouraged by the significant progress being made by the federal government and its efforts to fund and complete the economic and environmental studies required for final approval of the SHEP,” said Marchand.
Marchand detailed $21.712 million in expenditures to fund the deepening and maintenance of the Savannah and Brunswick harbors. The funding included $13.482 million for Savannah Harbor maintenance dredging, $6.8 million for Brunswick Harbor maintenance dredging and $1.429 million for construction. The approval of the construction funds was viewed as a vote of confidence in support of the Savannah Harbor Expansion Project.
The GPA has authorized funding for more than $1.2 billion in capital projects for 2010 and beyond, which will improve its terminals’ operations and efficiency. These projects will triple the Port of Savannah’s capacity and increase its economic impact on the state of Georgia.
“Port construction has been a small bright spot in what has otherwise been a very cloudy year,” said Don Chambers, chief operating officer of Low Country Machinery, the JCB dealer for the state of Georgia.
As part of the expansion, the Port of Savannah will upgrade berthing and storage areas, additional cargo handling equipment, truck interchange gates and an additional intermodal container transfer facility rail yard, all of which creates opportunities for heavy equipment.
“Dredging material may be used to reinforce shorelines or to create habitats for wildlife,” said Chambers, “and that generates a need for excavators, graders and other earthmoving machines.”
Concrete contractors are reinforcing terminal pads to accommodate more containers, which are now stacked higher. In addition to infrastructure upgrades at the port itself, Low Country Machinery has also developed business from terminal operators and major corporations working in and around the port such as Georgia Pacific and International Paper.
“You find out who the people are who are the fleet buyers and get to know what they are doing,” said Chambers. Equipment needs run the gamut from wheel loaders and trucks for moving gypsum to excavators for handling scrap metal and rough terrain forklifts for lifting pipe.
“One of our customers developed a five-acre transloading site for agricultural products, and now they are doing a five-to 10-acre development for aggregate,” said Chambers.
Chambers is a strong advocate for investing in the port as well as other infrastructure projects, citing the huge impact on both jobs and the economy. If it goes as planned, the port expansion should benefit many businesses, including Low Country Machinery.
Alabama’s Port Investments Fuel Regional Growth
The Alabama State Port Authority has been preparing for anticipated growth from the expansion of the Panama Canal for years, and continues to use its facilities to attract businesses to the region. The public terminals handle containerized, breakbulk, coal, grain, roll-on/roll-off, cement and oversized/heavy lift cargoes. With nearly six million square feet of covered and open storage space, the state’s only port is currently ranked 10th largest in the nation in total trade.
The port authority completed Phase 1 of the $300 million Choctaw Point Terminal in 2008, and in February 2009 began work on construction of the intermodal container transfer facility (ICTF), the second element of the Choctaw Point project. The intermodal container transfer facility has an estimated cost of $75 million and will take three years to complete. It connects an existing marine terminal with up to five national Class 1 railroads. The third phase of the project is a logistics park estimated to cost $30 to $40 million.
A new $100 million terminal at the Mobile, Ala., port was considered a key incentive in convincing the German steelmaker ThyssenKrupp to build a $3.7 billion steel processing facility in north Mobile County.
In April 2009, the port’s proposed turning basin project was listed by the U.S. Army Corps of Engineers as an authorized project to be funded by stimulus dollars. The 1,550-foot by 870-foot turning basin on the lower harbor represents the final phase of construction to widen and deepen the mobile ship channel to 45 foot draft.
“The port is an economic engine for our entire state,” said Tobie Sheils, Gulf region manager for Thompson Tractor, representing the full line of Caterpillar products in Alabama and the Florida Panhandle and lift trucks in Georgia. “It is a huge benefit to have a deep water port and to be strategically located on the Gulf. Many businesses throughout the state have benefited from having access to the port.”
The port has been a great market for Thompson Tractor as well. Shipyards are customers of virtually every product line, including earthmoving equipment, marine engines, lift trucks, power systems rental and electric power generation.
According to Sheils, large contractors that specialize in site work have benefited from expansion at the port, as have industrial contractors and local dealers. Once the facilities are up and running, there is opportunity to sell equipment to the docks themselves, as well as contractors on site, private stevedoring companies and at the McDuffie coal terminal.
“There is a fair amount of construction equipment to handle and move the different cargos that go on and off of different ships,” said Richard Tremayne, marine business manager for Thompson Tractor, based in Mobile, Ala.
According to Tremayne, the state of Alabama recognized that it could be competitive with the Port of New Orleans if it invested in the infrastructure. “It has and will continue to do so,” he added. “The results are really only beginning to show themselves.”
The good news for dealers is that Long Beach, Savannah and Mobile aren’t the only ports expanding. And when you consider that more than 40 states have either inland or coastal ports, that bright spot in the market may be bigger than we think.
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