Ports entered 2014 like children anticipating Christmas, gathering around the tree even though the present, the expanded Panama Canal, was still being wrapped and would not take its place under the tree for another few years.
Like the hype that has come to surround Christmas, so has been created the hype surrounding the Panama Canal expansion. Every East Coast and Gulf port, so it seemed, needed deeper water and rail connectivity and bigger cranes for the massive ships that soon would be taking their place in queues outside their harbors. Every port salivated at the coming abundance of riches.
For their part, the West Coast ports, with their deeper harbors and landside infrastructure in place, seemed committed to focus on each other first as competitors and then, in a bit of déjà vu, on Canadian ports, resurrecting the issue of Canadian diversion of U.S. cargo raised years ago by their U.S. North Atlantic brethren.
All ports heralded passage of the Water Resources Reform Development Act of 2014, because there were “stocking stuffers” for all — for “donor ports” whose cargo flows were supporting the entire port maintenance system, for ports seeking authorization to move forward with deepening projects, and for ports wanting control to expedite their projects.
But a funny thing happened on the way to WRRDA. The hype surrounding the expansion of the Panama Canal, long considered the impetus for the legislation and at one time the darling of port consultants (and ports seeking sister-port relationships), was muted when those actually involved in moving cargo, especially the container lines themselves, finally asserted what many had suspected: The expansion was unlikely to change long-established trade flows. Bigger ships were indeed coming, but to everywhere — East, Gulf and West Coast ports — from everywhere, because of cascading, the result of container lines seeking economies of scale with larger ships and moving the smaller ships they supplanted to the U.S. trades.
In a rare exhibition of “all’s well that ends well,” the legislation that was hailed as a godsend for the port industry — the first of its kind in seven years — proved to be timely, if a bit late, driven by economics of the cost per container slot rather than a multibillion-dollar infrastructure improvement.
In any event, what should have been a banner year for the U.S. port industry as cargo volumes picked up, was instead marked by a transportation system being tortured — not death by 1,000 cuts, but certainly severe bleeding. It wasn’t the usual philosophical issues or political issues driving the turmoil (although clearly, as always, they were present), but instead the bread-and-butter, get-your-hands-dirty issues surrounding port operations.
The list of causes was seemingly unending: truck congestion, chassis shortages, labor shortages, vessel scheduling issues, misclassification of workers, political protests and, yes, intraregional battles ranging from Los Angeles and Long Beach to Seattle and Tacoma and even Tampa Bay and Manatee. Throw in the leadership instability, or at least leadership turnover at a number of ports, and the severe winter, and you had the makings of a quagmire.
Add in protracted West Coast longshore negotiations and their consequences, and 2014 took on the mantle of a full-blown crisis. And the bigger ships and the truly bigger volumes hadn’t even arrived yet.
So let’s call 2015 the year of cautious optimism. What will it bring?
— A belated focus on operations. After years of offering marginally compensatory contracts to container lines, ports’ most important competitive tool no longer may be those rate discounts but rather the efficiency of operations and a lack of congestion. The irony, of course, is that utilization of ever-larger vessels, contributing heavily to these operational issues, is the latest attempt by container lines to control their costs after elaborate vehicles ranging from conferences, talking agreements, consortia, slot charters, mergers and alliances have failed to boost rates. In other words, the carriers’ heritage of instability has infected ports.— A belated shift in port politics toward cooperation. Politics drive port competition, and port competition may not be healthy in all cases. Witness Seattle and Tacoma. As the industry evaluates the “Seattle-Tacoma partnership” — one of the boldest, bravest port industry moves in decades — questions remain: Will it work? Is it a model that can work elsewhere? Port “talking” groups lost any traction over time they had as competition and the stakes grew. Port operations now seem a timely fertile ground for discussions among port ranges. Savannah and Charleston still talk.— Attention will be on the Ports of Virginia, which have been at the perfect storm of instability because of massive operational issues and political upheaval on the heels of two privatization efforts and five-year losses of more than $100 million even as new cargo records were announced month-to-month. Overlooked in all these issues, but one of the more intriguing initiatives in the industry, is the port’s foray directly into stevedoring, certainly a means to exert more control over its operations and a new revenue source as well.— Eyes will be on New York-New Jersey and … Savannah, as the Georgia port plots its path to become king of East Coast ports, attempting to sidestep the problems accompanying rising cargo volumes that have plagued its peers. New York-New Jersey and the Port of Charleston just a few miles up the road from Savannah will surely respond.— Miami has had the advantages of massive funding supporting a tunnel, a rail link and a new 50-foot channel, with a business strategy to use the advantage of its geographical location to siphon off cargo bound for all points north. When will the port begin to reap the benefits of such spending? Miami, of course, has its own “Charleston” just a few miles down the road in Port Everglades.— Dredging projects large and small will continue to draw attention, as will WRRDA, as we look for a true measure of accomplishments of what it was intended for after seven long years of waiting. Will the promised follow-on legislation be required to dictate more firmly how the noble policy objectives of WRRDA are to be implemented? With WRRDA in place, we will watch as ports use it as a springboard to seek the next competitive advantage, which may include even deeper water than planned today.— Smaller ports, with their lower-cost, more hands-on operations, could enjoy increasing success while the larger ports struggle with operational efficiencies and congestion. Interesting developments include an expanded Great Lakes container service, perhaps even short-sea shipping of various flavors, and Philadelphia, a not-so-small port but a poster child for political struggles, hoping the third time is a charm for its Southport development. Lurking in the shadows of the Delaware River ports is every port to the south, with commercial eyes focused, as they have been for decades, on the lucrative South America fruit traffic that finally may be more than a pipedream.— Eyes will be on Los Angeles and Long Beach as this massive port complex works through solutions to its equally massive problems. Over and above the obvious political issues surrounding these ports, the difficulty in addressing operational problems also highlights something much more philosophical: landlord ports’ struggle to exert their influence, as opposed to operating ports and hybrids that can resolve issues much more directly.— Moreover, 2015 will be a time for assessing the consequences of a stalemate between the International Longshore and Warehouse Union and Pacific Maritime Association as container lines and shippers develop alternatives to West Coast ports, with the elephant in the room, the expanded Panama Canal, not even in play yet. Opinions vary as to the long-term impact of the 2002 strike on U.S. ports. 2015 will be another test of resilience for long-established shipping patterns.
Ports are enjoying perhaps unprecedented visibility in their roles as economic engines and have been blessed with an almost free flow of funding from local, state and federal sources as they continue to seek their own piece of the pie, without knowing what flavor it will be or what size. Whether they have used this money wisely is a question that may not be answered for decades and even then may be shrouded in the buzz for which the port industry is so well known.
What’s clear, however, is that given the massive amounts of money invested in ports, and the massive amounts they still seek, and the visibility they have purposely gained, there may be a greatly reduced tolerance level that politicians and the shipping public have for the level of turmoil the has plagued ports.
In other words, the industry must welcome 2015 mindful of the lessons learned in 2014 and of the words of the great philosopher Pogo when he so eloquently stated, “I have met the enemy and he is us.”
J. Stanley “Stan” Payne is a principal of Summit Strategic Partners, a management and transportation consulting firm, and a former senior executive with the Canaveral Port Authority and the Virginia Port Authority. Contact him at stanpayne@cfl.rr.com.