Business and trade in the Gulf ports looks promising, but with a few caveats

By: | Issue #645 | at 08:19 AM | Channel(s): Ports & Terminals  Ports  

At first blush, the prospect of sunny days for Gulf business and trade seem assured but as Matt Miller writes, there are a few dark clouds on the horizon that could dampen those forecasts.

These should be sunny times when it comes to the U.S. Gulf Coast, business and trade. Yet, there are dark clouds on the horizon as well.
First, the good news:

A year back, the Asia Vision loaded liquefied natural gas from the newly constructed Sabine Pass liquefaction project in Louisiana and steamed to Brazil, the first-time LNG had been exported from the lower 48. Three other LNG export terminals are now under construction in Texas and Louisiana. In December, the Federal Energy Regulatory Commission approved the mammoth $10 billion proposed Golden Pass Products LNG project at Sabine Pass.

Energy Boost

Six more LNG projects in the Gulf are under review. The Trump administration is expected to act favorably on all these undertakings.

Add to that other energy-related efforts including the methanol production complex Natgasoline, which is being constructed in Beaumont, Texas. Natgasoline is scheduled to be commissioned this year. The $1 billion facility is touted to become the country’s largest methanol plant and one of the largest in the world.

A total of some $41 billion worth of energy-related investments is now in the pipeline in the three counties that form the center of southeast Texas, according to Regina Lindsey, the CEO and president of the Greater Beaumont Chamber of Commerce. “The energy sector as a whole looks very good in Southeast Texas,” she said, contrasting this with the “shockwaves” felt in the opposite side of the state because of the collapse in oil prices and exploration.

Then there’s the Panama Canal expansion, which should not only facilitate those LNG tankers bound for Asia, but could substantially boost as Gulf-bound container trade. The Port of Houston, leading the charge, expects two channel improvement projects will be finished this year, enabling post-Panamax ships to dock.

“We are already seeing the effect of trading coming in and out of the [widened] Panama Canal,” said Clayton Henderson, director of corporate affairs at the Port of Beaumont. (see story on next page)

Intermodal rail facilities, bigger yards, larger cranes and dredging all are in the works at ports around the Gulf, anticipating bigger trade flows.

The Port of Beaumont, for example, has been authorized to spend almost $100 million this fiscal year on various projects designed to expand capacity and efficiency, including a dock upgrade, a new rail line and an overpass project. These are all in anticipation of an ambitious billion-dollar 65-miles-long, channel-deepening project that could begin in 2019.

The port and surrounding infrastructure are central to everything from military transport to oil tankers, which must be light-loaded now to transit the 40-foot channel. Already, LNG is being exported to Asia and Europe, as well as Brazil.

“The port system is incredibly important to the vitality of this area,” said Lindsey. “The entire area has a very strong intermodal transportation system. It’s the backbone of our economy.”

But the Gulf can’t just focus on the riches afforded by shale gas and a friendly energy policy coming out of Washington. Notably, Trump’s fight with Mexico, his threat to impose tariffs to pay for a border wall and his withering criticism of NAFTA all threaten to significantly damage trade between the two countries. While an escalating trade dispute would entangle just about everyone, Texas is particularly vulnerable. According to a study commissioned by the personal finance and credit reports company WalletHub and released in February, a US-Mexico trade war would damage Texas more than any other state.

First Salvos

“Mexico is a huge part of the Texas success story,” said James Hollifield, a political science professor at Southern Methodist University, in The Dallas Morning News. “The Texas economy stands to be hit hard by Trump’s policies.”

The fallout could already have begun. In what some have described as the first salvo in a looming trade war, the Mexican government summarily cancelled a shipment of raw sugar in early March destined for the US. Mexico said it didn’t want to exceed quotas, while claiming the US Commerce Department has misinterpreted an agreement governing the sugar trade. The Port of New Orleans is the single biggest recipient of Mexican sugar, with the border crossing at Laredo, Texas, a close second.

Laredo, in fact, is pretty much at the epicenter of US-Mexico trade, which in 2016 totaled $525 billion, of which $231 billion were US exports to Mexico. Last year, Laredo handled 51.5% of all US-Mexico trade, an entrepot for both truck and train networks. True, Laredo is 150 miles inland from the Gulf, but its strategic location and trade dominance impacts the entire region.

“The net benefit of trade associated with the Laredo port of entry contributes an estimated 363,000 net jobs to Texas and a minimum of $52 billion in (GDP) to the Texas economy,” the Texas state comptroller’s office said in a 2015 report.

Exports, alone, support more than one million jobs in Texas, more than any state including California, according to the International Trade Administration.

Trump has singled out the auto industry, the single biggest component of the US-Mexico trade relationship. At first glance, the trade imbalance seems dramatic. In 2016, according to US Commerce Department statistics, Mexico imported from the US slightly more than 150,000 vehicles worth $3.2 billion, while the US imported from Mexico almost 2.2 billion vehicles, worth almost $41 billion. But it gets more complicated. In 2016, Mexico exported to the US more than $50 billion worth of auto parts, while importing from the US $28.4 billion. Mexico and Canada together constitute about two-thirds of the US’s total auto parts exports globally.

An auto tariff would have a huge impact on Texas, according to a recent opinion piece authored by Patrician Hansen, a University of Texas law professor and director of the school’s dual law and Latin American studies program. “Many of these exports are parts, accessories and components made in Texas by Texas workers,” she wrote. Most of Texas’ automotive-related industries are centered in the San Antonio area.

Even that constitutes just part of the picture.

A recent position paper authored by the Michigan-based Center for Automotive Research offered several arguments in favor of continued automotive trade across the border. Just two points: 1) “Mexico is becoming an export base for global automakers to supply non-NAFTA markets.” 2) “International automakers who establish a vehicle assembly presence in Canada or Mexico often substitute their NAFTA-made sales in the United States for those vehicles previously imported from other countries.”

In other words, take away the cross-border US-Mexico auto trade and the US will suffer as much as Mexico, with little likelihood American domestic production will get a boost.

Notably, most of the carmakers in Mexico aren’t American at all, but German, Korean and Japanese; Chinese automaker BAIC has said it is investigating a production plant as well. These European and Asian manufacturers not only can more easily and effectively resist demands from Washington to relocate to American real estate, as Trump did with Ford Motor Co., but can as well deploy pressure on their own, as most already have assembly plants in the US.

An Intermodal Quandary

Some 80% of all vehicles shipped from Mexico north come via train. Laredo is the single biggest border crossing. However, rail congestion has led shippers to look more to short-sea shipping. Ports throughout the US are hoping to cash in, including some in the Gulf such as Freeport.

Of course, Gulf ports traffic far more than cars. According to data compiled by World Port Source, the top seven US ports in terms of exports to Mexico are in the Gulf.

At Brownsville, TX, Mexican-US trade constituted about half the global trade total and exports from the US to Mexico were eight times the value of imports. These include not just petroleum products, but steel, sand, scrap and ore.

American Journal of Transportation