Infrastructure, trade pacts, freight policy eyed as priorities in tough time for ports

In an era of increasingly large containerships and growing congestion concerns, port industry leaders are touting infrastructure upgrades, expanded global trade agreements and a strong national freight policy among priorities. Attendees of the American Association of Port Authorities’ Shifting International Trade Routes Conference, held Jan. 21-22 in Tampa, Fla., received a clear message that these are challenging times, but there are beacons of hope, including encouraging signs from the automotive industry. Marine terminal operators are among those dealing with troubling trends, as indicated during a Jan. 21 conference panel discussion that kicked off with a Ports America executive terming his company’s pullout from the Port of Oakland, disclosed two days earlier, “a tough decision, a hard decision to make.”

Paul Birnbaum, Ports America’s vice president for sales and marketing, said his firm – the largest U.S. terminal operator and stevedore – is terminating its Oakland lease to make greater investments in operations in the ports of Los Angeles and Long Beach, as well as Tacoma, Wash., but he didn’t imply the move to be a panacea. “There’s more pain in store for the global shipping industry this year,” Birnbaum said.  With more than 50 ultralarge containerships slated for 2016 delivery and with overcapacity and weak demand already depressing ocean carrier rates and operating margins, marine terminal operators are feeling the pinch as well, Birnbaum noted, adding that he anticipates further shifting in carrier alliances in coming months. Bruce Cashon, chief commercial officer and senior vice president of NYK Ports LLC, the holding company of Yusen Terminals LLC and Ceres Terminals Inc., said the cascading of larger ships into almost every trade lane is leading to a decline in carrier revenues that has a trickledown effect upon terminal operators’ ability to negotiate rates with carriers. “Certainly I can’t figure out why the hell they keep building the new ships, but they do,” Cashon said. “Increasingly, we’re going to be dealing in a congestion environment. “2016 will be a difficult year on the revenue side, driven by overcapacity, low freight rates and fear of losing market share,” Cashon said.  At the same time, he said, steamship lines are continuing to pressure terminal operators and all vendors to push costs out of their parts of the supply chain equation while demand for infrastructure enhancements keeps rising. “Solutions rely on candid, open communications,” Cashon said. Speaking on the same panel, Brazilian port consultant Ricardo Sproesser said movement of goods between ports of his country – not international trade – is driving volume growth, while Charles Baker, director general of the container terminal at Mariel, Cuba, was the most optimistic panelist. “We think we have a wonderful location there in Mariel,” Baker said, noting that the terminal is 28 miles from Havana and at the crossroads of the Caribbean and the Gulf of Mexico, or, looked at another way, an ideal future transshipment spot situated between the expanding Panama Canal and Miami. But, he said, although U.S.-Cuba trade barriers are coming down, Mariel is not yet authorized to handle American transshipments. Further opening of global trade is vital to flourishing ports, according to Havana-born Carlos Gutierrez, who served as U.S. commerce secretary from 2005 to 2009, after six years as chairman and chief executive officer of Kellogg Co., and now is chairman of the Albright Stonebridge Group advisory firm.

“We’re losing the political battle domestically on free trade,” Gutierrez told conferees, saying he believes the Trans-Pacific Partnership stands “probably a 50-50 chance” of approval by U.S. Congress later this year. “It’s totally the wrong time to pull back.” Gutierrez said he also has concerns about the United States not moving fast enough with Cuban commerce. “Cuba is opening up regardless of what we do,” said Gutierrez, who left his native country for the United States in 1960 at age 6. “We need to be part of it. “We put the embargo in place to isolate Cuba, and, 50 years later, we are the ones who are isolated,” he added. Lack of sufficient U.S. transportation infrastructure agonizes Gutierrez, too. “I worry about our infrastructure,” he said. “Infrastructure takes a back seat, and it’s a big mistake. The whole supply chain needs to be looked at a little more strategically.” According to Walter Kemmsies, chief economist at the consulting firm of Moffatt & Nichol, minimal interest rates, affordable labor costs and low commodity prices are among factors combining to make this an ideal time for transportation infrastructure investments. “This is the right time to upgrade freight movement infrastructure,” Kemmsies said. M. Kathleen Broadwater, deputy executive director of the Maryland Port Administration, said she believes U.S. port leaders should advocate for infrastructure investments and, just as importantly, a strong federal freight policy.

“Such investment is very risky without a well-articulated national freight policy,” she said, referring to the December signing into law of the Fixing America’s Surface Transportation Act, or FAST Act, as “a very big step forward.” Citing the Port of Baltimore’s 50-year agreement with Ports America, Broadwater said collaboration with the private sector can be a successful mechanism for advancing infrastructure, commenting, “Partnering is the foundation for success.” John P. LaRue, executive director of Port Corpus Christi, noted that some $40 billion in diverse private-sector investments from throughout the world are helping to ensure the long-term prosperity of his South Texas port. The conference brought some agreement as well concerning encouragement offered by the automotive sector. Ports America’s Birnbaum said, “Autos have been a bright spot for us.” The following day, Derrick Smith, vice president for emerging markets at Class I rail provider CSX Transportation, said, “The true bright spot is automobiles.”

Smith said he expects rail volumes to continue to grow this year not only in shipments of finished vehicles but also of automotive components. And Smith offered some general words of encouragement: “2016 is going to continue to be a challenge. There is some evidence of a freight recession, but it won’t last forever.”