Atlantic Expectations

The news that Maher Terminals would invest in and operate the planned Melford container port in eastern Nova Scotia makes sense on one level and raises meaty questions about how the industry will evolve in coming years.

Under the Maher investment, the facility becomes known as Maher Melford Terminal and Maher becomes the operator. John Buckley, Maher’s president and CEO, said he sees the move as consistent with the company’s involvement as the operator of the successful Prince Rupert container terminal in Canada’s Pacific Northwest.

In both locations you have a terminal far from population centers but strategically positioned as a deep-water, unobstructed first port of call for ships from Asia to plug into an intermodal network accessing North American markets.

Maher helped build Prince Rupert into a viable complement to trans-Pacific supply chains. It makes sense for Maher to look for opportunities that build on that success while advancing its efforts to diversify beyond the competitive and relatively slow-growth New York-New Jersey market. Such opportunities don’t come every day, Buckley said, especially at sites that allow the company to build neatly on top of its existing business.

But the Melford terminal raises a more basic question: If you build it, will they come? Unlike Prince Rupert, which cuts days from the transit time for existing heavily transited routes such as China to Memphis and other North American markets, the route from Asia through Nova Scotia is far less developed, and to say it will ever become a thriving or even viable route is somewhat speculative.

Skeptics question whether additional capacity is needed on the northern end of the East Coast port range. There hasn’t been steadily increasing demand for terminal capacity in this region. Annual volume at Halifax has hovered between 300,000 and 550,000 TEUs as carrier services have come and gone. Halifax’s deep harbor and location on the Atlantic Great Circle are selling points but have not translated into steadily growing volume.

This isn’t because of poor marketing, but rather because, one could argue, the fundamentals aren’t necessarily there. The trans-Atlantic is a slow-growing trade lane, and the Asia import market, at least as far as the Suez Canal route that Halifax and Melford would be best positioned to sell, remains elusive.

The idea that the Suez routing from Asia would emerge as a major force has not really materialized beyond a handful of services. Cargo eventually may gravitate from China to Southeast Asia, making the Suez a more significant route into North America, but most outsourcing has remained in China — China’s share of U.S. containerized imports actually expanded from 43 to 48 percent between 2005 and 2009 — where it naturally moves across the Pacific or through the Panama Canal.

In China, the Panama Canal is a competitor to the Suez for South China cargo, while China volumes are gradually gravitating north to the Shanghai and Bohai regions. With skyrocketing labor costs and unrest in China’s developed coastal regions, cargo is moving to less developed inland areas and accessing coastal ports via intermodal rail or river barge, making the Suez routing even less viable.

Halifax may be a proxy for the unfulfilled expectations of the Suez route — the port says it is operating at only about a third of its current capacity of 1.4 million TEUs. It has studied how it could expand relatively quickly to 2.5 million TEUs if needed, but doesn’t see a need any time soon.

“We will not utilize our maximum capacity for a quite a number of years, and while estimates vary, they indicate that with annual growth rates that we are expecting post-recession, it could be near 2030 before we utilize our 1.4 million TEUs of capacity,” said Michele Peveril, a Halifax spokeswoman.

Another factor is the viability of Canadian ports to handle U.S. cargo.

Buckley sees things differently. He expects trade growth will resume and expects countries such as Vietnam and India to produce double-digit growth for years to come, funneling ships and volumes into the Suez route where modern, well-situated ports such as Melford will be an ideal landing zone for cargo destined for interior markets.

“When you look at what is happening and what is expected to happen in some of these emerging markets in Southeast Asia, we think there is a great opportunity in a facility such as Melford,” he said. “We are pretty bullish about the whole thing.”

It’s not because Melford would take market share from Halifax, he said, but because looking out for many years, there should be plenty of cargo growth around for everyone.

It’s those long-term projections that really concern Maher, which is why it says the port may open in 2013, but not necessarily. “It depends on what happens in the next year or two,” Buckley said.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him on Twitter at http://www.twitter.com/PeterTirschwell.
 

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