The Coastal Debate

Big questions surround the future of the East Coast as a port range as we finalize the agenda for the The Journal of Commerce’s 5th Annual East Coast Maritime Conference, to be held Sept. 27-28 in Jersey City, N.J.

The East Coast has gained about 5 percent of the market from the West Coast in recent years, achieving a reputation as a port region poised to expand. Shippers have made conscious decisions to redesign supply chains around East Coast routings, partly in response to the West Coast’s history of labor and congestion problems.

The East Coast can make several claims for business: East Coast ports are closer to population centers; and cargo can remain on the water for a longer segment of the transit, where transportation costs are by definition the lowest. The completion of the Panama Canal expansion in 2014 should only improve the East Coast’s position, allowing larger ships to call at the ports along the Eastern Seaboard.

Intermodal rail from ports to “inland ports,” billed by some as the future of North American freight transportation, is expanding rapidly from East Coast ports.

So why do questions persist about the region’s ports? Why is the future of the port range the subject of robust debate rather than settled consensus? Is the story line of the past decade, where the West Coast ports were seen as unreliable and the East Coast a fresh new alternative, still valid following the Great Recession? Dig deeper into the issues, and it’s easy to see why the debate is alive and well.

Rail is a big part of the story. Yes, there are many other issues, such as productivity, port access for ships and labor. But East Coast ports, despite millions in investment in on-dock rail and double-stack clearances deep into the interior U.S., still are largely trucking markets, and may always be. The vast majority of containers arriving at East Coast ports are trucked either locally or to distribution centers sometimes hundreds of miles away.

Port drayage on the East Coast in many cases is a different form of long-haul trucking. Roughly 80 percent of cargo moving through the Port of New York and New Jersey is trucked, although that share has been declining. This makes sense; because of the concentration of population along the East Coast, distances from ports to distribution centers are often not far enough to justify intermodal rail, which typically needs a transit of 750 miles to be competitive.

The mileage needed to make intermodal competitive is indeed shrinking as railroads have seen an opportunity to take market share from trucking, as data this year clearly show. But in many cases on the East Coast, the mileage needed to make rail competitive simply doesn’t exist — it’s hard to see how a rail haul from New York to Philadelphia or from Baltimore to Pittsburgh would make sense economically.

For the East Coast ports to be competitive on rail, containers must travel all the way to the Midwest.

The Heartland Corridor connecting the Port of Virginia to Ohio allows the intermodal option, as does the CSX north-south and east-west National Gateway. Therefore, to be competitive on rail, the East Coast needs to tap into what is by far the largest source of rail cargo: Asia. But Asia cargo needs to come through the Panama or Suez canals and hit the rails. Some cargo moves this way, but it’s unclear how much.

One thing is clear, though. A ship-to-rail East Coast routing eats up a lot of transit time, and slow-steaming by ocean carriers makes the trip even longer than it was. The West Coast, however, was built around the dual missions of serving local as well as Midwest and East Coast markets reached by rail. The rail connections to Chicago, Memphis, New York and other destinations achieve the distances needed to make intermodal competitive, and the infrastructure is in place to support those routings.

Is it more expensive than East Coast rail routings? Yes, but it’s several days faster. And a balance of cost and speed is coming back into fashion as companies grapple with difficulties in forecasting demand and question the wisdom of extended supply chains. Also, West Coast rail supply chains may be growing more efficient because of “inland ports” such as the BNSF Logistics Park Chicago and new Joliet, Ill., Union Pacific facility developed by CenterPoint Properties, where huge distribution centers are a stone’s throw from the rail facility, sharply reducing the ramp-to-DC inbound cost and cutting emissions in the process.

Recent developments support intermodal rail off the West Coast such as the move by the Hyundai California United Terminals from Long Beach to Los Angeles, where it will plug into the on-dock rail at the APM Pier 400 terminal.

The debate is alive and well.

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

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