Last year, I wrote a lengthy commentary for the JOC entitled “Port Wars: Past, Present and Future” in which I described the frenzy among U.S. ports as they prepare for the Panama Canal expansion. I reflected upon a similar frenzy in the 1980s as ports clamored to be load centers, sucking in containers from near and far and sucking the life out of other ports.
The situation today is made worse perhaps by the enormous waterside and landside costs to buy a seat at the mega-ship table, combined with the fact that, despite predictions to the contrary, the 1980s did not usher in an era of port rationalization. All the players are still here, and they’re all still scrambling for a larger share of a pie that may or may not be growing.
The scramble has prompted a lot of emotion, especially as ports face constant competition from other ports or terminals a few miles down the road or across the water. The phenomenon isn’t isolated to one region or coast. Consider the following:
- The Los Angeles 2020 Commission, citing declining market share of U.S. cargo at the ports of Los Angeles and Long Beach, proposed that the nation’s two largest container ports merge, combining efforts to compete better with ports in other regions. Long Beach did not receive the proposal well.
- In 1981, the Virginia Port Authority consolidated its three state-owned terminals under a common operator, a nonprofit operating subsidiary, to better utilize these assets against other ports, notably Baltimore, Charleston and Savannah. APM Terminals then threw a wrench in the works in 2007, opening one of the nation’s most efficient container terminals within the same harbor. The intra-harbor competition that was effectively extinguished in 1981 was reignited by a more robust competitor. Calm was restored three years later when APMT leased the terminal to the VPA for 20 years in the shadow of three unsuccessful bids to privatize the VPA. A new set of bids came in 2012 that, although rejected, again roiled the waters. This year, Virginia Gov. Terry McAuliffe said he would not tolerate the unified port’s chronic operating losses (said to be $120 million over the past five years) and remarked of the APM lease, “I think it’s one of the worst lease deals I’ve ever seen negotiated,” signifying his intention to seek renegotiation. In April, McAuliffe said APMT wanted to sell the facility to the VPA.
- As Bill Mongelluzzo discusses, the ports of Seattle and Tacoma are formidable competitors 30 miles apart and, like the ports of Los Angeles and Long Beach, face competition from other West Coast ports, including in Canada, and East and Gulf Coast ports vying with all-water Asian service. They have competed with each other so vigorously that there have been calls to consider consolidation to compete better against those other ports. Though some consider an outright merger doubtful, the ports did receive Federal Maritime Commission approval to share information about their operations and rates, perhaps signaling a new era of enlightenment.
- Port Tampa Bay and Port Manatee are engaging in a battle as to which port is closest to the Panama Canal (one bills itself as the closest full-service port and the other, the closest U.S. deep-water port). This evolved into a battle for potential vehicle imports from Mexico, with both ports hosting auto summits within a few days of each other last fall. The battle subsequently escalated when Tampa Bay, which handles no fruit, hosted the International Pineapple Organization’s Global Pineapple Conference. Manatee, a mere 40 miles away, handled more than 70,000 tons of pineapple imports last year.
So what’s really going on? Has all this soul-searching or turmoil been driven by the expansion of the Panama Canal? The short answer seems to be, “Yes.”
In reality, however, the concept of port consolidation has been lurking in the shadows for years, occasionally bubbling to the surface. One high-profile attempt involved Houston and Galveston from 1999 to 2001. It was to be a complete merger, with Houston investing in Galveston’s capital projects and putting Galveston representatives on its board of commissioners. Among other things, the proposal apparently reignited old emotions in Galveston and was defeated by its voters.
But the Panama Canal expansion certainly has triggered some serious consideration about a port’s place in the new world order of larger ships and the place of its neighbor(s).
And there’s more to this. The straightforward task of taking a box off of a ship and putting it on a truck chassis or railcar became complicated because of everything that goes on outside the gate. This includes competition, politics and the never-ending philosophical struggle between cargo volume and the need for profits to sustain operations and infrastructure, including expansion. Virginia is a reflection of how difficult this challenge can be as it continued to announce cargo records while piling up massive financial losses.
Ports, which are products of history and geography, also are so universally close together that the idea of each having a captive catchment area capable of fully sustaining them doesn’t hold much validity today, which contributes to the free-for-all nature of competition.
Ironically, as some ports have tried to strengthen their reach by rail to inland ports within their states’ borders, the improving rail access even deeper inland that every major port enjoys has further heightened competition.
This competition for cargo, when coupled with the capital/infrastructure needs to sustain it, puts enormous strain on ports. The potential Los Angeles-Long Beach merger, a carrier source told the JOC, could be bad news, because competition between the two ports strengthens contract negotiation opportunities for terminal and cargo operators. Competition indeed can sharpen focus and create efficiencies that benefit ports and users, and, ultimately, shippers and the public generally.
But competition also can and has led ports to relationships with carriers and terminal operators that may secure volume but not the revenue to provide the infrastructure to support it, let alone expansion. This increases the need for subsidies, whether local federal or state that, when provided, simply sets off a new round of competition. Subsidy perpetuates subsidy and can lead to redundant, unnecessary, poorly utilized facilities, many suffering from the exclusivity reserved for and bestowed upon the most sought-after users.
What does this mean for the port consolidation discussion? Ports are so complicated in their enabling legislation and governing structures that wholesale consolidation of any major ports seems unlikely, at least not in one or two steps or within a short time frame. Consolidation shouldn’t be the immediate goal anyway — a tough conversation should be.
The worst conversation is the one you refuse to have. Competing ports certainly have common enemies and likely common internal challenges. Those, whether out of fear or opportunity, provide a logical, rather than emotional, starting point.
Congratulations to those ports that can grasp the bigger picture and can set aside decades of differences to work for the common good. But it all begins with a conversation.
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 email@example.com.