Baltimore port’s ambition to feed Midwest hinges on tunnel project

Baltimore port’s ambition to feed Midwest hinges on tunnel project

The Port of Baltimore hopes that a tunnel project will consistently make it one of the fastest-growing ports on the US East Coast.

If all goes to plan, the Port of Baltimore, the fastest-growing port on the US East Coast last year, expects to compete fiercely with other East Coast ports for containerized rail cargo to the Midwest in five years. Those ambitions hinge on raising the Howard Street Tunnel and that project spurring CSX Transportation to offer more competitive rates because of its ability to double stack containers.

Currently, westbound trains can only be single-stacked because of the height limitations of the 121-year-old, 1.7-mile long Howard Street Tunnel. To change that, the port hopes to complete a $425 million project to elevate some parts of the tunnel and lower others, enabling double-stacked trains to pass through. Double stacking trains is more efficient than single stacking trains and increases the capacity and the economies of scale of each train.

Moving beyond single-stacked trains is the key to the port’s rail future because such trains underpin the cost structure of rail out of the port, keeping costs higher, James J. White, executive director of the Maryland Port Administration, said.

“The way it works right now with double stack, New York has it, Virginia has it. Maryland doesn’t,” White said. “And the railroads only have to commit half the capital assets to handle the same amount of volume. Here, we need twice as many rail cars as in New York or Norfolk because they can double stack, we can’t.”

“So the railroads look at it, and say, ‘If I am putting more capital assets in there somebody has to pay for it!’ Their rates in Baltimore are higher than those ports that have double-stack capability,” White said. “So if we have the Howard Street tunnel cleared to handle double stack, we would become much more competitive than we are today, because the railroads could price it more competitively.”

The impact of going from single- to double-stacked capability can be seen in Norfolk, where the opening of the Heartland Corridor in 2010 has helped the port more than double its rail cargo.

Baltimore’s project won’t move ahead, however, unless the port is successful in its second attempt to get the tunnel project funded with a $155 million grant under the Department of Transportation’s FASTLANE, or Fostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies, program. And that, in turn, will depend on whether the program is even funded by the administration of President Donald J. Trump, which is far from certain given his desire to cut federal spending.

The tunnel upgrade, if federally funded, would also be paid for by CSX, which uses the tunnel and would as a result have the only double-stacked line to the port. Norfolk Southern serves the port with trains that go north, and don’t use the tunnel, but they are single stacked because the power cables are too low for double stacking, port spokesman Richard Scher said.

The project, which port officials say could boost the port’s rail cargo from just over 30,000 containers per year to more than 110,000, is the centerpiece of a long-term cargo volume expansion plan that the port says could eventually lead to a nearly 20 percent increase in volume over the next 30 years.

That increase has already started, with a 10 percent hike in loaded container volume in 2016 over the year before, port officials say. The increase was proportionally the largest of any other major port on the East Coast, according to figures compiled by PIERS, a sister product of JOC.com within IHS Markit. Port officials attribute the hike in part to added traffic from the expansion of the Panama Canal, which opened last June, where new and larger locks enable the passage of ships of up to 14,000 TEU compared with 4,500-to-5,000-TEU vessels in the old locks. Baltimore is able to handle the largest ships because it is one of four ports on the East Coast with 50-foot channel depth — along with the ports of Miami, Virginia, and New York-New Jersey.

Baltimore port officials are optimistic of success, despite the rejection last summer of its first application.

“When we met with the federal government, twice they told us this is a great project,” White said, adding that they heard that last year the program funded two other mid-Atlantic projects and federal authorities did want to add a third from the same region. Since then, he added, “they called our [Maryland] Secretary of Transportation and asked him to resubmit the project.”

The stakes are high for Baltimore, the eighth-busiest port on the US East Coast, which estimates that construction will take five years once the project funding is in place. The removal of that bottleneck, the port said in its FASTLANE application, would mean “lower prices for domestic freight shippers, lower costs for rail operations, lower end-to-end prices for porter users.” The application estimated the combined benefit of about $1.7 billion to freight customers.

 

“Double-stack rail, where available, generally offers a meaningful price discount to shippers so truck customers diverting to rail also enjoy direct out-of-pocket savings for their transportation services,” according to the application, which offered no detail as to how much rates might fall.

At present, 90 percent of Baltimore’s container traffic begins or ends locally and just 5 percent of the port’s cargo goes by rail. In comparison, about 15 percent of the cargo in and out of the Port of New York and New Jersey goes by rail. Thirty-seven percent of the cargo in and out of the Port of Virginia goes by rail.

Baltimore, with just one container terminal, has nine on-dock rail lines and 29,000 feet of track. The port’s biggest freight destinations in the Midwest are Chicago and Northwest Ohio, and to the south they are Jacksonville and Miami, served by a schedule in which an inbound and an outbound train leave or arrive at the port each day, six days a week. The port has two trans-Pacific routes, three trans-Atlantic routes — two to Northern Europe and one to the Mediterranean — and two routes each from South America and West and South Africa.

“The double stack really is the last piece of the puzzle,” said Richard Scher, spokesman for the Maryland Port Administration.

White, who ran a terminal at the Port of New York and New Jersey, is not shy to tout his desire to lure cargo away from the port, and others on the East Coast — highlighting his port’s lower costs, lack of congestion, and truck turn times that the port puts at about 60 minutes for a double move.

New York has suffered from sporadic congestion and delays in recent years and truck turn times that frequently top two hours to get in and out of a terminal. In response, the port in December began a pilot appointment program in one terminal. To make chassis use easier in the port, two chassis providers this week announced they will create a “gray” pool in which either company’s chassis would be interchangeable, but a third port chassis company is not at present participating. To prepare for the arrival of big ships and increased cargo volumes, port terminal operators have spent about $2 billion on upgrades, while the Port Authority of New York and New Jersey and federal government have spent $4.7 billion on dredging, rail access, and other projects, including raising the Bayonne Bridge.

“The US East Coast is fiercely competitive,” White said. “I’m aware of what bad habits they have up there. We have a pretty efficient port operation.”

White believes the port can draw not only the discretionary cargo — headed for the Midwest from New York — but also goods bound for Baltimore consumers, in part lured by lower costs. He estimated, for example, that the $275 cost to get a container off a ship in Baltimore is between $75 and $125 cheaper than in New York.

“We are a lot less expensive than they are,” he said.

Beth Rooney, assistant director of the Port Authority of New York and New Jersey’s port division, said the port would not debate costs with other ports, but said New York-New Jersey has an extensive portfolio of logistical and geographical advantages.

“Our landed costs at inland destinations are competitive with landed costs from other ports,” she said. “The intermodal rail capabilities at the PONYNJ are unmatched in terms of overall capacity, schedule, and service.”

Baltimore has for years sought a solution for the single-stack problem, and last year, came up with a new engineering design that brought the projected cost down dramatically. If the federal application is approved, CSX, which uses the tunnel, would contribute $125 million, and the state of Maryland would contribute $145 million, with the federal government funding the rest.

Rob Doolittle, spokesperson for CSX, said that raising the tunnel would “eliminate a major infrastructure bottleneck, enabling more efficient, double-stack freight connectivity to other domestic markets, while increasing demand potential for domestic and international intermodal services at the Port of Baltimore.”

The latest tunnel proposal comes about six years after Norfolk Southern Railway opened its Heartland Corridor, a $300 million project to enlarge Appalachian Mountain tunnels and create a double-stack corridor between Virginia's seaport area and big Midwest hubs at Columbus, Ohio, and Chicago.

The route through Virginia, West Virginia, and Ohio saved at least 230 miles and up to two days compared with other stack routes Norfolk Southern previously used between Norfolk, Va., and Chicago. Up to then, Norfolk Southern sent double-stack trains north to Harrisburg, Pa., before heading west toward Columbus and then to Chicago, or along a longer route that first moved south to Knoxville, Tenn., before turning northward to Chicago. In 2016, the port of Virginia moved 37 percent of its cargo by rail, and expects it to rise to 45 percent in the coming years.

Since the corridor opened in 2010, the ability to double stack has helped fuel intermodal volume growth that has soared more than 110 percent, from 261,263 containers to 551,496 containers, according to the Port of Virginia.

“We are competitive in terms of rail rates with our peer ports, and we offer a high level of service to the cargo owners,” said spokesperson Joe Harris. “Presently, we are the largest rail port on the US East Coast.”

The number of rail lifts at the Port of New York and New Jersey, in contrast, grew by about 43 percent in the same time period.

Baltimore’s tunnel elevation would cap a port upgrade that began in earnest in January 2013, when the port completed a dredging project to deepen its channel and berth, which was extended from 3,000 feet to 4,300 feet, enabling the terminal to handle four ships at a time. Ports America added four super-post Panamax cranes, to seven existing cranes.

The 275-acre port recently acquired 66 acres of new land to stack containers, and port officials point to the rise of large businesses in the area, which they believe will complement the port. Under Armour, the major athletic wear retailer, last year purchased waterfront land on which to build a new headquarters for $70 million, and it plans to build a major distribution center at Tradepoint Atlantic, a massive 3,100-acre development a few miles from the Port of Baltimore. Amazon in 2015 opened a 1-million-square-foot fulfillment center in Southeast Baltimore and is building a second center in nearby Cecil County. But so far, port officials say, the retail giant does not bring any goods in through the port.

The port has already taken steps to improve its rail service, which runs from an on dock-terminal used by CSX and a near-dock link operated by Norfolk Southern. At the start of the year, in a deal struck by the port authority with CSX, the rail company handed control of Baltimore’s intermodal terminal over to Ports America, which runs Seagirt Marine Terminal, the port’s sole container terminal, in a bid to improve coordination between the rail and container terminals.

The shift gives a “seamless transition from the vessel right to the rail car, and right to those Midwest markets,” said Bayard Hogans, general manager for Ports America Chesapeake. “How do we get it most efficiently for the customer off the ship, onto the rail car and out into those markets?”

Port official say other factors driving the rise in container volumes last year include the port’s big-ship-capable depth of 50 feet, its efficient workforce, and local consumer markets that includes both Baltimore and Washington, DC.

Yet for all its advantages, the port has grown modestly and in 2016 was ranked eighth on the East Coast by market share of loaded export and import containers. Its market share was 4.2 percent in 2016, compared with 3.3 percent in 2005.

The 10 percent increase in containers handled by the port in 2016 — 650,000 TEU in 2016, compared with 590,000 TEU in 2015 — increased its market share by 0.3 percentage points, according to PIERS. The port had 4.62 percent of the East Coast’s loaded import TEU traffic from Asia in 2016, with 205,000 TEU, the fifth-largest volume on the coast, compared with 4.21 percent of the market in 2015.

Virginia’s share of the East Coast Asian import market grew from 12.16 percent in 2015, to 13.12 percent in 2016, and New York-New Jersey’s fell from 37.22 percent to 35.95 percent, the PIERS figures show. 

White expects the new alliances to bring more volume, because the consolidation of carriers into fewer groups will make it more worthwhile to stop at the port. Likewise, the arrival of larger ships, with more containers to drop off, will also make the port more attractive, White said.

In the past, “When we were talking to ship owners about coming up and down the Chesapeake Bay, which takes eight hours, and they only had 500 containers on it [to deliver] it was a tough sell,” he said. But with larger alliances, “now you may have 1,200 [containers] on one ship — it’s worth it to come to where the consumers are” in Baltimore, he said.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.