Ports, the Arteries of Growth

North American seaports are expanding their services and enhancing their cargo-handling capabilities, creating jobs and assisting businesses looking to tap into the increasing overseas demand for raw materials and domestically manufactured products. Although a recovering economy and the expansion of the Panama Canal in 2015 are serving as motivators for some of the billions of dollars and pesos that U.S., Canadian and Mexican port authorities and their private sector partners are investing annually into seaport facilities, this is only part of the story.

Kurt NagleKurt Nagle

The biggest driver propelling the huge investment of private-sector capital into North America’s ports may be the rapidly growing middle class throughout parts of Southeast Asia, Africa, Latin America, the Middle East and other areas.

According to an October 2013 Ernst & Young report, the middle class in these rapidly growing markets is expected to create burgeoning demand in the coming years as they rise out of poverty, with their spending increasing from $21 trillion today to $56 trillion in 2030. An increasingly interconnected world will benefit from the trading opportunities of this anticipated growth and the phenomenal new demand for goods and services.

Paying the Price of Inaction

Some of the biggest gains in U.S. exports in the year ahead may be seen in chemicals, machinery and transportation equipment, petroleum and coal products, computer and electronics components, electrical equipment and appliances, and primary metals, according to a recent report by The Boston Consulting Group. The report, “Behind the American Export Surge: The U.S. as One of the Developed World’s Lowest Cost Manufacturers,” elaborates on research released in late 2012 predicting that higher exports and near-shoring production from China to the Americas could add 2.5 million to
5 million U.S. manufacturing and related service jobs by 2020. In turn, that could reduce the U.S. unemployment rate by up to 3 percentage points.

This is welcome news because increased volumes mean greater economies of scale, lower costs for shippers and more options for, and domestic jobs in, manufacturing, distribution and transportation. Still, lack of adequate public investment in the connecting infrastructure with ports, along with regulatory and tax policies that restrain infrastructure development and manufacturing growth, must be addressed quickly. 

Today, many seaport-related infrastructure projects that could help jump-start new business opportunities are snarled by lengthy and inefficient study requirements and lack of funding for freight-related infrastructure.

For the U.S. to remain a significant competitor for international trade, improving water- and land-side connecting infrastructure to ports is imperative to accommodate larger vessels and more loaded trucks and trains heading to and from marine terminals. This was borne out in the American Society of Civil Engineers’ “2013 Report Card for America’s Infrastructure,” where the nation’s roads received a “D” grade, its bridges a “C+” and its ports a “C.”

While adequate port-connecting infrastructure funding remains elusive, efforts to reduce regulatory red tape are making progress. Provisions included in the 2012 Moving Ahead for Progress in the 21st Century Act, or MAP-21, federal transportation bill hopefully will streamline landside projects. To help move projects more quickly and reduce the backlog of infrastructure needs, the bill provides penalties to federal agencies if certain deadlines aren’t met.

Another regulatory “bright spot” is progress in Congress to pass a new water resources bill that will help streamline procedures for water-related navigation projects. The bill also looks to make progress in addressing other pressing issues related to maintaining and improving America’s shipping channels, including greater utilization of and more equity regarding the Harbor Maintenance Tax. 

Multiple port visits and public statements by President Obama, Vice President Biden and other government officials in 2013 have helped raise awareness of the need to increase spending for ports and related infrastructure. President Obama cited ports in his 2013 State of the Union address and even highlighted them during an interview with Jay Leno in September, reinforcing the importance of ports to the U.S. economy and jobs.

Mexico’s Ports Race to Modernize

According to Raúl Torre Gamboa, general director of Mexico’s Port of Progreso, in the Yucatan, the growth of containerized cargo in Mexico and the development of intermodal transport networks has made it imperative to modernize the nation’s port system, improve its operational efficiency and overcome the accumulated deficit in the country’s transportation infrastructure. Similar to the U.S., he said the federal government must raise the priority of funding port and related transportation infrastructure if Mexico is to be competitive as a place for doing business.

“The economic policy of Mexican ports is to expand their coverage, modernize their infrastructure and provide reliable and quality services for the entire population,” Torre Gamboa said.

To improve the land- and water-side connections with its seaports, Mexico has developed its Investment Program for Infrastructure Transportation and Communications for 2013-2018, which includes more than 1.3 trillion pesos (about $100.1 billion) of infrastructure investments in three cargo transportation arenas, as well as in airports and communications. These include:

  • Adding a new main highway network to improve connections between all regions and bring remote communities closer together.
  • Constructing new mainline rail on/off ramps and urban infrastructure to increase the speed of trains and encourage greater use of railroads for moving cargo and people.
  • Strengthening the capacity of the ports system by bringing four ports (Manzanillo and Lazaro Cardenas on the Pacific Coast; Altamira and Veracruz on the Gulf of Mexico Coast) up to world-class standards, while encouraging development of the merchant marine and coastal trade.

The main objectives of this program are to develop logistics connectivity, reduce transportation costs, improve road security, promote activities that raise the value of products made in Mexico, and encourage balanced regional development to create economic opportunities and a better quality of life for all Mexicans.

“Multimodal transportation will be an important feature to maintain Mexico as a logistics platform,” Torre Gamboa said. “More than 62 billion pesos (about $4.7 billion) will be invested by the current (President Enrique Peña Nieto) administration in the port sector, which will allow the country to unfold its greatest potential.”

Trade Focus Benefits Canadian Ports

To the north, Canada’s port authorities are poised to benefit from increased cargo flows resulting from the Canadian government’s focus on expanding international markets. The latest installment is the recently signed Canada-Europe Trade Agreement, which has opened up a market of 500 million consumers and $17 trillion in annual economic activity. 

According to Wendy Zatylny, president of the Association of Canadian Port Authorities in Ottawa, the expansion in the value of bilateral trade that will result from this agreement is significant, and the subsequent increased volume of cargo will have a direct, positive impact on Canadian ports. 

Simultaneously fueling this growth is an increase in energy and natural resources exports from Canadian shores, leading to expanded demand for oil, coal and other dry bulk handling capacity.

As Canada becomes more deeply integrated into global supply chains, Canadian ports are working hard to stay ahead of the curve and remain responsive to customer needs as well as shifting trade patterns. Most visible of these shifts is the increase in cargo originating in Asia, particularly China and Asia. The value of Chinese imports into Canada has more than tripled over the past 12 years, such that China is now Canada’s second-largest source of imports.  

Zatylny noted, however, that accommodating higher volumes through Canada’s ports comes at a price. Like their North American neighbors, Canadian ports require funding to ensure they and their private marine terminal partners provide customers with up-to-date infrastructure and top-notch service. Recent Canadian government announcements regarding infrastructure funding offer some hope for help, although details have yet to be made available.

Kurt Nagle is president and CEO of the American Association of Port Authorities. Contact him at knagle@aapa-ports.org.

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