Port Wars: Past, Present and Future

During World War I, railroads rammed so much cargo through the Port of New York that supply lines to Europe were crippled by the inevitable delays. This spurred Congress, in the Merchant Marine Act of 1920, to include language protecting the “naturally tributary cargo” of individual ports so cargo would be forced to flow to its closest port and avoid the congestion of already-huge ports like New York.

The advent of containerization in the 1950s, with boxes that could be even more easily trucked or railed from inland areas to any number of ports, spelled the demise of this protection, though it actually maintained some viability from a regulatory standpoint for decades.

In the 1980s, the term container “load center” had captured the focus of not only the maritime industry but also the national press. The concept was seemingly straightforward and its inevitability subject to little debate: Container ships had gotten so large (carrying the equivalent of 4,000 20-foot containers) and were going to grow larger to capture the obvious economies of scale — so large that the economics dictated they minimize unproductive time in port to maximize revenue-generating time at sea.

That meant stopping in fewer ports — load centers — and relegating all other ports to secondary status. These other ports would be forced to focus on less-glamorous cargo such as automobiles and heavy equipment, lumber and building materials, bulk cargoes such as petroleum, coal, aggregate (rock) or specific niches such as project cargo (think of windmills today) or feed containers via barge and small ship to load centers. Those containers might be trucked or railed instead, so many ports might lose their viability.

It so caught that fancy of the national business press that two young attorneys, representing competing ports, were often quoted. One was Richard Lidinsky, a former chairman and still a member of the Federal Maritime Commission. The other was me, and we’ve remained good friends over the decades in between.

Somehow, predictions fell a bit short — some would say they were premature — and market forces dictated a different path. The U.S. East Coast is now a string of container ports, ranging from goliaths such as New York-New Jersey and Savannah to smaller ports like Wilmington, N.C., and Palm Beach, Fla.

Complete Coverage of East Coast Ports

It may have been that failure of the rise to dominance of a select few load center ports in the 1980s that has given hope to ports large and small today.

Fast-forward to 2013. Those ships (remember the 4,000-TEU giants) got so large (18,000 TEUs) that they couldn’t transit the Panama Canal and directly connect Asia with U.S. East Coast markets through East Coast ports. Ocean carriers use smaller (yet still gigantic) vessels for direct service, or drop cargo at U.S. West Coast ports to be “railed” across the country to the industrial Midwest, a battleground for ports for years, and to the East Coast, or, for some markets, sail in the opposite direction, through the Suez Canal with larger ships.

Panama seized on the opportunity of this exploding trade in deciding to expand the Panama Canal to accommodate larger ships. The race among U.S. East Coast ports for deeper water in lockstep with the expansion of the canal, the race to avoid irrelevancy, with an entry fee of hundreds of millions of dollars in many cases, began. Now container load centers, which did not evolve as predicted in the 1980s, had a new requirement: deep water. Baltimore and Virginia, the ports with those two bright young attorneys, already have paid their 50-foot entry fee.

For other ports, and for local, state and federal governments, the issue boils down to funding (the archaic process by which water projects are studied and approved is an elephant — there for everyone to see, a bit too large to move). The funding issue haunts not simply ports’ waterside projects, but landside infrastructure and equipment as well, so while the focus superficially seems to be on water projects, the race is really for funding generally.

Although it’s clear that our ports and harbors are true national assets — the channels are federally approved, generally federally constructed and by and large federally maintained, and many serve U.S. Navy installations and facilitate the flow of military traffic — it’s also clear that the business models and circumstances of many public ports can’t support even the maintenance of their current facilities and infrastructure, let alone their expansion, including channels.

The age-old role of public ports as generators of economic activity and creators of high-paying local jobs without concern about the bottom line has given way to a new model in which, because of budget limitations, ports are expected too earn their keep to a much greater extent. The adage, “we lose money on every container but we make it up on jobs,” no longer applies.

The transition is ongoing and has not proven easy in a world long peppered with barely compensatory agreements with customers. Kudos to those ports willing to think out of the box, considering options such as long-term concessionary agreements, for example, rather than continuing to beef up their lobbying efforts for more federal, state or local money. The same goes for those ports embracing the diversity of their business. Port success need not be measured in terms of the number of boxes. Not every airport needs a runway long enough, a terminal large enough, to accommodate an Airbus A380.

In the end, as in the 1980s, the market must and will decide. This assumes, of course, many things about the decision-making on the other side of the equation, the container lines, which seem to be in a constant state of reacting to cyclical instability in the market, which may or may not be self-induced.

But the biggest fear may not be that Congress fails to fund channel-deepening project. It’s that Congress reverts to viewing water development projects through a pork barrel lens, funding projects that couldn’t find favor in the marketplace, funding projects for ports competing for the same cargo flows, subsidizing poor business models and practices to the possible detriment of ports more-attuned to the long-term marketplace.

The federal government, recognizing ports as vital to this country, should move forward with conviction and a bit of caution. Although the term “disrupting the market” is in vogue for business strategies, subsidization of ports or port projects that wouldn’t find favor in the market because of geography, outdated operational philosophies or lack of support from the states and cities that benefit most directly from the generation of economic activity and jobs, avoiding the disruption of market forces should be a goal in and of itself.

J. Stanley “Stan” Payne has held senior leadership roles at the Virginia Port Authority and the Canaveral Port Authority during periods of dramatic transformation and great growth, but also has spent a significant part of his career in the private sector unrelated to transportation. He is the author of “The Right of a Port to Cargo in the Age of Containerization:  Going, Going …Not Quite Gone” in the Transportation Law Journal, University of Denver School of Law. Contact him at stanpayne@cfl.rr.com.

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