When CSAV announced a new service to the U.S. East Coast through the Panama Canal last month, the Chilean carrier was promising more than containerized cargo. For ports along the Atlantic seaboard, it was a reminder that the greatest growth prospects begin in Asia and that the ability of ports to capitalize will depend almost entirely on their ability to handle the business.
The ships on the string range in capacity up to 4,200 20-foot equivalent container units. That is half the size of the 8,500-TEU CMA CGM Figaro that first called at the Port of Savannah last summer only half-filled so it could squeeze up the Savannah River to the coast’s second-busiest port. The CSAV and CMA CGM ships appear to be underscoring a fact of life among ports up and down the coast: The CMA CGM ship, which came through the Suez Canal, represents the business the ports would like to have. The CSAV rotation suggests the reality.
Related: East Coast Numbers.
For ports from New York to Miami, the future begins in Asia and runs through the Panama Canal, even well before the 2014 completion of the expanded canal locks that will allow 11,000-TEU ships — double those currently able to transit. In short, it means all-water services from Asia through Panama may be the only growth that matters.
That’s because trade with Asia is the overwhelming driving force in growth of East Coast port throughput. Journal of Commerce Economist Mario Moreno sees total trans-Pacific containerized trade rising 11.5 percent this year and 6.4 percent in 2012.
Imports from Asia accounted for 54 percent of all volume handled in 2010 by the top 10 container ports on the U.S. East Coast, which collectively account for 90 percent of all container volumes on the East Coast. Exports to Asia in 2010 accounted for 31 percent of the volume handled by East Coast ports.
“The numbers point to continuing growth in containerized trade with Asia from the East Coast ports,” Moreno said. But the outlook for trade with Europe isn’t quite as robust. Moreno forecasts exports to northern Europe will be “slightly positive,” while imports from there and the Mediterranean will drop in 2011.
“A slower growth in U.S. consumer spending for 2011 will favor Asian commodities over European ones,” he said.
Moreno expects total container volume handled by the top 10 East Coast ports to grow 7.2 percent this year to 11.4 million TEUs.
The top 10 ports account for 90 percent of all container volume on the East Coast. Of this, imports from all regions will grow 10 percent in 2011, while exports will increase 3.9 percent. Moreno forecasts East Coast import volumes from North Asia in 2011 will grow 6.5 percent and 7.8 percent from Southeast Asia. East Coast export volume to North Asia will grow 4.8 percent and to Southeast Asia by 1.8 percent.
The increasingly important question as the Panama Canal expansion nears completion is which ports will attract the additional traffic. Growth in container traffic, after all, appears to be more concentrated as ship sizes increase, pressing carriers and shippers alike to get the greatest efficiencies they can from the larger vessels.
The top 10 U.S. container ports in the first half of 2010 controlled 84.4 percent of the volume of containers handled at all U.S. ports, according to a recent report by the Department of Transportation’s Research and Innovative Technology Administration. The East Coast ports in that top 10 had only 31.1 percent of the U.S. total, while West Coast ports in the top 10 held 44 percent.
That concentration at the top is likely to grow as carriers deploy more post-Panamax vessels — ships with more than 5,000 TEUs of capacity.
And those vessel sizes have been getting bigger rapidly, even before the recent addition of the megaships that top out well beyond 10,000 TEUs, the report said.
Measured in simple deadweight tons, the average size of container ships calling at all U.S. ports in 2009 was 14 percent more than the average weight in 2004. Calls by post-Panamax container ships at U.S. ports grew from 1,700 in 2004 to 4,400 in 2009, a 156 percent increase that pushed the share of calls by the larger vessels from 10 percent in 2004 to 24 percent in 2009, the RITA report said.
That’s a stark sign of why the infrastructure expansion, from efforts from New York-New Jersey’s Bayonne Bridge to the dredging on the Savannah River, is taking on such urgency even as the basic volume flowing through the ports looks so robust.
Led by the 14.7 percent growth at Savannah, container volume at the 10 largest U.S. East Coast ports grew 11 percent in the first 11 months of 2010, according to PIERS, a sister company of The Journal of Commerce. The two largest ports — New York-New Jersey and Savannah — grew 14 and 14.7 percent, respectively, over 2009, and those two ports added about 721,000 of the 1.13 million TEUs the top 10 East Coast ports added in the time period.
That accelerated a trend that saw Savannah lead the nation in average annual container growth from 1995 to 2009, growing at an 11 percent rate, and New York-New Jersey grow at a 6.2 percent average annual rate, second best among the top East Coast ports, according to a new report by the Research and Innovative Technology Administration of the Bureau of Transportation Statistics.
The concentration in port volume on the East Coast, then, only grew greater in 2011.
Carriers say the outlook isn’t as rosy this year, and port and carrier executives alike voice concerns that freight rates aren’t at levels sufficient to justify the heavy investment they need to make in new ships and port infrastructure to get ready for the expansion of the Panama Canal in three years.
“The outlook is less robust than last year, probably closer to normal, the ways things usually are,” said Bob Sappio, senior vice president of Pan-American trade at APL. “Last year was a good year because it allowed us to recover from a horrible 2009. We had very robust trade growth but off a very low base in the prior year. This year we are back to a more traditional trade pattern and growth expectation. I’m happy for normalcy.”
The volume of Asian cargo moving to the East Coast through the Suez Canal actually grew faster last year than Panama Canal business. The volume of inbound all-water cargo through the Suez Canal increased 24 percent last year, compared with the 11 percent increase in import volume carried through the Panama Canal.
But import cargo volume through the Panama Canal still accounts for 90 percent of the all-water cargo flowing through East Coast ports. “So the Suez represents by far and away the smallest piece of the pie,” Sappio said.
That’s why when carriers and ports talk all-water, they’re talking about the Panama Canal. The total volume carried by all-water services from Asia to the U.S. East Coast increased 14 percent last year, compared with a 17 percent increase on the West Coast.
Ships on all-water routes from Asia to U.S. East Coast ports, which ran full last year, were running at a 90 percent utilization rate in the first six weeks of 2011, but Sappio expects them to fill up as the year rolls out and consumer optimism improves.
APL, however, doesn’t plan to add capacity on any of its services to the East Coast this year.
Although rates on APL’s East Coast all-water services have improved in the last year, they are not as profitable as its West Coast services, Sappio said. “You need 10 ships as opposed to six ships for the West Coast, so when you consider the capital requirements involved, the cost of fuel and the container equipment tied up for more days, the all-water services to the East Coast are our least profitable services,” he said. “Are we going to grow our East Coast all-water service this year? Not when fuel is approaching $600 a metric ton.”
Rates may be one reason all-water import cargo from Asia is growing faster than cargo through Panama on the Asia-Europe trade lane.
“Freight rates on all-water services through Panama have been climbing, while they have been falling on Asia-Europe services,” said Ben Hacket, the research analyst who runs Hackett Associates consulting.
U.S. importers are taking advantage of this by transshipping cargo from Asia at Mediterranean transshipment hubs onto smaller ships bound for the U.S. East Coast. The top three carriers — Maersk Line, Mediterranean Shipping Co. and CMA CGM — also have deployed so many large new ships on the Asia-Europe trade lanes the route is being overwhelmed by overcapacity and the three are trying to fill ships any way they can, Hackett said.
Maersk expects growth on its all-water services to the East Coast.
“We expect the U.S. East Coast strings (from Asia) to fill up faster than the U.S. West Coast strings after the Chinese New Year,” said Lars Mikael Jensen, head of Maersk’s network and product in the Pacific. “Not so much because the market to the East Coast has grown much more than the West Coast, but because of a different supply and demand situation with less additional tonnage moving into the East Coast trades.”
He said Maersk’s ships on services to the East Coast generally have 5 to 10 percent better utilization than those to the West Coast. He expects volume on both trade lanes to improve this year.
But ports on the Atlantic are not expecting growth from the traditional market that once defined East Coast services. Demand on the trans-Atlantic this year simply isn’t as strong as on all-water services from Asia.
“After a year with high growth, we expect demand to slow down to 3 to 5 percent in between North Europe and the Mediterranean and North America,” said Soren Castbak, Maersk’s senior director of network and product for trans-Atlantic services. “After the seasonal slowdown in the fourth quarter, we see vessels filling up already now.”
Another growing East Coast trade is the north-south trade business connected to Caribbean, South and Central America. “We expect growth in the range of 4 to 5 percent in 2011, said Jonas Rosendahl Mueller, Maersk’s director of network and product for Latin American trade. But Maersk isn’t planning to add capacity on those lanes.
Moreno forecasts East Coast exports to South America will grow 4.7 percent this year, to Central America by 1.2 percent and to the Caribbean by 7.3 percent. But imports from South America will only grow 2.6 percent, he said, while forecasting those from Central America and the Caribbean to fall by 4.6 and 1 percent, respectively.
The volume of Asian cargo coming through Suez accounts for a growing piece of the pie at Baltimore. “We are seeing the most growth in the Asian business because Mediterranean Shipping Co. started the Golden Gate Service a year ago,” said Jim White, executive director of the Maryland Port Administration.
The MSC service, which comes from ports in China, Southeast Asia and the Middle East, transits the Suez Canal and then steams direct to New York-New Jersey, Baltimore, Norfolk and Charleston. “We’re doing 8,000 containers a year on that service,” White said.
But the question then is how small but regular allotments such as that will fit in as bigger ships go into service. White wants to see more capacity, but a round of rate cutting along with greater volume present more challenges down the supply chain, he said.
“Low freight rates are not good for our industry,” White said. “I like healthy freight rates because it allows everybody to eat — the port authority, the railroads. Once the freight rates go in the tank, we’re all in trouble.”
Contact Peter T. Leach at email@example.com.