As the Panama Canal expansion project draws closer to its 2014 completion date and the global economy recovers, ports along the Gulf of Mexico are working hard to attract direct all-water services from Asia. They’re anticipating a surge in all kinds of cargo, with massive vessels capable of carrying 12,000 20-foot container units offloading boxes at transloading centers in the Caribbean Basin before steaming up the East Coast, where ports from Miami to New York are vying for their business.
Could these grand plans be jeopardized by a broken system for funding of maintenance dredging and an evaporating pool of funds for port improvements?
Dredging and all-water Asia services are very much on the minds of Gulf port executives these days. Times are good: export volumes are up, intermodal opportunities are growing, and the Panama Canal expansion holds great promise. Unlike their East Coast counterparts, Gulf ports are generally cooperating rather than competing, for several reasons.
But with aging infrastructure, port improvement projects on hold and silting in Gulf Coast harbors and the Mississippi River, maintenance and improvements are as much about safety as about trade, said Richard Wainio, CEO of the Tampa Port Authority. “The Harbor Maintenance Tax issue is critical, and not just for Tampa,” he said. “Most major ports in this country have operations and maintenance requirements that are not being met.”
At Tampa, for example, a modest $20 million project to widen a 3.5-mile stretch of waterway known as Cut B has been authorized at least three times and delayed for 10 years. Each delay requires new cost-benefit studies even though it’s a safety matter; tankers laden with ammonia, fertilizers and jet fuel share a channel with passenger cruise ships.
“We need the area widened so there are no problems with handling ships that are red-flagged,” Wainio said. “You can’t move passenger ships when those cargoes are being moved.”
The Port of New Orleans would love to have a 50-foot channel, but isn’t expecting one soon and doesn’t feel disadvantaged without one. At 45 feet, the Mississippi River’s current channel depth, the port is competitive with other ports and confident it can handle appropriately sized vessels for the markets it serves.
The port is working with the Louisiana Department of Transportation and Development on a long-term plan to deepen the river’s project depth to 50 feet. “The process of getting to 50 feet is huge and expensive, and there’s no guarantee you’ll get the largest vessels in the industry,” said Matt Gresham, the port’s publicity director.
Much more troubling are budget cuts to the Army Corps of Engineers. Heavy silting in the Lower Mississippi River in January led to draft restrictions to 44 feet on the Southwest Pass, the narrow channel where the river meets the Gulf of Mexico, down from the 45-foot channel depth mandated by Congress. As of early March, two dredges were working the mouth of the river and a third was on the way.
The river’s mouth is like a plug in a bathtub, and it’s where some 90 percent of all Lower Mississippi dredging must occur, said Gary LaGrange, president and CEO of the Port of New Orleans.
The Corps of Engineers budgeted $63 million this year for the deep-draft Mississippi, even though the actual cost has averaged more than $100 million for the past few years. A Jan. 31 letter to President Obama, signed by Sens. Mary Landrieu, D-La., and David Vitter, R-La., and seven U.S. House members from the state, urged the president to direct the corps to begin dredging the Lower Mississippi immediately to restore its authorized project dimensions.
Every foot of lost draft adds about $1 million to the cost of a vessel trip. Almost 500 ships have traversed the river’s mouth since the draft restrictions. “When those types of ships come in light, transportation logistics costs and consumer goods prices all go up,” LaGrange said.
Costs would be exponentially higher if silting forces a river closure. A July 2008 collision between a barge and a tanker that spilled almost 300,000 gallons of fuel oil and closed the river to commercial traffic stranded some 200 vessels. The two-day closure cost the port more than $100,000 a day and had an overall economic impact of about $290 million a day in lost commerce, LaGrange said.
Breakbulk and containerized export volumes are soaring, but imports remain weak. That could change dramatically with a direct all-water Asia service and more and bigger vessels coming through the canal. Even without a direct service, LaGrange expects New Orleans to gain an initial 7 percent increase in cargo volume directly from the Panama Canal expansion, equal to about 2 million tons. For the five-year period between 2014 and 2019, he estimates an additional 5 million TEUs could enter the Gulf region.
The good news for the port industry is that the National Infrastructure Bank in the Obama administration’s proposed six-year, $556 billion surface transportation authorization would provide funds for seaport and maritime initiatives. The bad news is that the proposed cuts to the Corps of Engineers’ Civil Works program, which includes deep-draft dredging projects, would slash funding by more than $250 million to $4.6 billion.
If enacted, the proposed budget would bring down the draw from the Harbor Maintenance Trust Fund to $758 million at a time when waterways are in critical need of maintenance and as dredging costs are rising.
The issue is an ongoing source of frustration for port directors, especially because HMT revenue is collected specifically for maintenance dredging and the trust fund has a $5.6 billion surplus, enough to clear the nation’s harbors.
“It’s crazy, but they have been doing that forever,” said John LaRue, executive director of the Port of Corpus Christi, the nation’s sixth-largest port by tonnage. LaRue isn’t sure the HMT issue will ever be dealt with, given the invisibility of ports to the general public. “We can spend $400 million and no one sees a thing,” he said. “If it’s a highway, they have a ribbon-cutting ceremony.”
Corpus Christi is awaiting funds for maintenance dredging and an expansion project key to plans for expanded trade with Asia. The La Quinta Trade Gateway Terminal Project, a cornerstone of the port’s long-term development plans, includes the port’s first container facility, with an annual planned capacity of 1 million TEUs. The multiuse project, which includes an intermodal railyard and almost 600 acres for storage and distribution space, depends on extending the 45-foot-deep La Quinta Ship Channel, a spur of the Corpus Christi Ship Channel.
With an agreement with the Corps of Engineers in place and a dredge storage area already constructed, dredging for the La Quinta extension could begin next year. “If we get the La Quinta extension, we will be more than satisfied,” LaRue said. “We have to build this no matter what to get container traffic.”
A recent bid for maintenance dredging on the Corpus Christi Ship Channel came in high, leaving the port without funds for dredging. The channel’s current 43-foot depth has forced tankers to unload thousands of barrels of crude per vessel, adding additional costs in the form of extra tugs, pilots and handlers.
The channels at Gulfport, Miss., are maintained at 36 feet deep, enough to accommodate vessels in the 1,000-TEU range. Gulfport wants to attract more vessels, but its channel would need to be dredged to 45 feet to meet a long-term goal of 1 million TEUs a year.
The port is in the early stages of talks with the Corps of Engineers about deepening the channel. “There are a number of vessels able to operate in 36 feet of water, but our goal is to attract the next tier of vessels,” said Don Allee, Gulfport’s executive director. “If we have 45 feet, we will be in pretty good shape.”
Gulfport, the region’s third-largest container port, hasn’t been a player in east-west container trade, but the canal expansion could change that. Container traffic in the north-south trade also is expected to grow. Gulfport is the second-largest U.S. port for imports of containerized green fruit, and handles significant export volumes of fabric and forest products.
Key projects include construction of a new connector road between U.S. 90 and Interstate 10 and a possible inland distribution center in nearby Forrest County with rail connections to Chicago and the Upper Midwest.
Gov. Haley Barbour last year signed a memorandum of understanding with the Panama Canal Authority and Gulfport officials to increase trade after the expansion project is completed. The two entities will participate in joint marketing activities, share trade and technical data and create new market studies.
Mobile anticipates incremental growth after the canal expansion, said Jimmy Lyons, executive director of the Alabama State Port Authority.
The Gulf’s only direct all-water service to Asia calls at Mobile. In May 2010, CMA CGM added Mobile and Busan, Korea, to its PEX3 service between the Gulf of Mexico and Asia. The service employs 5,000-TEU ships, but the canal expansion could attract vessels in the 6,000- to 8,000-TEU range.
“I expect that with their fleet profile, those ships will be stepped up a notch or two,” Lyons said.
Lyons is talking to a number of Asian carriers about adding more vessel strings to the U.S. Gulf. Maintaining channel depths to 45 feet is a key to the success of those efforts. The port is at the edge of its maintenance depth, with pilots at various times forced to navigate over shallower waters. Spring rains and snow melting could add to silting, making things very tight.
Failure to maintain channel depths to 45 feet would force vessels to offload cargo at Caribbean feeder ports, adding costs and delays. “Right now, the priority should be on maintenance,” Lyons said.
Houston, Mobile and Tampa have teamed up to market the “Gulf Advantage” to Asian shipping lines as ports of call for all-water services through the Panama Canal, possibly a pendulum service or another vessel string or two. Most goods imported from Asia into central Florida are trucked in from other states, but all-water services through the expanded Panama Canal to the Gulf could shift almost all of that business to water, Wainio said. Rising gas prices contribute to the viability of direct all-water services.
There are several reasons Gulf Coast ports are less competitive than their East Coast counterparts. East Coast ports are clustered together and on a linear track, with rail and road connections serving as market differentiators. Major Gulf ports such as Tampa, Houston and Mobile serve distinct markets and are farther apart.
The joint marketing efforts with Houston and Mobile represent the Gulf as the nexus of east-west and north-south trade lanes. Bookended by Houston’s regional population of 10 million and the 8 million people in the Tampa-Orlando area, with Mobile’s emerging industrial manufacturing base in the middle, the Gulf is uniquely suited to attract new all-water services, said Wade Elliot, the Port of Tampa’s marketing director.
The port’s main channel has a project depth of at least 43 feet, enough to accommodate vessels with capacities of 6,000 to 8,000 TEUs and larger vessels depending on routing patterns.
Maintenance dredging costs in Tampa are modest at about $6 million a year, but actually procuring the funds is part of an annual ritual of time-consuming bureaucratic wrangling. Tampa Bay is naturally shallow and would silt up quickly if not for annual dredging.
Tampa has maintained its channel depths, but Wainio knows the funding picture can change with the stroke of a pen. Any draft-related restrictions could cause the port to lose market share to East Coast competitors, which already handle most imports bound for central Florida.
“Once you lose part of your market, it’s hard to get it back because carriers have lots of options,” Wainio said.
Given the paring back of fleets and services by carriers during the recession, Wainio expects it will be about a year before new all-water services are announced.
Contact David Biederman at email@example.com.