Major eastern U.S. railroads stand to gain whether or not the Panama Canal expansion brings more freight to the ports they serve. The railroads may actually benefit more from growth on the other side of the U.S. despite the improvements CSX Transportation and Norfolk Southern have made to rail networks connecting shippers to East Coast ports.
“Quite frankly, we’d prefer West Coast port growth,” CSX CEO Michael Ward told attendees of the North American Rail Shippers Association annual conference on May 24.
Shipments from West Coast ports are less likely diverted to trucks than those from the more densely populated East Coast, the CSX chairman and president said. West Coast ports will continue to be the biggest players, while East Coast ports will see a “higher growth rate from a lower basis” by being able to handle bigger ships able to pass through the Panama Canal’s expanded locks in 2015, Ward said.
Ward is right in seeing more benefits for his railroad in hauling goods from the West Coast, because trucks transport so much of what comes through the Port of New York and New Jersey, the largest East Coast gateway, rail analyst Ted Prince said. A similar fate awaits much of the imports shipped to Atlanta from the ports of Charleston, S.C., and Savannah, Ga.
Several East Coast port proponents were quick to respond that Ward’s comments didn’t mesh with the large port-related investments CSX has made. But they do. Wisely, CSX and NS have hedged their bets by being prepared for rising freight demand from either direction and from any major port on the East Coast. Although Panama Canal-related expectations may have helped secure government dollars for their major infrastructure initiatives, the success of the National Gateway and Heartland Corridor isn’t dependent on a freight shift from the West Coast.
“We are preparing and planning so that if the traffic comes in from the East and needs to move inland, we’ll be there to handle it. If the traffic comes in from the West and comes to a western gateway with one of the western carriers, we’ll be ready to handle it,” NS Chairman, President and CEO Wick Moorman told the Virginian-Pilot.
That’s good news for railroads, considering that expectations for cargo gained through the Panama Canal expansion are weakening as the deadline approaches. The heads of the major East Coast ports told attendees of The Journal of Commerce’s TPM conference in Long Beach, Calif., they expected at best mid-single-digit growth from the expansion. Others such as rail analyst Tony Hatch, who told NARSA attendees in Chicago that the expected shift was overhyped and simply a vehicle for East Coast ports to attract federal infrastructure dollars, expect even less.
NS’s Heartland and Crescent corridor projects and CSX’s National Gateway are dependent on government funding, too. But the rail projects are delivering results already, while harbor deepening appears to be more of an effort just to keep participating ports in the Asia trade game. Intermodal traffic on the Heartland Corridor, a route that reduced the leg from the Port of Virginia to Columbus, Ohio, jumped 92 percent year-over-year in 2011, NS spokesman Robin Chapman said. The $321 million public-private partnership project, completed in September 2010, has taken on freight from other routes and delivers double-stack service to a new intermodal facility in Columbus. The Heartland Connector, a double-stack line between Columbus and Cincinnati, Ohio, opened in mid-January, shortening the route for auto part shipments from the Port of Virginia to Detroit by 212 miles, or roughly two transit days.
Similarly, CSX’s more than $900 million National Gateway, a double-stack corridor between mid-Atlantic ports and the Midwest, has helped the railroad handle Maersk Line inbound discretionary cargo gained through a recent contract. The initiative, expected to be finished in 2015, allows freight to avoid congested Chicago by being routed through a recently built intermodal terminal in North Baltimore, Ohio.
Both projects can benefit domestic intermodal business, but the Crescent Corridor, the ongoing NS project, is particularly focused on tapping one of the fastest-growing freight businesses. The project is aimed at eventually snatching more than 1 million annual loads from trucks on the route between the South and Northeast. As part of the project, NS in May broke ground on a $92 million intermodal terminal in Charlotte, N.C., and the railroad began construction on the Memphis Regional Intermodal Facility in Rossville, Tenn., last year.
While analysts debate the impact of the Panama Canal expansion, domestic intermodal is providing returns. Domestic intermodal volume in the first quarter jumped 14.9 percent year-over-year, compared with a 2.9 percent rise in international intermodal traffic, according to the Intermodal Association of North America. With truck capacity tightening and fuel prices volatile, domestic intermodal is on solid ground. However, international intermodal volume on the East Coast is subject to the tides of consumer demand, federal funding for dredging, a more aggressive longshoremen union and cautious global container lines.