Global Ports: A Boatload of Opportunity
Facing a number of challenges and constraints, the global port industry is addressing concerns and capitalizing on new opportunities.
The North American port industry is rife with change—both good and bad. Shippers are currently on red alert as the U.S. West Coast labor impasse lingers. If they haven't already, many are re-evaluating port and distribution strategies.
Changing global trade patterns—new markets to source from and sell into—are forcing similar action. Closer to home, shippers and consignees are looking more closely at data analytics to find locations that are better served to meet customer demand.
Given the West Coast labor brouhaha, the Panama Canal's grand re-opening in early 2016 assumes new importance. Ports across the country, and around the world, are ramping up for a shift in global trade flows, especially as larger vessels come online. Accordingly, infrastructure development is accelerating at pace.
Inbound Logistics recently met and spoke with a number of different players in the maritime industry to glean their respective opinions on port topics and trends ranging from big data to bigger ships. Pick up your anchor and follow along as these captains of industry spin the wheel through today's "port complex."
Georgia’s Port State of Mind
Savannah, Ga., is the gateway to the U.S. Southeast's booming population. The Georgia Ports Authority (GPA), in concert with Savannah Economic Development Authority, has been throttling forward to deliver a number of different projects that will expand infrastructure and services on and off terminal.
Jamie McCurry, senior director of administration and governmental affairs at the Georgia Ports Authority, and Hugh "Trip" Tollison, president and CEO of the Savannah Economic Development Authority, met with Inbound Logistics to offer an overview of current happenings in the Hostess City as it looks to entertain a new boom in container trade.
IL: Talk about the Georgia Ports Authority's growth as one of the leading container hubs in the United States.
McCurry: Savannah is the fourth-busiest container port in the country—it has been the fastest-growing container port for the past decade and a half.
The Southeast's population expansion played a big part in our development. Savannah is the closest port to Atlanta, the capital of the Southeast, which is about 250 miles away. Against that consumption growth, we also have significant manufacturing, mining, and agricultural industries. Our exports have always been strong, and imports continue to strengthen as the population shift continues.
What's unique about Savannah, in terms of being one of the top 10 container ports in the country, is we are by far the smallest city. We're not serving a metropolitan area so we don't have constraints inhibiting our growth. The port's 1,200-acre Garden City container facility is the largest single terminal in North America. We're the owner and operator so we control investment in the port.
We typically manage the facility with about 20 percent excess capacity. We did 3.1 million TEUs in fiscal 2013, both inbound and outbound. We average about 8,500 to 9,000 truck moves per day, that's about 80 percent of our volume in and out of the facility. The remaining 20 percent moves by rail.
By managing the Garden City facility with excess capacity, we can easily accommodate seasonal ebbs and flows. The terminal has a total capacity of about 4.5 million TEUs. Our plan over the next 10 years is to grow that number to 6.5 million TEUs within our existing footprint.
IL: One disadvantage that some top container ports run into is lack of local transportation infrastructure. What is Savannah doing to address concerns outside the port?
McCurry: We're on the up-river side of Savannah proper. The terminal is located six miles from I-16 and I-95, the major east-west and north-south arteries. So our traffic is not going back through town.
We're currently working on three last-mile projects, the biggest of which is the Jimmy DeLoach Parkway extension. We currently have an exit off I-95 that terminates two miles away. The project will build a three-mile extension directly into the terminal. That's fully funded with state money and should be complete by late 2016. It will be a game changer.
In concert with that extension, a smaller partner project will widen the Grange Road, one of two exits off the parkway into our facility. Again that's state money. We're also adding a third container interchange gate on the newly expanded Grange Road. The third of the last-mile projects is an extension of Interstate 516, which connects with I-16 down river from our terminal.
Regarding the demographic shift and congestion concerns, up river of town holds a lot of room for development. That's where we'll likely see more public-private partnerships to build warehouse and distribution facilities.
Tollison: Having the port 32 miles up river provides a tremendous advantage for us because we have access to the two interstates and two Class I railroads. Other ports have to truck through urban areas.
Between the late 1990s and early 2000s, we created the Crossroads Business Center. We acquired a tract of land, nearly 2,000 acres, that has become home to a number of distribution centers (DCs) for companies such as IKEA, Target, Home Depot, and Dollar Tree. We're looking at other opportunities to expand the park. The port has land as well. We have plenty of opportunities for public-private partnerships where we can go in, buy the land, and give it to companies that meet our jobs and investment qualifications. We've had plenty of activity—a lot of scratching and sniffing—with companies that aren't located there now.
McCurry: The Crossroads Business Center has been one of the key pillars in our ability to grow. It lured the first significant DCs to Savannah. Inherently, we're an export-rich region. We've never had a lot of import traffic. We wanted to balance that dynamic and bring in more ocean carriers—give them more reason to serve Savannah and expand their services. Without the Crossroads Business Center, it's hard to imagine we'd have the same traction.
Tollison: The business park, the growth of the Southeast population, and the labor issues the West Coast experienced in 2002 have been gifts to the port's growth. That strike diverted traffic elsewhere. Customers in Asian markets recognized the efficiencies of coming into the East Coast, especially Savannah. The rest is history.
IL: West Coast ports and the International Longshoremen's Association (ILA) have an uneasy relationship, as the most recent strike demonstrated. Why does Georgia have such a good rapport with the longshoremen?
McCurry: For whatever reason, Georgia's relationship with the longshoremen is unfortunately unique. It's not unfortunate for us, but I say that because as a country, we should be able to get along better than we do.
I think it's a matter of communication. Georgia Ports Authority employees are not unionized, but the ILA works in the facility. We work side by side. We're the owner-operator, so ILA drivers don't handle a lot of the internal yard operations. We keep the lines of communication open. In the big scheme of things, as dangerous as the port environment can be, we work closely with the ILA to prioritize safety.
I don't know what the secret sauce is, but ILA gets it, especially in terms of productivity. We're spending money on facilities, and making the working environment as good for them as we can, and they're doing a good job managing the ships.
Tollison: We also incorporate ILA throughout the fabric of the business community, not just port-related activities. Take Willie Seymore, an ILA national vice president and former president of the ILA in Savannah. He's on our board of directors at the economic development authority. We talk to him constantly.
So when we pass a sales tax referendum, and some of those sales tax dollars go to building the ILA hall in Savannah—which is unheard of—it demonstrates we're willing to work with the ILA no matter what.
IL: What is the port doing to augment its intermodal capabilities?
McCurry: We run 20 to 80 percent truck to rail. We think rail will grow to 25 percent, but probably not much more given the proximity of DCs to the Garden City terminal. A growing percentage on top of growing volume means a lot more rail traffic. We're not far under capacity at the Chatham Yard Intermodal Container Transfer Facility (ICTF) where CSX pulls into and we have quite a bit of space at Norfolk Southern's Mason Yard. That can be doubled and is a key part of our strategic plan.
When we talk about rail intermodal capacity in Savannah there obviously will be railroad investment in the future. That's required as volumes continue to grow. There also will be road projects in addition to the Jimmy DeLoach Parkway extension. It's not going to keep rail traffic from growing, but to ensure that co-existence we need a modal mix and we need to invest in some overpasses.
We also have an inland port in Cordele, Ga., located in the southwest part of the state. It's not our property, but we partner with the private company that runs the facility. There will be some container yard usage there, as well as a chassis depot. We're working with the operator to identify opportunities for our customers where we can eliminate empty boxes that are moving back to the terminal.
You'll see more opportunities of that type elsewhere in the state. Even if we don't own or operate rail yards we'll still help to coordinate development parks to facilitate our customers' equipment usage, which eases congestion at our terminal and makes it more efficient.
IL: The State of Georgia has been proactive in its support of transportation and logistics infrastructure investment. How has the positive enforcement benefited the port?
McCurry: The philosophical structure we have with the State of Georgia has fortunately been pretty consistent. We are a state authority. We're owned by the state. The Governor appoints our board and hires our director. That said, the state stays out of the micromanagement side of the business.
We're tied directly into the Governor's office, but treated as a separate operating entity. It's an 'inside the gate, outside the gate' relationship. We're the ones on the hook for the capital improvement program at the terminal, which is $80 million to $100 million annually between all the facilities. We've reached a scale with our operations where we don't have to go to the state for money, even if it's a loan. We're low maintenance and produce good results. The elected leadership is supportive. They're involved, and we keep them in the loop, but they don't try to micromanage the business. That's a challenge you see in other places.
Tollison: Several years ago, when we were looking to appropriate funds from the state budget for our harbor deepening project, politicians in Atlanta gave us some attitude about why Savannah was getting this money. GPA, to its credit, made it clear the port is a state asset—it isn't just about Savannah; what we're doing benefits Atlanta and the entire southeast United States.
It took years to change the mindset of some folks, but now we're getting bipartisan support. It's automatic when funding comes up for debate. There's no opposition.
Embracing Big Ships and Big Data
The current labor impasse at U.S. West Coast ports has given shippers plenty to think about as they weigh the resiliency of their supply chains.
Tantamount to growing risk exposure, shippers, carriers, and third-party logistics (3PLs) providers are also more attuned to network responsiveness and efficiency. They are better equipped to identify problems and take corrective action. That includes sourcing decision-making, network design, and port selection.
To point, big data is slowly creeping its way into the maritime industry. Sandra Moran, chief marketing officer for Parsippany, N.J.-based ocean shipping e-commerce platform INTTRA, takes a deep dive into how industry is using analytics to make better decisions about port selection.
IL: Explain how INTTRA's platform collects data.
Moran: INTTRA is an electronic shipping platform for containerized freight. We underlie many systems in use by direct shippers or outsourced to 3PLs. That includes a network of 54 ocean carriers. On the demand side, INTTRA's platform processes transactions for 55,000 companies.
What's interesting about the 55,000 users is the number of 3PLs on that side of the network. When you look at INTTRA's data in aggregate, it includes shipping transactions from around the world and across all industries. It's representative of what is happening in the market.
IL: How do shippers, carriers, and third-party logistics providers leverage this information?
Moran: The research we've done around port dwell times is based on container status event messages. We get two million event messages daily across all of INTTRA's connected carriers. We don't just have visibility into the containers that are booked on our platform; we have 35 percent of the world's data on container moves.
For example, we started looking at data around the notion that larger ships are causing a ripple effect inside the port. We performed a number of measurements—one was comparing the difference in times between vessel arrival, which is a container status event message, and other port events. Even within what you might consider the classic domain of the port, there are a series of container status event messages: vessel arrival, container unload, container available for deliver, and container gates out, among others.
So shippers or 3PLs can start looking at how long it takes to unload a container after vessel arrival. As they move down the chain to something like "gates out" they get into other areas of port productivity. By that point they've already dealt with chassis availability and port congestion.
Ports are another target audience. Some use INTTRA to benchmark their performance—in other words, to strengthen their value proposition. So a shipper may perceive end-to-end from Long Beach, Calif., to Texas will take x number of days. But if you're stuck in the port for y days, prudence may dictate the best route is through a more efficient port with longer ground transit times.
IL: Do you see shippers using this type of data to take a more proactive approach when it comes to port selection?
Moran: I only see this happening with companies that are at the top of their maturity in terms of using supply chain as an asset within the company. Many are not quite there yet. But I think that's what will happen. Look at all the investment in supply chain planning, only to have a disconnect between planning and execution. That's the final frontier of optimization.
IL: What does your data reveal about the current labor impasse on the U.S. West Coast?
Moran: We see triple-digit increases in the amount of time it takes for cargo to get out of these ports on each one of the milestone measures. The increases are across the entire system.
[Editor's note: For example, the time it took between when a ship docked at L.A./Long Beach and when a container was available for pickup more than doubled to about 80 hours between September 2013 and September 2014, according to INTTRA data.]
It isn't just the chassis shortage; there's also a dramatic increase in time getting cargo out on the road and rails. Our data supports what we hear is happening.
IL: How do you see big data changing the maritime industry?
Moran: When I think about the maturity of the industry, awareness is the first step, followed by analysis, then execution. How do we go from a rear-mirror perspective to becoming more proactive?
There are limitations to how this system works. If a service disruption occurs at the Port of Los Angeles, shippers can't just take a container off the vessel and route it dynamically. That said, we should reach a point where shippers or service providers can spot a problem, perform what-if scenario modeling, and quickly move to alternatives if necessary.
Industry-wide, we're at the awareness stage of maturity.
Of Beatles and Boxes
Liverpool is known for a lot of things—the Fab Four, automotive manufacturing, and the red and blue rivalry that exists between its Everton and Liverpool football clubs. At one time, the city was also one of Britain's foremost port centers. But as progressively larger ships passed by Liverpool's antiquated lock system, the port lost market share to facilities in the south of England.
Today, Liverpool's horizon is once again looking red. Peel Ports, which owns and operates the Port of Liverpool, as well as peer ports in Belfast, Dublin, Glasgow, and Manchester, among others, has embarked on a $452-million redevelopment project to dredge the River Mersey Channel and upgrade its infrastructure.
Peel Ports CEO Mark Whitworth, and David Appleton, container shipping advisor to the port, met with Inbound Logistics to share their insight on the Liverpool2 investment, which will double its container-handling capacity, as well as challenges and opportunities serving the UK and European markets.
IL: Talk about the Port of Liverpool's unique model.
Whitworth: For one, we own the infrastructure and land in perpetuity. It's all freehold so we don't have any concession agreements. In most of our locations, we are the statutory harbor authority so we control operations end-to-end.
Consequently, we are involved along the value chain. For example, we run our own multi-user warehousing facility.
We had a customer that operated a 150,000-square-foot warehouse at the port. It imported cheap plastic furniture from the Far East and inevitably went bust overnight. We were coming into the back end of the recession, and found ourselves with a large, unused facility. That doesn't normally happen in this business. We decided to take it back under our direction and set up a multi-user warehouse facility to serve our small and medium-sized businesses.
Just to contextualize that, we were previously earning $6.80 per square foot from this warehouse. Now it's more than $15 per square foot. It has grown quicker than we expected. In fact, we've found that warehousing utilization is in the high 90th percentile. So we're already looking to invest again.
Appleton: The port-centric logistics model is gaining strength, especially as traditional warehouses in the center of the country come to the end of their leases and companies look at other locations where land and labor costs might be cheaper. Now they're considering logistics activities in the port. It's the logical next step.
IL: How's does Britain's global trade dynamic compare with Liverpool's value proposition?
Appleton: Today we have a major imbalance in container flows in the United Kingdom. Around 90 percent of containers coming into the region enter through England's southern ports. Yet 60 percent of that volume eventually finds its way to our hinterland. It's an odd dynamic. Liverpool has about 65 percent of the UK population within 150 miles. So containers coming into the south of England are traveling a more expensive journey to get to primary consumption areas.
Liverpool was a dominant port in England until the late 1960s and early 1970s. Vessels have to come through a lock system to get into the port. As ships got bigger, naturally over time we became constrained. The market reacted accordingly.
So Liverpool2, the first and only deepwater container terminal in the north of England, addresses this constraint. Atypically, our sell is not just to the shipping lines but also to end-users. Our message is that someone is paying the bill so let's work together to take cost out of the value chain.
We don't discriminate—forwarders, 3PLs, and global shippers. We're sending a message to all. We hope by pressing buttons all along that journey there will be a level of recognition that forces change.
IL: Is congestion a problem?
Whitworth: It's not like what you see in the United States. There's a ring of steel around London called the M25. The London Gateway development on the River Thames outside the city is a new option for shippers and carriers. But it's not difficult to see how that will eventually become constrained purely by the traffic flows out of London.
Congestion in the United Kingdom is more about road and rail infrastructure. The latter is at capacity. The new High Speed 2 (HS2) rail line connecting the north of London is focused on passenger volumes, but ultimately will ease congestion on the existing network and free capacity for container flows. But realistically that's 20 years away from completion.
IL: How is Liverpool equipped to handle a surge in container volume without similarly contributing to local congestion?
Whitworth: As you can imagine we're banging the desk hard with central government in the United Kingdom regarding this concern. But we have 10 major motorways within five miles of port. There are a number of arteries to disperse volume north, south, and east.
Uniquely, we also have the Manchester ship canal, which was originally created to move cargo straight to the center of Manchester 44 miles inland. We control that asset. We have about 25,000 container moves a year on the canal. It can accommodate smaller feeder vessels up to 200-TEU capacity.
Liverpool has all the major modal flows at its doorstep quite naturally. Felixstowe, located on the southeast coast of England, is Britain's largest port. It needs to make significant investments—particularly the A14, a major arterial road—to enable volume growth without further congestion. We don't require that. That's the advantage we bring to our customers.
IL: Talk about the Manchester canal. How do area businesses leverage this asset?
Whitworth: The canal is unique. The United Kingdom is a small area. If you put a pin in its center, the most efficient distribution point, you'd probably land near Manchester. We can take container volumes directly there. One-third of the United Kingdom's largest warehouses are within 70 miles of Liverpool.
We have one canned food importer that brings containers into Liverpool, then decamps them onto feeder vessels that travel the Manchester ship canal. That leg of the journey is not weight constrained at all. The customer can fill the container without any of the road haulage constraints that exist. That's proven to be quite a successful value proposition.
When you talk about congestion, these are the dynamics that over the years contributed to England behaving unnaturally. It was forced to. Liverpool couldn't handle larger vessels. So they migrated south.
Phase one of our redevelopment project is delivering L2. The second phase will focus on building more DCs along the Manchester ship canal. We already own three locations, all of which are rail, road, and canal connected. The ultimate objective is to establish distribution centers along the route.
IL: Compared to the United States, short-sea shipping is a vital part of the European transportation network. How does that play into Liverpool's growth plans?
Whitworth: There is a significant amount of intra-European short sea traffic. Uniquely in the United Kingdom, Peel Ports has two feeder shipping lines. Coastal Container Line serves the Irish Sea between Britain and Ireland. We have facilities in Dublin and Belfast. BG Freight connects us to Europe. It feeds our competitor ports as well, I might add. It's a pretty substantial business, short of $150 million in turnover. That has been a good lever. Maersk is one of our biggest customers in that business.
But this is a unique model. There aren't too many examples where port groups have their own feeder vessels.
Appleton: The United Kingdom doesn't have any Jones Act issues as in the United States. Also it's difficult to go very far in Europe without running into another country. So there's a huge amount of intra-European shipping.
IL: Given the trade imbalance in the United Kingdom—90 percent imports to 10 percent exports—how do you efficiently reposition assets?
Whitworth: Peel Ports Group's BG Freight plays a big part in that regard. A significant percentage of its turnover comes from repositioning containers in the United Kingdom.
Appleton: One difference in the United Kingdom compared to the United States is that freight forwarders dictate a large volume of traffic, although that might be changing. In the Asia-Europe trade, for example, forwarders control 75 percent of all shipments that come into the United Kingdom. It hasn't reached that level yet in the Trans-Pacific, but it's headed in that direction.
Consequently, forwarders control huge inland volumes, as well. They make money on the rail and haulage legs, not on the ocean side. The steamship lines aren't paying for it and they don't take an active enough interest to bring vessels closer to where cargo is going. Somebody pays, and that's the customer. That has to change.
Whitworth: We're trying to change embedded behaviors. Industry has gotten used to working unnaturally. Logically, it doesn't make sense to bring product into Southampton, for example, and truck it to the northwest and beyond. The population is at Liverpool's doorstep.
IL: North American shippers are currently dealing with a chassis crisis as a shortage of equipment and changing ownership dynamics increase costs and complexity. What is the United Kingdom's chassis paradigm?
Appleton: Truckers have always owned the chassis so it's not a problem. Chassis exist because of wheeled operations, which is the American model created by Sealand.
When Sealand started up in Europe, it had wheeled operations in Felixstowe. But by the end of the 1980s, at the insistence of the port, that model was dismantled. Land is more constrained in Europe than the United States. It was considered wasteful to have rows of chassis sitting on the quay with a single container on each one. Now it's all stacked operations. It's the truck driver's responsibility to turn up for a container with a chassis.
Chasing the Chassis Conundrum
When the Federal Motor Carrier Safety Administration (FMCSA) began enforcing its Requirements for Intermodal Equipment Providers and for Motor Carriers and Drivers Operating Intermodal Equipment rule in 2010—more conveniently called the Roadability Rule—it raised a new regulatory specter for shippers, intermediaries, and carriers across all modes.
Ocean carriers, facing economic challenges of their own, started exiting the chassis business in spades. This created an enormous void. Flash forward almost five years, and the chassis situation remains unsettled. Equipment shortages have been well-documented at some ports. Others are still wrangling over how and where to store and interchange chassis equipment.
David Hamm, senior manager, communications for Princeton, N.J.-based TRAC Intermodal, a chassis solutions provider, offers some insight to how industry is managing the chassis problem.
IL: As steamship lines exit the chassis business, how are roles changing in the maritime supply chain?
Hamm: With the advent of bigger ships and new alliances, steamship lines are increasing their focus on filling ship capacity and slowly transitioning to port bills of lading. Consequently, new parties such as beneficial cargo owners (BCOs) and non-vessel-operating common carriers (NVOCCs) are, in some cases, arranging directly for the first and last mile—including the purchase of chassis solutions. BCOs are now beginning to understand the associated costs of land-based asset utilization, such as container and chassis dwell times. This will eventually lead to improved and more efficient supply chains.
IL: Some ports have taken a creative approach to developing chassis management programs, such as neutral chassis pools and co-op chassis pools. What are the differences?
Hamm: Neutral chassis pools feature clear accountability. The contributor is responsible for chassis availability at the right place, the right time, and in the right condition. (Editor's note: a "contributor" is defined as any entity that provides chassis to a pool for its users.) Rail and port host facilities enjoy clear bilateral understanding that allows for rapid and nimble problem resolution and product development.
Co-op chassis pools enable multiple asset owners to supply chassis to a pool on behalf of customers. As it's currently designed, contributors are not represented at the governance level. So in some ways, the pool is not held accountable to either the contributors or their customers.
A third model is emerging; we call it the market pool. This allows for multiple parties to contribute assets on behalf of customers. Contributors largely make up the governing board. All chassis contributed to the pool are interoperable. This hybrid model holds the pool directly accountable to the contributors while offering customers choice. Management structure and software exists to execute the market pool.
A fourth model, the "pool of pools" tries to combine existing pools at common locations to create interoperable chassis while preserving individual pool terms, conditions, and chassis marking. Currently, no management structure or software exists to execute this system.
IL: Any other options shippers can use to secure equipment?
Hamm: Some new options and provisioning alternatives might be beneficial to large BCOs, NVOCCs, and truckers. These include:
- Hybrid leased chassis—where customers lease a chassis but the intermodal equipment provider (IEP) offers a suite of maintenance and service coverage options, which might be located at customer facilities.
- Pool products—where the IEP interchanges with a trucking company, but billing is to a third party such as a BCO.
- Bundled door-to-door solutions—where the IEP provides drayage, warehousing, kitting, and other value-added services.
IL: What impact do chassis have at inland ports and intermodal ramps?
Hamm: Inland ports and intermodal rail ramps present an interesting set of opportunities and challenges driven by the wheeled nature of many facilities. To unload the train, the facility needs a chassis to move the container from the rail side to a designated parking facility where the container stays mounted to the chassis.
A wheeled facility consumes chassis that are not on the street. So responsibility for use and payment of this equipment while on terminal needs to be established. IEPs and hosts need to agree how to maintain and pay for this type of chassis use.
IL: What advice would you offer shippers/consignees?
Hamm: First, consult a professional.Second, consider all the costs, not just the per diem rate. Third, review all the alternatives. Some might be better for certain markets, and some work well together as a bundle.