Will U.S. ports, especially those on the Atlantic and the Gulf coasts, be ready to operate in the changing domestic and international commercial environment? With major shifts on the way the ports that adequately prepare will be the ones to maintain and gain market share. Cargo flow volumes will shift in a big way. This is the first of a three-part observation by our new contributor Thomas H. Wakeman III, Eng.Sc.D.
The one approaching shift that escapes no port’s attention is the Panama Canal. The Panama Canal Authority is investing $5.3 billion to widen and expand the canal’s capacity to service the current generation of 8000+ TEU container ships. When the new locks open in 2014, a new era will begin. It could change global trading patterns just as the initial canal opening did in 1914.
As much as 25 percent of today’s West Coast cargo base could be transferred to East and Gulf Coast ports as global trade picks up again. There will only be one chance to gain control of the initial surge. It will be the deepest East and Gulf Coast ports with corresponding intermodal connections and warehousing capacity that will capture this shift in market share.
Economies of Scale/Scope
Achieving economies of scale and scope will determine the mega-players. It started with increasing ship size first among the bulk carriers and then emerged with the container carriers in the latter part of last century to secure economies of scale. Because margins are razor thin only ports and their supporting infrastructure systems (whether as import or export corridors) with sufficient capacity and efficiency effectively will compete and perform in the global marketplace among the major “port poles”, forming as collaborative networks in Asia, India, and Europe to achieve economies of scope.
These port poles, which combine the infrastructure and business services of more than one port into a mega-region logistics platform, have the ability to be agile, cost-effective and resilient when shocks occur. They are seen as reliable routes by shippers – giving them agile and flexible networks.
Time and reliability are the watch words for global business. As goods flow across the world’s oceans, through our ports, and connect to domestic corridors, they face time delays in route and uncertainty about ultimate delivery schedules because of infrastructure capacity constraints. Freight must flow seamlessly or there is a time, cost and reliability penalty.
India plans to increase infrastructure spending to 9% of GDP (an estimated $500 billion) by 2014, up from the current 4%, on roads, ports and airports. In China, according to the Asian Development Bank, the figure is close to 10% GDP for 2008-2009.
The US has been living on its past construction accomplishments. According to the Congressional Budget Office, between 1984 and 2004, the U.S. capital investments (including federal, state, and local) averaged less than 1.2% GDP. Our growth of demand and lack of investment was unsustainable. Without the recession, we would have been overwhelmed by traffic, much less prepared for what is going to be demanded in the next decade. Our infrastructure systems can not deliver what business is going to require for maintaining global competitiveness without significant investments.
Next: Environmental Concerns
T. H. Wakeman