With signs of economic recovery in the U.S. and Europe, global trade and shipping are anticipated to rise in next few years. With this, many in the port and harbor industry have planned to invest a great deal in and around ports. Although this was planned, there was a major change the industry did not anticipate that caused dramatic congestion at U.S. gateway ports.
The major change? Shipping alliances.
In an effort to increase efficiency and save money, big players in the industry, like 2M and Ocean Three, pooled their resources and began deploying larger ships. Unfortunately terminals, designed nearly two decades ago, are not equipped to handle these larger ships. Take the new ship, the Triple-E Class, for example. This ship can carry in excess of 18,000 containers. Compare that to the 5,000-7,000 container ships the older terminals were originally designed for.
Growing Shipping Capacity Causes Congestion
This 11,000 unit difference in container capacity has made a huge impact on efficiency. What used to take up to 10 hours to move a container from the port, can now take up to eight days in some West Coast ports. Not only is time a factor, according to Gene Seroka, executive director at the Port of Los Angeles, but on average terminal operators had to pay $3 million in added spending a week to deal with the congestion.
Calculate that per year. That means that operators, on average, are spending nearly $156 million per year to combat congestion issues solely. This does not account for all of the indirect costs associated. In a nut shell, the U.S. economy is spending billions. Learn more in this Wall Street Journal article.
Take a look at the video below for a deeper dive into the problem.
How an Investment in Infrastructure Helps
Most professionals in the port and harbor industry can agree that the overall goal is to continually improve the process of moving products from ports to their destination. Period. The influx of megaships into older terminals is threatening that very goal. Therefore, investing in infrastructure is not recommended, it is necessary.
International ports are already moving in this direction. European and Asian ports, although facing some congestion, moved faster to adopt the infrastructure needed to handle the megaships. As a result, the loading of containers bound for Europe is less of an issue due to the different port handling procedures.
Case Study: Florida Makes Impact by Investing in Infrastructure
If you asked a cargo-shipping company ten years ago, where to ship their goods, most would have answered, the West Coast because at the time, it was the very best option. However, investing in infrastructure in Florida has changed the conversation today.
To help reduce the heavy congestion that mostly occurs on the West Coast, the state of Florida invested about $1 billion in the past five years upgrading their port system. As a result, with the recent investments by the ports and the state, Florida is now being discussed as an option to divert cargo and alleviate congestion.
Along with Florida, East Coast ports overall are growing at a faster rate. This rate is largely due to port users wanting to focus on ‘putting eggs in multiple baskets’ to combat labor strikes and shipping congestion.
New Environment, New Investments
Between 2012 and 2016, U.S. seaports and their maritime terminal partners are expected to invest $46 billion into infrastructure.
In some cases, port occupiers are not just making the adjustments waterside – inland port developments are on the rise as well. Although the need for adequate transportation to and from the ports will increase, most of these occupiers are looking inland for their more modern space needs.
Ultimately, all ports will eventually have to invest in their infrastructure, both waterside and inland, to evolve and compete in this new environment.
Will your port system be able to handle this evolving, new environment? If you are ready to discuss infrastructure options for your existing or new port, feel free to contact Haskell’s Port and Harbor expert, Mike Huskey.