EconSouth (Third Quarter 2001)


COVER STORY


Cover Story

During the past decade, increased global trade has sparked vigorous growth for ports in the Southeast. Nevertheless, competition among ports is brisk. Even well-established Southeastern ports are jostling for market share and strategizing about ways to stay on top. In the shuffle for business, some strong new contenders are emerging, and some traditional front-runners are scrambling to keep pace.

A port’s viability depends on a combination of natural and infrastructural advantages. A deep harbor is essential. Proximity to export goods and commodities, population centers or trading partners invites import and export business. Rail access, storage space and investment resources to fund facilities and equipment are other critical factors that determine a port’s vitality. In a competitively demanding climate, ports are bolstering these amenities by developing trade niches, diversifying from traditional cargoes, cultivating long-term relationships with shippers and carriers, and employing innovative technology. State and local incentives can also help attract shipping business.

Carving a niche
Brunswick, Ga., the sleepy seaside city where port manager Bill Dawson has spent most of his life, seems an unlikely stage for the drama of globalization. A casual motorist passing through Brunswick will not notice much out of the ordinary. But through this unassuming port pass surprising goods: mountains of grain brought by rail from the Midwest awaiting shipment to Greece, Japan, China and Brazil; plywood from Southeast Asia and Latin America headed to building supply stores; huge rolls of paper en route to Europe and South America; barley malt from Chicago destined for a brewery in the Dominican Republic; and zircon sand from DuPont for glassmaking in the Netherlands.

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The port has not always been so robust. According to Dawson, planned offshore oil exploration in the area in the ’70s left Brunswick with “a dock and a debt.” Playing a wild card, the port decided to woo a share of the auto-shipping business. Access to ample space and rail lines offered important advantages. Brunswick is also the farthest-inland port on the eastern seaboard, providing quick access to auto distribution points. Port officials began modestly, securing a contract to handle Yugos.

“We were almost a laughingstock at first,” said Dawson. But no one is laughing now. Brunswick has expanded its trade to include Saabs, Mitsubishis, Audis, Hyundais and Volkswagens. The port processes heavy equipment, farm machines and luxury tour buses. It also provides outbound facilities for Mercedes, Ford, General Motors, Daimler-Chrysler and Saturn. In 2001, 218,000 autos moved through the port, a 70 percent increase over 1999 and a 12 percent increase over 2000.

Brunswick’s agri-bulk business has grown too — more than tenfold, from 40,000 tons in 1996 to 481,476 tons in 2001. Overall tonnage grew 33 percent between 1995 and 2000, when the port handled 2.4 million tons of cargo.

This activity is small potatoes, though, compared to the Port of Jacksonville, Fla., where 600,000 autos and 7.5 million tons of goods overall flowed through the port in 2000. Jacksonville is a well-established player in auto imports, the second-largest in the nation after the port of New York/New Jersey. Nevertheless, Brunswick intends to give Jacksonville a run for its money. While Brunswick’s trade enjoyed double-digit percentage increases last year, Jacksonville’s volume flattened by comparison.

Jacksonville spokesperson Robert Peek remains sanguine, nonetheless. “We’re in the catbird seat,” he said, speaking of 600 acres of property recently acquired for port development. Both ports attract customers with on-site auto processors that get cars ready for the showroom. Jacksonville has spent $35 million on processing facilities during the past three years. Brunswick’s most important upcoming improvement is a new bridge that will dramatically increase its capacity to serve large vessels.

Picture of Ship
The price of success
Although ports are not profit-producing entities by themselves — indeed, nearly all ports are subsidized by some combination of city, county, state or federal funds — they provide a significant number of jobs and can have a major impact on local, state and even regional economies. For this reason, governments are eager to keep ports active and viable and often offer a variety of tax and other incentives to encourage trade, which has direct and indirect impacts on local communities and states.

But judging the direct and indirect economic impacts of ports can be difficult, as Thomas J. Cunningham, vice president and associate director of research at the Federal Reserve Bank of Atlanta, points out. “Ports clearly have an important and direct economic impact on the local communities . . . because they support jobs and spending, and on a statewide basis they also provide tax revenues. Indirectly, though, it’s harder to gauge the impact of ports because if a port closed in one community a business could just about always import or export goods from another port, and more jobs and economic activity would be added there.”

Nonetheless, ports assess their economic impacts to be quite large. For instance, the Georgia Ports Authority asserts that Georgia ports support around 80,000 jobs directly or indirectly and contribute some $1.8 billion in personal income and $585 million in state and local tax receipts each year. Alabama ports estimate their economic impact at $3 billion statewide, generating $467 million in state taxes and 118,000 jobs. The Port of Miami-Dade reports almost $4 billion in direct economic impact and almost $9.8 billion in total impact. Thus for local and state governments, the stakes are high.

But port maintenance and upgrade demand massive capital investments that are typically provided through a combination of public and private funding.

Dredging is a major, costly project that confronts several Southeastern ports. As ships get bigger, harbor depth becomes more and more important. Container ships in particular require deep water. Brunswick’s harbor is relatively shallow at 30 feet, so the port plans to dredge to a depth of 36 feet, making it nearly as deep as Jacksonville’s 38-foot harbor. Not to be outdone, Jacksonville also plans to dredge to reach a depth of 41 feet. Jacksonville’s dredging project will cost about $31 million.

According to Aileen Denne at the Association of Port Authorities, deepening a harbor can take as long as 30 years, and it requires extensive cooperation among local, state and federal governments as well as with environmental agencies and citizens’ groups that gauge the impact on the local community.

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Diversify — or fail
While some ports like Brunswick count on developing niches that will allow them to remain competitive, others, like Tampa and Mobile, are diversifying. Both the Port of Tampa and Alabama State Docks have depended heavily in the past on shipping commodities and are now seeking new business. While commodities are significant in terms of the tonnage that moves through a port, the value of container goods and general cargo, though they weigh much less, is usually greater.

Tampa is the largest port in Florida in terms of tonnage, shipping about 50 million tons of cargo a year. Traditionally, phosphate fertilizers mined in Florida and shipped to China, India, Trinidad, Australia and Mexico have accounted for a significant percentage of Tampa’s trade. The port has begun to refine phosphates locally to make shipments lighter and more valuable, and port officials are determined to expand its general cargo trade.

Tampa port spokesperson Lori Rafter says general cargo activity creates more jobs than bulk cargo and would enhance the port’s economic impact, which is already considerable. Rafter reports that the port now provides 93,000 jobs directly and indirectly and has a multiplier effect of $10.6 billion, making it “the biggest economic engine in west Florida.”

The addition of cruise lines to ports that have typically handled freight is another strategy for increasing port revenues. Both Tampa and Jacksonville will be adding cruises in the near future. Peek believes that Jacksonville will be able to draw new customers by providing a closer point of departure than Florida cruise ports further south.

Alabama State Docks (ASD), like the Port of Tampa, has consistently depended on shipping commodities. In 1999 ASD was the largest shipper of wood pulp nationally and ranked second in shipments of forest products. The port also handles huge quantities of coal to power Southeastern utilities. Coal accounted for nearly 12 million tons of the port’s total of 17.8 million tons in 2000. In the past Alabama has exported coal, but recently imports from Venezuela and Colombia have nearly equaled exports.

Despite good growth in coal shipments and continued strength in forest products, ASD director Jim Lyons believes that a move toward handling containers is essential for the port’s development. Citing the need for massive capital investments of about $300 million to create intermodal facilities and railway links, Lyons said that Mobile’s harbor depth of 40 feet and its access to four rail lines makes it a natural for significant container business.

“We’re known for forest and bulk shipments, but we’ll have to get the word out about containers,” he said.

The Port of Savannah, Ga., and the Port of Miami led the Southeast in growth of container traffic in 2000. Savannah, the seventh-largest container port in the nation, registered an increase of 11 percent in TEUs (twenty-foot equivalent units) from 1999 to 2000 and a 20 percent increase, to just over a million TEUs, from 2000 to 2001. Miami recorded a 12 percent increase, to 868,000 TEUs, from 1999 to 2000 while Jacksonville’s shipments fell by about 8 percent to 708,000 TEUs. Both Savannah and Miami have the advantage of a well-established clientele.

Savannah’s container traffic has more than doubled in the past decade. Director of the Georgia Port Authority Doug Marchand attributes part of Savannah’s success to its connections with shippers and distributors. The port has also invested heavily in state-of-the-art infrastructure for container shipments. Well-located to serve as a distribution hub for population centers in the Southeast, the Port of Savannah has become home to huge distribution facilities for Wal-Mart, Kmart, Home Depot, Lowes, Dollar Tree, Pier 1 and half a dozen other retail outlets for mostly imported consumer goods. Most of the imports come from Asia through the Panama Canal.

“Through the years we’ve developed long-term relationships with the shippers and carriers that utilize port facilities,” said Marchand.

The Port of Miami has also enjoyed growth of better than 100 percent in its cargo tonnage during the last decade, most of it accounted for by containers. Miami also has a unique advantage in its proximity to Latin American and in its large Latin population. These two factors make Miami a natural gateway for goods traveling to and from Latin America and the Caribbean, which account for 64 percent of the port’s total cargo. Though Miami lost some ground in 1999, it rebounded in 2000 to ship 7.8 million tons of cargo. The Port of Miami is an “in-transit” environment that breaks down huge shipments of goods for transport to smaller destinations that cannot accommodate bulk quantities.

According to María Camila Leiva, the executive vice president of MFZ Management Corp. in Coral Gables, Fla., port growth has provided spin-off benefits that come with increased volume. More traffic makes it easier and more economical to install large equipment and improve port facilities. “Better frequency is a major issue,” she said. “Economies of scale benefit everyone.”

Technology may be the key to attracting container traffic to the Port of New Orleans. One of the nation’s busiest ports and a leader in imports of steel, rubber, plywood and coffee, the urban Port of New Orleans suffers from a land shortage that limits its growth — especially in the space-intensive area of container trade. The port’s general operations manager Steve Jaeger is counting on innovative container-stacking technology to help solve the problem.

In the past, because there was insufficient space near the river for a conventional container facility, the Port of New Orleans has stored containers along an inland waterway that hinders access for large vessels. Stacking equipment that houses containers five or six high will make it possible for the port to build a new container facility close to the river. Though the new facility will be physically smaller than the old one, it will provide increased capacity.

According to Jaeger, financing the massive infrastructure needed to maintain the port remains a problem. Port officials have invested nearly $500 million during the last decade in improving facilities.

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Deeper waters?
Even with infrastructural improvements and harbor dredging, Southeastern ports will be running a race with time to accommodate new “mega-ships” that require increasingly deep harbors. According to Denne, only two ports in North America — Seattle and Halifax — have existing harbors that will accommodate the largest ships. “Once 42 feet was considered a deep harbor,” she said, “but not anymore.”

Given the region’s success in attracting trade, it seems likely that ports in the Southeast will be busy with construction activity and that governments and private investors will continue to support development because of the significant economic benefits.

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