Trends—September 2010

Trends—September 2010<br />

U.S. Ports Dig Panama Gold

For a wee slip of waterway, 48 miles in length and 33 feet wide at its narrowest, the Panama Canal has publicity buoyancy the likes of the two great oceans it connects—and the buzz is only building. Despite technology and globalization, the Canal has remained a vital gateway in the shipping trade since it first welcomed the SS Ancon in 1914.

Even its relative obsolescence, in terms of the ships it can accommodate, is still the benchmark for container capacity—Panamax, Post Panamax, Super-Post Panamax, and in five years time, the New Panamax. The completion of a third set of locks by 2014 will double throughput capacity and ensure the Panama Canal is relevant well past its Centennial celebration.

Given the rapid pace of change in the shipping industry, projecting out four years is ages in world trade chronology. But the Panama Canal’s potential already has U.S. ports reacting as they prepare for a new TEU surge through Central America.

U.S. consignees are increasingly receptive to all-water routings from Asia to the eastern United States, bypassing latent congestion and capacity constraints on the West Coast—and East Coast ports are benefiting. As one example, the Georgia Ports Authority (GPA) ferried 251,126 TEUs during July 2010, marking its best month ever and continuing eight straight months of double-digit growth.

"Our strategic planning has ensured that Georgia’s deepwater ports are poised to handle the growth demands necessary to advance economic development" says Curtis Foltz, executive director, GPA.

Part of that planning was inked in a memorandum of understanding (MOU) with the Panama Canal Authority (ACP) in 2003—an agreement that "aimed to generate new business by promoting the all-water route between Asia and the Port of Savannah via the Panama Canal."

Shifts in supply chain management and sourcing strategies, coupled with the Panama Canal’s pending expansion, offer incentive for U.S. ports to invest in transportation infrastructure enhancements that help speed throughput.

ACP officials were busy gladhanding in 2003, signing MOUs with seven U.S. East Coast ports, followed by Houston and New Orleans, among others. The timing was prescient, given Asia-U.S. West Coast trade dominance and the fact that the Panama referendum to expand the Canal was still three years away.

Recently, the ACP signed a MOU with the Mississippi State Port Authority at Gulfport, prompting similar optimism from Donald R. Allee, executive director/CEO of the port. "For four decades, the Mississippi State Port Authority has focused on growth prospects in the Western Hemisphere, but the expanded Panama Canal will afford the Port of Gulfport new opportunities to be more competitive in shipping between North America and both Asia and the West Coast of South America" he says.

Shifts in supply chain management and sourcing strategies, coupled with the Canal’s pending expansion, offer incentive for U.S. ports to invest in transportation infrastructure. For example, in August 2010, the Port of Miami announced plans to fast track a $47-million refurbishment of a railroad connecting with Florida East Coast Railway’s Hialeah Railyard.

The railroad redevelopment is part of a comprehensive overhaul that also includes a new highway tunnel under Biscayne Bay connecting to the port, and a dredging project to deepen the harbor to 50 feet so it can accommodate larger containerships. Port officials expect to complete these initiatives by 2014.

Such investments are attracting attention south of the U.S. border, especially in Brazil. A delegation from the Port of Santos—the largest port in Latin America—recently met with officials from the Port of Miami (as well as the ACP and Port Everglades) to explore ways they can grow their trade alliance. The Brazilian port is currently undergoing its own $120-million dredging project to handle larger ships.

Brazil’s economy is in an upswing, and as violence in Mexico escalates, the country presents an obvious growth market for U.S. companies looking to offshore manufacturing and eventually sell into. In fact, southern Florida is one of the few U.S. regions that have a strong export market, with the majority of goods flowing into Latin America.

Port Everglades is also profiting from increased exposure to these markets via the Panama Canal. With cargo volume projected to grow four percent annually, the port has a 20-year, $2-billion expansion plan, including dredging and a 41-acre container yard, to prepare for a spike in cargo traffic.

West Coast Ports Counter

Just as U.S. East Coast and Gulf Coast ports ramp up efforts to capitalize on the expected trade boom through the Panama Canal, others are looking to burst the bubble. West Coast ports have the most to lose from Asia-U.S. all-water routings.

The Port of Seattle recently commissioned Herbert Engineering to produce a study on how global trade routings impact carbon emissions. The Alameda, Calif.-based transportation consulting firm examined shipments from Asia through West Coast ports to U.S. cities by ship and train. These routes were compared with movements from Asia through the Panama and Suez Canals to Houston, Savannah, Norfolk, and New York.

The study confirmed that freight ferried by ships creates less carbon dioxide emissions than rail transportation when travel distances are equal. However, because ports in the Puget Sound region are closer to Asia than East Coast ports, "this more than offsets the detrimental impact of the longer rail distances from West Coast ports" Herbert Engineering reports.

Moreover, the research claims that carbon emissions are about 41 percent less when moving a shipping container between Shanghai and Chicago via the Port of Seattle compared to going through the Panama Canal and shipping to ports near New York/New Jersey.

Ultimately, the green card won’t steer traffic away from the Panama Canal or proximate U.S. ports. If anything, domestic businesses will find further incentive in terms of market responsiveness, total logistics costs, and carbon emissions reductions by sourcing more goods from Latin America and shortening transportation routings.

As the 2014 Panama Canal expansion charter nears, many U.S. companies will take a second look at their global sourcing strategies and stateside distribution networks—and they will pay close attention to ports that are putting their money where their MOUs are.

Reducing the Carton Footprint

Green things come in small packages. Take, for example, SIG Combiblock’s new one-liter aseptic carton (right), which reduces the carbon footprint of packages by 28 percent compared to conventional carton packs.

The Institute for Energy and Environmental Research in Germany conducted a lifecycle assessment of the carton manufacturer’s product to evaluate all key factors and processes of the packaging, from sourcing raw materials to shipment from production plants. The cardboard composite, made from more than 80 percent wood fiber, also includes an ultra-thin polyamide layer that acts as a barrier to protect against odors, as well as internal and external layers of polyethylene that form a liquid barrier to keep moisture out.

The first company to use the new packaging will be Milch-Union Hocheifel, one of the largest dairy product manufacturers in Europe.

SaaS To The Rescue

Even as freight volumes dropped, IT budgets dried up, and enterprise software sales dipped, the Transportation Management System (TMS) market held steady, according to Steve Banker, service director for supply chain management and the primary author of ARC Advisory Group’s Transportation Management Systems Worldwide Outlook.

The market’s resilience is largely due to the adaptable deployment of TMS solutions. Vendors are now sensitive to end-user demand, serving up legacy systems and, increasingly, Software-as-a-Service (SaaS) solutions that meet specific functional and cost requirements.

"Between 2007 and 2009, TMS sold on a traditional software model declined at a double-digit rate" says Banker. "If it had not been for solutions sold in an SaaS model, which continued to have good growth, the market would be in far worse shape."

The SaaS model consists of solutions that are sold as part of a lease structure. These revenues can be associated with one instance of software being used by multiple customers; traditional hosting, where each customer has its own instance of software hosted by the vendor; or, customers leasing software they host on their own servers.

BNSF Brings Shortlines On Line

BNSF Railway, the American Short Line and Regional Railroad Association, and 14 short-line railroads have partnered to form the BNSF Short Line Caucus. The committee aims to improve two-way communication between the Class I and its connecting short lines, work jointly to address problems facing all parties, share ideas and best practices, and develop opportunities to attract new business to rail.

The new convention isn’t unique to the railroad industry. CSX established a Short Line Caucus Committee in 1996 to improve communication with its partners and Norfolk Southern has a similar program in place as well.

Truckers Tackle Credit Crunch

With the threat of a capacity shortage looming, a double-dip recession still plausible, and EPA emissions mandates definite, motor carriers have a lot to consider when investing in new equipment. But if there is one thing they prioritize—engines and electronic onboard recorders aside—it’s credit, according to a quarterly survey conducted by Transport Capital Partners, a Fort Myers, Fla., transportation consultancy.

In the near term, 66 percent of trucking companies believe credit availability will remain the same; 25 percent expect improvement and 17 percent expect it to tighten (see chart below).

"Carriers are interested in credit availability for replacing equipment, and larger carriers are more optimistic about the credit outlook" says Lana Batts, managing partner, Transport Capital Partners.

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