Hampton Roads poised for cargo bonanza

In 2014, a century after it opened for business, the Panama Canal is scheduled to begin handling ships more than 2-1/2 times larger than those it can accommodate today.

Hampton Roads and the other major East Coast ports are jockeying for position in anticipation of a shift of cargo from West Coast ports, which handle the lion's share of imports from China and other Asian countries.

They're banking on a hotly debated premise: that companies currently shipping cargo to Los Angeles and Long Beach, Calif., and then transporting it by rail eastward across the country will jump at the potential cost-savings of sending much larger ships through the Panama Canal directly to East Coast ports.

West Coast officials are fighting back.

Concerned about losing jobs, they've launched a "Beat the Canal" initiative with a website that includes a video featuring former California Gov. Gray Davis and Los Angeles Mayor Antonio Villaraigosa announcing a virtual call-to-arms.

The cost of preparations under way or being considered along the East Coast runs into the billions.

In Panama, where improvements include the addition of a king-size set of locks at both ends of the canal, $4.2 billion in contracts had been awarded as of last May.

The new canal will be able to handle ships carrying up to 13,000 standard 20-foot containers instead of the current 5,000. But these megaships will need deeper drafts - up to 50 feet.

That gives Hampton Roads an immediate edge over its rivals.

The port has a 50-foot channel leading to berths with 50-foot drafts. It has quick access to and from the open sea, nearly two dozen cranes that can stretch across the biggest container ships, and excellent rail connections with the two biggest freight railroads on the East Coast.

"Virginia has all the natural advantages, with deep water, no bridge obstructions," said Jeff Keever, senior deputy executive director/external affairs at the Virginia Port Authority. "We have the most modern and technologically advanced marine terminals, and we hope that the ocean carriers might want to be able to take advantage of that, with the two Class 1 railroads that we have in the port, to make a call in Virginia with those larger vessels prior to the Panama Canal expansion."

A glance at the readiness of its competitors shows how well-positioned Hampton Roads is - at least for now.

The channel depth at the biggest East Coast port - New York/New Jersey - ranges from 37 to 45 feet, though a dredging project under way will have deepened it to 50 feet leading to several terminals by the end of the year, a port spokesman said in an email.

The port's biggest problem is the Bayonne Bridge, which is too low for the biggest ships to pass under en route to four of its terminals. A $1 billion fix is planned, but the new bridge won't be ready until 2016 at the earliest, according to The Journal of Commerce.

Savannah, Ga., the second-largest East Coast port, has a channel depth of 42 feet. Dredging is planned to deepen it to as much as 48 feet, but the project itself - still going through bureaucratic hoops - will take as long as five years once it's started, according to the Army Corps of Engineers.

The port of Charleston, S.C., the fourth-largest on the East Coast, just behind No. 3 Hampton Roads, has a harbor channel of 45 feet. It can handle ships that need a 48-foot draft, but only at higher tides. Port officials want to dredge to up to 50 feet, but they, too, face bureaucratic hurdles.

Baltimore is the only other port on the East Coast with a 50-foot channel, but it lacks a 50-foot container berth. That will be addressed within the next two months, said Jim White, executive director of the Maryland Port Administration, giving the port one 50-foot berth and three others at 45 feet.

But even if Hampton Roads does have a jump start on its competitors, capitalizing on that advantage won't be easy.

Shipping lines generally call on a series of ports, discharging and taking on cargo at one site after another as part of a "rotation." So being able to handle the biggest ships might not help one East Coast port if the others aren't ready.

Peter Tirschwell, senior vice president for strategy at UBM Global Trade, wrote in The Journal of Commerce this month that he doesn't see a way for Hampton Roads to solve this problem by making itself a sole East Coast cargo destination.

"Given a population base dispersed throughout the mid-Atlantic and a modern inland-rail network that's still chasing customers rather than the other way around, Virginia isn't there yet," he wrote. "It essentially has to wait for the other ports to catch up."

Another challenge is geography. East Coast-bound container ships from the Suez and Panama canals are likelier to make their first stops in New York or Savannah, where they'll drop off imports then work their way down or up the coast.

Hampton Roads' port executives, however, think they can sell a hub-and-spoke rail concept to shipping lines, by which the port could become to cargo containers what the Atlanta airport is to airline passengers, funneling containers from monster vessels by rail to the Ohio Valley and to places as far-flung as Detroit, Chicago, Atlanta and even Dallas.

Ocean carriers have already begun to talk with the port about experimenting with bigger ships, inbound from the Suez Canal, making a single East Coast call in Norfolk, said Keever, the Virginia Port Authority official.

Harbor pilots have been contacted by ocean carriers about "larger vessels calling in Virginia, sooner rather than later," he added.

"We're talking ships with 11,000 (20-foot containers) or bigger that simply can't go anywhere else on the East Coast," said Joe Harris, a spokesman.

"If they could achieve that, that would be a major coup," Tirschwell said of a sole call in Virginia, adding that it would introduce "a massive new concept in the industry."

Neither Harris nor others who follow the industry, however, believe change will come quickly once the wider Panama Canal opens.

"I think it's going to take awhile to ramp up," said White, the Maryland port official.

He doesn't foresee any discernible impact until late 2015 or early 2016.

"It's very complex; there are so many moving pieces to this," he said.

Tirschwell agreed. "I don't think anything's going to happen, dramatically, right away," he said. "The reason is that, in general, the East Coast ports don't have the capacity to handle the fully laden rotations of the larger ships that will be able to transit the Panama Canal."

Hampton Roads is betting that its deep water and first-rate rail connections with Norfolk Southern and CSX Corp. will provide a sort of Northwest Passage for cargo to the Ohio Valley, which some industry experts predict will emerge as a battleground after the expanded Panama Canal opens.

Historically, most cargo headed to that region has been shipped via rail from the West Coast because it's faster. But it's also more expensive.

"Being in this business as long as I have, I know price always wins over transit time," White said.

Tirschwell, however, said the idea of East Coast ports serving the Midwest via the Panama Canal is "still a relatively new concept."

"It's not as if, you know, the opening of the Panama Canal automatically results in a low-cost alternative to a battleground area versus the West Coast," he said, adding that shippers and railroads heavily invested in West Coast operations will fight for market share.

"This is all a pricing game," he said.

Frank J. Baragona is president of the U.S. operations of France-based CMA CGM - the world's third-largest container-shipping company - which has headquarters in Norfolk. In December, he told participants at a state transportation conference that the impact of the Panama Canal on West Coast-East Coast container traffic ultimately will come down to a "trade-off between transit time and costs."

"I don't see a real shift," he said in an interview.

Shipping cargo from South China to Southern California takes 11 to 12 days, he said, and sending it on by rail to the East Coast takes an additional six to seven days.

To ship the same cargo directly from South China to the East Coast via the Panama Canal takes 24 to 26 days.

"If I'm an importer of, say, apparel and I've got $250,000 to $300,000 of value tied up, time is money," he said. "I'm going to, more than likely, bring it to the West Coast, put it on rail and bring it to the East Coast in 17 to 18 days, versus 24 to 26 days, and not tie up the $300,000 for an extra five to six days."

Baragona added, however, that for goods that are not time-sensitive, the Panama Canal option would not only offer lower costs, but also minimize the risk of delays compared with containers at West Coast ports that are transferred from ship to rail or, inland, from one rail provider to another as they move across the country.

While no one questions Hampton Roads' natural advantages, some industry experts are skeptical that Virginia's port will have the magnetic effect on container traffic that many here envision.

"The bottom line is that, you know, everybody wants to make this great big story out of the Panama Canal," said Tom Finkbiner, who headed Norfolk Southern's intermodal operations during the 1990s and now is senior chairman of the Intermodal Transportation Institute's board of directors at the University of Denver.

The canal, he said, had become outdated, had maxed out its capacity and needed to do something to ensure its survival in the global marketplace. More than doubling its capacity, however, does not make it a panacea.

It's not going to divert a lot of West Coast traffic to the East Coast, Finkbiner said, "because all of the supply chains are set up already."

"It's not in the cards."

Robert McCabe, (757) 446-2327, robert.mccabe@pilotonline.com