The Gulf Option
The Port of Houston prepares for its next leap in container growth.
The Port of Houston had a record year for container cargo in 2015 and is now looking to build off that momentum for further growth this year.
Population growth, a boom in exports of plastic pellets and the mid-2016 opening of expanded locks in the Panama Canal all point to more business for the seaport. The port authority is responding with a large capital investment program aimed at handling bigger ships.
“Our focus is on getting our terminals ready for a surge in business,” Jeff Davis, chief port operations officer, said in a telephone interview.
More than 2.13 million TEUs moved over Houston’s docks, up 8.5 percent from 1.95 million TEUs in 2014. Demand for imported goods is on the rise because the population of Houston, the fourth largest city in the nation, continues to grow as other industries take up the slack from the oil sector in producing new jobs. About 700 to 1,000 people per day come to Houston from around the country because the economy is more diversified and businesses are relocating to the area, according to Ricky Kunz, the port’s vice president of trade development and marketing.
Houston, perhaps best known as a hub for breakbulk, bulk and project shipments, also handled 30.5 million tons of cargo for the year, surpassing the previous record of 30.3 million tons set in 2014. The figures do not include bulk terminals leased to third parties.
A portion of Houston’s container growth was the result of cargo diversion from the West Coast when ports there were virtually gridlocked for several months last year due to a contract dispute involving longshore labor. At the beginning of the year, Houston experienced a 30 to 40 percent surge in cargo that led to temporary congestion at terminals and truck gates.
Houston is one of a handful of U.S. ports with a relatively even balance between containerized imports and exports. In fact, exports last year exceeded imports by 152,439 TEUs. Container volume for more than a decade was heavily weighted toward exports, but that has begun to change with more all-water Asian cargo now arriving through the Panama Canal. The European and Mediterranean trade lanes historically have been the strongest for Houston, with growth of about 2 to 3 percent annually. As recently as 2002, the port had no direct container services from Asia, but now Asia-Pacific is the fastest growing market and Houston is the eighth-ranked container port in the nation (if the newly aligned ports of Seattle and Tacoma are classified as a single port).
Houston’s container growth is expected to grow at least 5 to 6 percent in the next few years, spurred in part by the anticipated production boom for synthetic resin pellets, Kunz said during a mid-January session at the Transportation Research Board convention in Washington, D.C.
Pellets are typically bagged, palletized or poured into bulk bags referred to as “super sacks,” and loaded into containers.
The fracking revolution has led to a massive increase in production of cheap natural gas, a component of which is ethane. Ethane—a highly desirable feedstock for many manufactured products—can be separated through industrial processes. Chemical manufacturers are investing heavily in new plants throughout the Gulf Coast, especially along the Houston Ship Channel, to take advantage of low-cost supplies and new pipeline networks.
ExxonMobil Chemical, for example, is expanding its Baytown, Texas, complex and expects exports of polyethylene resin pellets to increase six-fold from about 50 containers a day to more than 300 containers a day in 2017 or 2018, Vanessa Talbot, global sales and optimization planning manager for plastics and resins, said in November at the Containerization and Intermodal Institute’s conference.
Synthetic resin is a byproduct of natural gas production. The pellets are in demand in Europe, Latin America and Asia where they are used to make milk jugs, toys, cars and other products. About a third of Houston’s exports are synthetic resins of various types. Resins and chemicals account for half of all containerized exports.
Based on discussions with suppliers who are bringing new production on line, port authority officials estimate the Gulf region will generate about 400,000 TEUs worth of new plastic pellets between the fourth quarter of 2016 and the end of 2020.
Other ports, such as Charleston, are aiming to attract some of that business as private logistics companies establish rail-served transload facilities where bulk shipments can be reloaded into empty containers and then delivered to the docks. Alternative gateways may be needed, according to South Carolina Port Authority Executive Director Jim Newsome, because Houston doesn’t have enough regular ship services to handle all the volume.
“We believe if we provide the service and have the capacity, the cheapest route for that resin is through Houston,” Davis said.
There is no truth, Kunz added, to concerns that the Port of Houston may not have an adequate supply of containers for resin exports, noting the port currently exports more than 200,000 empty containers each year.
Meanwhile, ocean carrier Grimaldi, which operates with multipurpose roll-on/roll-off container vessels, began calling Houston in early February with its North America-West Africa service. The loop operates with six vessels and will call the Barbours Cut Terminal every 11 days. The North America-West Africa service now has a rotation of Galveston, Houston, Jacksonville, Savannah, Baltimore, New York, Dakar, Cotonou, Lagos, Lome, Tema, Monrovia and Galveston.
Infrastructure Investment. In the past few years, the Port of Houston has prepared itself for larger containerships. It spent $110 million of its own money, for example, to dredge the approach channels that connect the 45-foot federal channel that leads from the Gulf with its Barbours Cut and Bayport container terminals. The Army Corps of Engineers finished the five-foot deepening of the Barbours Cut access channel in September, and is scheduled to complete the Bayport channel deepening in the fourth quarter, Davis said.
“We had to move forward so we wouldn’t be behind the eight-ball when the larger ships started coming through the canal,” Kunz said of the decision to self-fund part of the dredging rather than wait for uncertain congressional appropriations.
At 45 feet of channel depth, Houston can handle ships in the 8,000-to-10,000-TEU range. Kunz said the Houston Pilot’s Association and several container lines are modeling how to navigate the channel with 12,000-TEU vessels. The ships wouldn’t come in fully laden, meaning Houston would be a middle stop rather than a desirable first—or last—port of call.
Houston probably won’t be able to go deeper than 45 feet of operating depth, as other ports can. That’s because the Houston Ship Channel is part of the Continental Shelf and 50 feet would require dredging another 20 miles into the Gulf of Mexico.
“We’d have to have dredging operations 24 hours a day, 365 days a year because of the silting activity along the Gulf Coast. So that’s not going to happen,” Kunz said.
The capital plan recently approved by the board of commissioners calls for a $715 million investment over the next five years to upgrade and expand both terminals.
At Barbours Cut, contractors have already strengthened a 1,300-foot section of the quay by driving additional concrete pilings deep into the channel bottom. The reinforced deck is necessary to support heavier, longer-reach, ship-to-shore cranes that can lift boxes on and off super post-panamax vessels. Four cranes have already been installed and the port authority is about to take another 1,000-foot section of berth out of commission so it can be bolstered to support three additional wide-span cranes, Davis said.
The project includes deepening the dock, moving some container storage areas further back into the yard and improving truck gates.
When upgrades are completed, Barbours Cut will have about 2.5 million TEUs of capacity.
At the Bayport terminal, which is about 50 percent complete since opening in 2007, the Port of Houston plans to spend about $340 million through 2020. New construction on a third dock is expected to begin in the third quarter and a fourth dock will be built later in the five-year cycle, Davis said. The expansion includes dredging, as well as the purchase of large cranes to work the ships and rubber-tired gantry cranes to groom the container stacks and transfer boxes to and from trucks in the yard.
Houston also expects to get more container business once a new 300,000-square-foot refrigerated distribution center is built near the Bayport Container Terminal by AGRO Merchants Group. The port authority announced that AGRO will soon begin first-phase construction of the cargo facility, which will handle chilled and frozen meat, fish, poultry, fruits and vegetables.
The Port of Houston has had limited ability to capture refrigerated cargo, but is now targeting this sector for growth.
Phase one will cover about 12 acres of land. Inspection and handling facilities for the U.S. Department of Agriculture, blast-freezing cells and deep truck docks with many doors for shipping and receiving will be included. The facility, expected to be operational by summer 2017, will have segregated frozen and chilled warehouse space to support various product types and include value-added capabilities.
“We plan to leverage our property’s proximity to the Bayport Terminal to take advantage of legal transportation limits on overweight cargo and provide important rail and intermodal service capabilities,” Don Schoenl, president of AGRO Merchants North America, said in a statement.
AGRO, which operates 53 facilities in eight countries, is also building a temperature-controlled facility near the Port of Charleston.
The AGRO facility is part of the master plan to develop 56 acres into a logistics park. The port authority in February selected Ridge Development as the master developer. Ridge has proposed two 450,000-square-foot options: a cross-dock building or a rail-served facility, both to include 199 trailer storage spaces.
Ridge Development said it is in talks with several potential tenants that have shown “significant interest” in the site.
Ridge will also oversee the development of the AGRO facility.
The entire property is located less than one mile from the Bayport Terminal. The port authority plans to construct a heavy-haul road to provide direct access to the port so trucks don’t have to enter weight-restricted public roads. The short distance will translate into lower drayage costs for shippers.
Warehouse space is at a premium in Houston, according to Ridge. The area has 476 million square feet of industrial space of all types, ranking sixth in the nation, and has a low vacancy rate.
Also, on Feb. 16, port commissioners gave staff the green light to enter into agreements with the Texas Department of Transportation and railroads enabling the construction of the Broadway Second Main Track Project. The $23 million project will replace an existing single-track railroad bridge over Broadway Street with double-track bridge structures and remove an area bottleneck that will allow for more rail traffic.
The project is designed to reduce congestion on the south side of the Houston Ship Channel, which serves industries and port facilities. The single-track segment is operating above its original design capacity and causing 2.5 hours of train delay per day. The additional capacity provided by a second main track would be sufficient to handle anticipated volume growth for the next 30 years, port authority spokeswoman Lisa Ashley said.
Half the cost is being funded by the Houston Galveston Area Council, the local metropolitan planning organization. The remaining cost, plus any potential overruns, will be covered by the BNSF Railway, Union Pacific and Kansas City Southern.
TexDOT must review and approve the project. Once a contract is awarded it is expected for construction to take 10 months.
Kunz said Houston is working to make cargo transfers more efficient. Trucks are turned at both terminals in just under an hour for a double move. Assisting with those turn-times is a new bilingual app that allows drivers to key in the container number to find out if their box is ready for pick up. The tool helps reduce time wasted waiting for a load so drivers can be more productive. n