Baltimore touts regional advantage
Baltimore touts regional advantage
Officials at the Port of Baltimore and Ports America believe Baltimore has an edge over the Port of Virginia in Norfolk because its northwesterly location will bring containers closer to more consumers and distribution centers, reducing inland distribution costs for shipping lines, importers and exporters.
At the moment, however, Baltimore handles one-fifth of Virginia’s container volume, which was 1.9 million TEUs in 2010.
One of Baltimore’s main advantages is that it is located near many import distribution centers within a tri-state area, while there are much fewer international warehouses in the Norfolk vicinity, Joseph Greco, deputy director of marketing at the Port of Baltimore, said in mid-May during a presentation to update reporters and stakeholders about developments at the port.
Baltimore is even 100 miles closer to Front Royal, Va., than the Port of Virginia, which operates an inland intermodal truck transfer center there on the Norfolk Southern rail line to reduce the amount of truck traffic that has to cross the state. Many distribution centers are clustered around Front Royal including those affiliated with Kohl’s, Memorex, Home Depot, Car Quest, and Family Dollar Store.
Boxes move 200 miles by rail from Norfolk to Front Royal (Winchester) and then get hauled 50 miles or more by truck to distribution centers in Virginia and Maryland.
The push is on to steal some of that business for the Port of Baltimore.
Executives running the port are trying to get more beneficial cargo owners to follow the lead of IKEA, which switched its East Coast import gateway from the Port of New York-New Jersey to Baltimore. Pier 1 Imports, another major retailer, has also increased its volume through the Port of Baltimore since Mediterranean Shipping Co. began its all-water Asia service two years ago and because of the strategic location of its big distribution center in Aberdeen, Md.
Last year, MSC, the world’s second-largest container-shipping line, experienced a sizable increase in volume in Baltimore to about 200,000 TEUs, according to Mark Montgomery, who heads the Chesapeake division of Ports America.
“If you have enough beneficial cargo owners in a particular concentration, that will push steamship lines to call your port. So we want to expand our port coverage with additional steamship lines,” he said.
“As inland costs go up, Baltimore wins market share. Not immediately. Gradually, over time,” Anirban Basu, a Baltimore-based economist who heads Sage Policy Group and has done work for the Maryland Port Administration, said in an interview. He noted the Port of Baltimore has improved its efficiency in moving cargo in recent years because of new equipment and a skilled labor force.
But a shipper’s primary consideration for inland transportation is where it gets the best choice of ocean services, including the number of carriers calling a port, the number of services per week, the geographic coverage from points of origin, transit times and reliability, argued James Brennan, a partner in the transportation and logistics practice of management consulting firm Norbridge.
And experts point out that some of the inland transportation benefits in Baltimore are offset by higher ocean transport costs to account for the longer sailing time, extra bunker fuel burned, and increased need for pilots associated with sailing up and down the Bay.
The question facing Baltimore, and other ports, is whether they can move up in the carriers’ rotation of ports visited so that the cargo gains a head start getting off the ship relative to the competition, Brennan said.
“The challenge to realizing those enhanced capabilities is whether they can attract that first or second inbound call of service, because if they can’t they’ll likely remain at a competitive disadvantage for attracting intermodal cargo,” he said.
If Baltimore is not the first port visited it won’t see much of an increase in volume because cargo unloaded at the Port of New York-New Jersey could already be in the Ohio Valley by the time the vessel reaches Baltimore, given the couple days to unload the vessel and the extra day or two to steam down the coast and up the Chesapeake Bay.
(The MSC service has a rotation of New York, Baltimore and Norfolk, while Evergreen’s service calls New York, Baltimore and Savannah.)
In reality, though, there is no way to generalize about which ports are first in order for port visits because vessel rotations vary widely depending on the carrier, the service, the vessels used, the customers on board and other factors.
Montgomery said that the widening of the Panama Canal, combined with the reduced fuel consumption and carbon emissions per TEU of operating super-size vessels, will tilt the economics in favor of bringing freight closer to its consumption market via water transport. As New York experiences more cargo growth, congestion on the docks, rails and road network will worsen and it will cost shippers more to maneuver freight around bottlenecks, making alternatives like Baltimore more viable, he predicted.
The new dynamics created by the expanded canal and the fact that a carrier like MSC is positioning to make Baltimore a load center where it can concentrate cargo and minimize the per-box handling cost means that Baltimore could become a first port of call, John Martin, who heads port economic consultancy Martin Associates, said in an interview.
Martin, who is bullish on the Port of Baltimore’s growth prospects, said many assumptions about the pecking order of ports no longer apply.
The argument about the transit-time disadvantage of the Bay only holds up if vessels call New York, Baltimore, Norfolk and other ports during the same voyage, but as intermodal service from the ports and other factors change, carriers will likely be more selective about which ports in a geographic region to hit, he said.
Martin said the 10-hour sailing differential to Baltimore is not a big deal when there’s no certainty about how soon a container will get loaded on a train after reaching a coastal port.
The Port of Virginia is also being pinched by its main rival, the Port of Savannah in Georgia, which has cultivated a climate conducive for logistics operations that has attracted large numbers of retail distribution centers. Container lines have followed their customers to the port.
Virginia is in a tough position because it doesn’t have a major local market for consuming imported goods and its hinterland market is the most competitive of any port in the country, according to Martin.
Import traffic through the Port of Virginia is mostly destined for West Virginia, Ohio, the Ohio Valley, Indianapolis, and Chicago — the same areas east of the Mississippi River that ports such as New York-New Jersey, Baltimore, Savannah, Jacksonville, and even Miami, as well as the major West and Gulf coasts ports are hotly contesting to serve as entry points for discretionary cargo from Asia.
Most all-water services are to serve the local population centers on the East Coast, which by definition is a truck market. Given the amount of Asian cargo volume that still comes in via the West Coast, it is unlikely that intermodal traffic will have more than a 25 percent share of the international volume coming to the East Coast, according to Martin.
Virginia gained market share earlier last decade when West Coast ports were struggling with labor unrest and environmental issues, and western railroads overpriced transcontinental intermodal service — all of which added cost and uncertainty for shippers who increasingly turned to all-water service to the East Coast.
Ports like Los Angeles, Long Beach, Oakland, Seattle and Tacoma have addressed many of their local issues and are fighting to attract users again, Martin said. Meanwhile, Virginia faces strong competition from the ports of Charleston, Baltimore, New York-New Jersey and Montreal for European-origin cargo.
“They don’t have much of a captive market. Their markets are where the battleground is for Asian cargo,” Martin said.
The Port of Virginia has better access to the Midwest with the opening a year ago of the Heartland Corridor, a public-private partnership with the Norfolk Southern railroad that created a more direct route to Columbus, Ohio, for double-stack intermodal trains. Shippers benefit from faster transit times, but the economy and fierce competition from other ports serving the Midwest market has prevented Virginia from realizing any major growth in cargo volume since the recession.
Although the Heartland Corridor provides an efficient surface connection from Hampton Roads to the Rickenbacker Intermodal hub and onward to Chicago, rival CSX Transportation has its own National Gateway project under which it is clearing routes for railcars stacked two-high with containers and making other upgrades to speed intermodal shipments from East Coast ports to a big hub in North Baltimore, Ohio, and then to the rest of the Midwest.
Virginia Port Authority officials counteract the competition by touting the advantages of their facility, such as the 50-foot water depth, berths only 18 miles from the open ocean, the modern APM Terminals terminal in Portsmouth with its semi-automated yard grooming cranes, good labor relations and a large network of distribution centers across the state.
CSX traditionally has not transported a lot of containers from the Port of Virginia, but plans to invest in a small yard in Norfolk and hopes to achieve significant growth in business there during the next 12 to 18 months, Fredrik Eliasson, vice president of emerging markets, said during a break in the program at the Port of Baltimore.
“Our key objective is to make sure we have the infrastructure at all the key ports” to meet the needs of shippers, Liasson said, listing New York-New Jersey, Baltimore, Charleston, Savannah, Norfolk and Wilmington.