The Benefits of Investing in Freight Infrastructure

America’s ports are looking to turn the tide of the down economy by investing – on their own, using government funding and through public-private partnerships – in infrastructure that could lead to renewed prospects and prosperity

By William E. Thompson

Since the onset of the economic crisis a few years ago, the World Economic Forum has tracked the erosion of America’s economy. While deficits, debt and doubt (public lack of confidence in its political class and the leadership of the financial services sector) are largely responsible for the slide, the organization’s annual rankings coincide with the findings of a recent report by the American Society of Civil Engineers: America’s dip as a global economic power parallels the state of its marine ports.

From 2008-2009 to 2012-2013, according to the WEF’s survey, the U.S. has fallen from the world’s leading economy to seventh best. In that time, the quality of its port infrastructure had gone from 11th in the world to 19th – up from 23rd in 2011-2012. The organization also graded U.S. seaports below the nation’s overall infrastructure assets, to which the WEF adds roads, airports, the electrical grid and telecommunications.

In the report, titled Failure to Act: The Economic Impact of Current Investment Trends in Airports, Inland Waterways, and Marine Ports Infrastructure, ASCE maintains that by adequately investing in maritime infrastructure, the U.S. can ensure that America remains competitive in the global marketplace, keep domestic business running efficiently and maintain a lower cost of goods for consumers.

There is a cost for such an investment, but it could lead to a big pay off. The ASCE report purports that with an additional investment of $10.4 billion by 2020 in the nation’s marine ports, along with an $5.5 billion in inland waterways, the U.S. can protect $270 billion in exports, $697 billion in GDP, 738,000 jobs annually and $872 billion in personal income.

The good news is that officials at some of the largest of America’s 300 ports are not standing idle. Recognition of the competitive advantages of upgrading their infrastructure is causing port authorities nationwide to spend millions of dollars on improvements. And port officials are utilizing their own money, as well as tapping state and federal funding, and even creating public-private partnerships, to get the work done.

“We need to be able to accommodate the world’s fleet of vessels. If not, we’re going to end up paying more for our imports and lose out on our exports,” said Aaron Ellis, public affairs director for the American Association of Port Authorities, the association that represents more than 160 public port authorities throughout the U.S., past due and needs to be done.”

Ellis noted that the expansion of the Panama Canal, expected to be completed in December 2014, is driving much of the investment in port upgrades, particularly along the Eastern seaboard. But, he adds, “Ships are getting bigger, and they would be coming regardless of the expansion of the Panama Canal.”

What follows is a sample of some of the ambitious efforts now under way at some of America’s busiest seaports.

Preparing for Panama

Panama is very much on the minds of port officials in Baltimore.

In June, the Port of Baltimore received its order of four 400-foot-tall super cranes. The massive structures, which were fully erected in September, complemented the $105 million effort to dig a new 50-foot berth at the port that was launched in March 2010.

The deeper berth was a key component of a 50-year deal between the Maryland Port Administration and Ports America Chesapeake, the private company that leased and will operate the 200-acre Seagirt Marine Terminal at the port. The project made Baltimore one of only two East Coast seaports with a 50-foot-deep channel and a 50-foot berth.

Gov. Martin O’Malley has said the project would create 5,700 jobs. According to port spokesman Richard Scher, the deal could net the state up to $1.8 billion over its lifetime.

In announcing the initiative, O’Malley suggested the Panama Canal expansion would “literally change the face of the maritime shipping business.” In a recent interview, Scher said the port wanted to be ready for that change.

“We’ve got the deep channel but we knew we needed a deeper berth because we needed these super-sized cranes if we were going to compete after the expansion of the Panama Canal,” Scher said.

Also eyeing increased traffic out of Panama are Florida’s ports.

In September, Florida TaxWatch, a respected nonpartisan budget watchdog group in Tallahassee, issued a report outlining how Sunshine State ports are investing in infrastructure to improve their standing as hubs of international trade. Collectively, Florida ports are expected to make $2.7 billion in capital improvements between 2011 and 2016.

As one example, PortMiami, the 12^th largest U.S. port for global trade, has a trio of ongoing projects slated at more than $1 billion.

The port seeks to dredge its entrance channel to reach the 50-foot depth necessary to accommodate the bigger post-Panamax ships. It also plans to rehabilitate and expand a rail line that linked the port to the mainline that was damaged by a hurricane in 2005, which will speed up deliveries to cities along the East Coast and in the Midwest, and dig a tunnel to connect to Interstate 395, thus rerouting truck traffic out of downtown Miami.

“These improvements, along with many others currently in progress or planned, will make Florida much more efficient handling freight and will lead to new opportunities for businesses in Florida,” TaxWatch concluded. “Florida will also be able to use its system to attract new businesses to the state, providing jobs for Floridians and additional revenues for the state.”

Riding the Rails

On the other hand, the Port of Cleveland gets no direct benefit from the Panama Canal expansion. Nonetheless, the Cleveland-Cuyahoga County Port Authority’s push to boost its economic prospects through increased competition led officials there to pump $4.5 million into a new railroad line.

Dave Gutheil, the port’s vice president for maritime and logistics, explained that rail service to the docks was literally split between two companies, Norfolk Southern and CSX.

Each company had access to one side of the docks, and the tracks they operated on were not interconnected.

Thus, the port embarked on the construction of a mile-long, double-looped track, two-thirds of which was funded by the state of Ohio. That new track put both companies in a position to bid on what had been the exclusive business of the other, Gutheil said.

The project also expanded Cleveland’s markets by facilitating hauling by rail, which is cheaper and further-reaching than the trucks that provided the port’s primary means of shipping inland.

“Both railroads now have access to everything we have on the docks, and that drives down costs to our customers,” Gutheil said. “It’s a better transportation option for our customers.”

In early December, Mark J. Perry, an economics professor at the University of Michigan-Flint, noted on his blog that hydraulic fracturing in the sprawling Eagle Ford Shale oil field in south Texas had allowed the state to double its crude oil production within the past three years – output levels unseen since about 1988.

The Port of Corpus Christi seeks to cash in with a batch of projects that have taken off within the past two years.

The port, according to David Krams, director of engineering services, has undertaken efforts to extend and deepen its channel for more than a mile in developing the 1,100-acre La Quinta Trade Gateway Terminal. The La Quinta project, a $74 million venture largely funded by the federal government, will feature a three-berth ship dock with nine ship-to-shore cranes, a 180-acre container storage yard, an intermodal rail yard and more than 400 acres for distribution and warehouse centers. It is expected to create 2,500 jobs.

The port also plans a $17 million expansion – again mostly federally funded – of its Nueces River Rail Yard to accommodate freight train traffic that has doubled since 2007.

In addition to now becoming a major export site for Texas crude, Corpus Christi’s port has approved plans to site a new plastics plant on the grounds, has amended a lease with agricultural giant Archer Daniels Midland to expand the port’s grain elevator to support fracking in the Eagle Ford Shale field and has inked a $20 million deal with a company to build a six-turbine wind-energy field on port property.

“It’s the busiest it’s been in the last 25 years,” Krams said. “It’s a lot of projects and a lot of focus in the area.”

Infrastructure and the Environment

One of America’s busiest ports and home to some of the busiest freeways, meanwhile, is weighing a major rail-based proposal to reduce congestion on its highways.

The Los Angeles Board of Harbor Commissioners, the panel that oversees the Port of Los Angeles, is expected to decide early in 2013 whether to allow the Burlington Northern Santa Fe railroad to build a “near-dock intermodal rail facility” near the port.

The project is slated to go on about 150 acres, about two-thirds of which is owned by the harbor authority, located about 4 miles from the port.

Burlington Northern claims the $500 million project would move the intermodal transfer facility 20 miles closer to the port and thus remove 1.5 million truck trips a year from Interstate 710. It would also create 22,000 “port-related” jobs and reduce air pollution through the use of all-electric cranes, ultra-low emission switching locomotives, low-emission rail yard equipment and a truck fleet that will be powered almost exclusively by liquefied natural gas by 2026.

“West Coast ports are probably as anxious about growing competition from Canadian and Mexican ports as they are about cargo being diverted through a bigger ditch in Panama,” said Jock O’Connell, one of California’s leading economists on international trade.

“Infrastructure projects such as the Southern California International Gateway are key to making ports more efficient and economical conduits of trade, thus helping insure that they remain attractive gateways for shippers and ocean carriers.”

O’Connell added that California ports are “investing heavily” to meet the state’s tough air and water quality regulations. So, they are considering a greater investment in utilizing rail.

Help on the Way

In June, AAPA released a survey that indicated American ports would invest $46 billion in capital improvements by 2017—with almost half of that commissioned by ports on the Gulf of Mexico region.

Yet, the fundamental weak link was that state and federal officials nationwide had failed to keep pace by appropriately maintaining roads, bridges, tunnels and federal navigation channels. That shortcoming, the group noted, created traffic bottlenecks that drive up product costs and hinder job growth.

The association, noting the U.S. economic decline as documented by the World Economic Forum, pointed out that America spends less than 2 percent of its gross domestic product on transportation infrastructure. That rate was half of Canada’s and less than one-quarter of China’s.

Writing in the January issue of Sea Technology Magazine, Rep. Frank A. LoBiondo, a New Jersey Republican who chairs the House Coast Guard and Maritime Transportation Subcommittee, echoes the concerns of the ASCE.

But LoBiondo insisted help was on the way.

His subcommittee, he wrote, will work to relieve the $2.2 billion backlog of harbor maintenance and deepening projects at key ports. The panel would also seek to ensure the $7 billion Harbor Maintenance Trust Fund would “strengthen” the maritime transportation network and protect the 13.3 million jobs already dependent on the nation’s ports and waterways.

The nation has reached a crossroads with port infrastructure, the congressman argued, and lawmakers must not allow the maritime sector to falter as port-driven global commerce grows.

“While Congress has historically kicked the can down the road, the end of the road has been reached,” LoBionda wrote.

Read this article now in AAPA Seaports Magazine’s new interactive digital edition.