Port to Market: Building Infrastructure to Meet Demand
By Jim Romeo
Before the Port of San Diego drafts its master plan, it will have spent three years analyzing and investigating data from multiple sources. This includes public outreach, over 100 interviews with stakeholders and agencies and numerous public workshops and board meetings that culminated at the end of 2015. Its findings, which it calls its “framework report,” will be used to assess demand and write a master plan for the 6,000 acres of land and water within its jurisdiction.
A successful transportation infrastructure depends on a healthy seaport infrastructure. The right infrastructure requires an accurate forecast of market demand. Then this demand must be translated into a master plan for execution. It all sounds simple, but many challenges are found along the way.
The Port of San Diego, like many ports across the United States, must build infrastructure to meet the demand for transportation services it provides in order to move the economy forward. According to the U.S. Department of Transportation, the United States can expect a 45 percent increase in the nation’s freight by 2045. In order to achieve this, port infrastructure and the supporting supply chain must be modern and capable.
The Master Plan: Getting A Grip On Demand
In today’s environment, many forces influence demand forecasting. Global economics, demand for natural resources, import trends and many other factors influence expansion and contraction plans. A strong port is a precursor for a strong local economy.
For most ports, staying vigilant of cargo demand is an ongoing effort. Getting a grip on this demand is challenging.
“We stay in regular contact with our customers and vendors such as stevedores and agents – discussing ongoing operations, any issues that may have arisen, and opportunities to improve,” explains Pete Grossgart, marketing manager for the Port of Stockton in Stockton, California. “Discussions usually involve tonnage projections and new cargo opportunities, as well as operational issues. As an operating port, much of our staff is regularly involved with customers, so the Port of Stockton ‘touches’ many of our larger customers daily.”
Philip Sanfield, a spokesperson for the Port of Los Angeles, describes a similar process. For short-term forecasts, up to 18 months, the port communicates closely with its container terminals and shipping lines, as well as examining a range of economic forecasting data. Based on information gathered, the port makes internal forecasts for cargo. This information supplements its longer range planning and forecasting.
“We do our long-term infrastructure planning based on long-term cargo forecasts, which are done every 5-10 years for [Port of Los Angeles] POLA and Port of Long Beach jointly by outside consulting firms,” explains Sanfield. “They project long-term demographic and economic growth for the U.S. and its trading partners, to predict the volumes of goods demanded and traded in the future.”
At the Port of New Orleans, the master plan is developed, implemented and updated accordingly. In 2006, it released its 2020 Master Plan that addressed many anticipated demands at that time. The port is now about to award a contract to update that master plan once again.
“It’s been a living document,” explains Matt Gresham, a spokesperson for the Port of New Orleans. “We’re in the process of reevaluating that plan based on global recession as well as all the other factors that factor into market studies in order to determine the best places to invest. We have completed many of the projects that were in that master plan.”
Gresham explains that this included an intermodal container transport facility that the port anticipated being completed in the spring of 2016. The Port of New Orleans also upgraded the capacity of its container facility. The 2020 Master Plan called for doubling the capacity of its container facility from 360,000 TEUs in 2016 to its present capacity of 800,000 TEUs. The port still has a ways to go in building out the infrastructure. It plans on adding cranes and other components of the infrastructure and still has plans to increase the container capacity even further. The port also opened up a major cold storage facility on the Mississippi River in 2012. It is the largest export blast-free storage facility in North America for products such as poultry and frozen goods.
The port is also in the final phase of a third cruise ship terminal near the New Orleans’ French Quarter. Building the right facilities has evolved from a continuous analysis and investigation into demand that presents new opportunity, and consequently, new direction. “Today, there’s new opportunity and new direction that we are looking at from a strategic standpoint that will be refined in this new master plan,” says Gresham. He says that at the time of the last master plan development, many of the port’s core commodities were moving into containers and away from breakbulk as a mode of transport. He cites frozen poultry. Ten years ago, almost 100 percent of that cargo moved by breakbulk in refrigerated cargo ships. Today, more than half of that cargo is being shipped in refrigerated containers. “We also added a refrigerated container stacking system that can store up to 600 refrigerated containers at one time and also included cranes as well.”
The Fine Art of Forecasting
A master plan relies on accurate forecasts of anticipated demand. Forecasting demand is a careful science that challenges port leadership and associates. Most often, a task force of analysts and consultants, internally and externally, are called on to assist. Plans need to be as precise as possible, but flexible enough to allow future changes – as in the case of the Port of New Orleans. With reasonable and accurate forecasts, a solid master plan can be crafted. A solid and executable master plan bolsters a port’s infrastructure – the bedrock of an attractive gateway for shippers to choose the port in their routing.
Walt Evans is an attorney with Schwabe, Williamson & Wyatt, a law firm with offices in Portland, Oregon. His firm has represented ports and marine interests for the past 30 years. Evans says that forecasting usually begins when a port meets with its economic and environmental consultants to assess where the port might best focus its marketing for the next year or two to attract new industries or companies to its property.
“The important role of the unpredicted contact with a prospective tenant cannot be overlooked,” says Evans. “When that takes place, the port asks itself if this prospective company, or product or specialty, is or should be part of its DNA. Put another way: ‘Would this fit with what we want our port to be a decade from now?’ Sometimes potential tenants contact a port after a visit from a port’s marketing staffer a year or two or five earlier, and now that prospect is ready to examine the local opportunity to site a facility at that port. No one should underestimate the importance of the prospective tenants in reshaping short-term forecasts for ports and focusing their approaches. Ports then focus their development efforts on the interests of prospective tenants. Such port reviews start as responsive: ‘How does this prospective tenant’s objective mesh with our port’s long-term goals and our job-creation mission?’ In the short-term, the port considers whether it should embrace this element of its future growth, as securing it and getting it approved will take considerable time in the near term for both the commission and the staff and the port’s outside consultants and lawyers.”
Understanding the market is an important qualitative approach when building a forecast. Ports need to quantitatively examine data and facts to determine need.
The Port of Los Angeles determines land-based needs using terminal and transportation models. “We use either static spreadsheet models or dynamic simulations to determine the optimal ratio of berth to backland area, gate size, rail yard and other terminal components,” says Sanfield. “The terminal is analyzed as part of the environmental review process. If improvements to the transportation system outside the gate are required as a result on the proposed improvements, they are identified and programed into the project requirements. As we do not operate terminals, we are not directly responsible for the equipment, labor and supply chain support at the terminal level. We do make sure the terminal is designed to accommodate these vital components, but it is up to the terminal operator to determine their specific needs.”
The vital components to support the supply chain are of interest not just to an individual port, but to every port that shares a geographic waterway. One approach to meeting this challenge is to form an alliance with the same interests.
The Northwest Seaport Alliance – which includes the Port of Seattle and the Port of Tacoma – is the third largest container gateway in North America, with a volume of 3.4 million containers in 2014. The alliance utilizes a 10 year strategic plan and keeps a watchful eye on Pacific Rim trade, and is positioned to accommodate traffic from Asia as well as Alaska.
The alliance’s strategic plan is beneficial to both ports as the waters and traffic flowing to both ports are at stake. “We have terminal capacity, so we are looking at strategic investments to position the gateway as an attractive place to do business,” explains Tara Mattina, media contact at The Northwest Seaport Alliance. “That’s a key reason the two ports formed the alliance. It allows us to stop competing against each other for cargo and focus on leveraging our strategic investments to attract new cargo.”
Part of the challenge in meeting demand is ensuring infrastructure and waterways are available to accommodate volume and vessel traffic. Allowing ample traffic into a port often relies on not just having the proper infrastructure such as warehousing, facilities, cranes and space, but also on the draft of the associated waterways to transit to and from a berth.
Members of an alliance stand to mutually benefit from joint planning. They also stand to realize an advantage when dealing with regulatory bodies such as the Army Corps of Engineers and the Environmental Protection Agency. Such agencies review and approve impact studies and also drive key decisions such as the necessity to dredge a waterway to ensure it meets requirements for the port and ultimately for the infrastructure and the citizens it affects. Their approval processes, studies and analyses are influenced by constituents, citizens and others who may very well oppose the intentions and desires of shippers, ports and others in an alliance.
The Scrutiny of Economic Development
Evans says that the degree of scrutiny of impact plans has changed over the past 10 years. Impact studies require detail as well as patience.
“At the 10,000 foot level, economic development officials need to understand that the Corps takes its responsibilities for environmental protection and tribal impacts differently than was the case a decade or two ago,” says Evans. “This shift is understandable. The Corps operates in an atmosphere where critics of economic development projects are more apt to sue the regulatory agencies if a permit is approved than was the case in past decades. As a result, the Corps, as one example, requires more specific details than in decades past before it will approve permits for a new project. From the agency’s perspective, this means that these newer rigorous review standards result in the regulatory bodies receiving more exhaustive proposals for review than those submitted a decade or two ago. The benefits side may remain the same, but the submissions are better in detailing the level of review and the clarity in meeting and exceeding the review standards of the regulatory agency.”
In Gulfport, Mississippi, a proposal by the port to fill 282 acres for pier expansion includes dredging for a turning basin and the addition of a breakwater area. The Corps of Engineers hosted a period of public comment that was met with attendees from citizen groups. Issues such as job creation, pollution, added traffic and other issues were questioned and disputed by citizens. It prompted the Corps to require more information before approving the expansion.
In Savannah, Georgia, deepening the Savannah harbor is beginning to unfold after approval by the Savannah District of the Corps of Engineers. The contract covers deepening of the outer harbor for 18.5 miles into the Atlantic Ocean. It’s one of the first steps to deepening the entire 40-mile shipping channel and harbor from deep ocean to the Georgia Ports Authority terminal in Garden City. For Savannah, studies have been ongoing for some 16 years, according to the Governor of Georgia.
“After 16 years of study, it is gratifying to know that we can now move forward with the deepening of the Savannah River,” said Georgia Gov. Nathan Deal. Gov. Deal touted the improvement as one that will “aid the prompt delivery of valuable cargo, preserving and creating economic opportunity across Georgia and the Southeast.”
Gulfport and Savannah illustrate the higher degree of evaluation before approval. Forecasts need to withstand a careful and exhaustive evaluation process by multiple stakeholders. They need to be characterized by clear and convincing return on investment to many constituents: tenants, vendors, shippers and, of course, citizens.
For other ports, the opposition can be strong. In the Port of Vancouver, USA citizens organized and formed their own Facebook group, “Citizens Against Port Expansion (CAPE), with a self-described mission as “debunking the spin.” Such groups are part of the scrutiny to be expected as master plans are brought to action.
“Some environmental and tribal groups oppose certain port permits in toto, and can be expected to use a wide array of delaying or opposition tactics,” says Evans. “These add to delays and costs for the permit applicant—especially in cases where the critic may assert, ‘No way in hell that we will allow this project to proceed.’ A decade ago, I think we saw more of a mutual effort to reach a compromise that mitigated for impacts from a new tenant’s proposed activities, but the permits could be secured and development could take place. Today, it sometimes is a more contentious process.”
Depth of Passage
Facts gathered in forecasting demand, mapped requirements in the master plan and consideration of all stakeholder concerns are key to translating anticipated cargo demand into the right infrastructure. So is waterway depth.
At the Port of Stockton, the Army Corps of Engineers is responsible for maintaining the depth – which is approximately 35 feet mean lower low water (MLLW) of the federal ship channel or, in Stockton, California’s case, the Stockton Deep Water Ship Channel.
“The Corps conducts annual maintenance dredging along the length of the channel during the environmental dredging window between August 1 and November 30,” says Grossgart of the Port of Stockton.
Grossgart says that in early spring of each year, the Corps conducts bathymetric surveys of the channel to determine areas in need of dredging. During this time, the Corps and the port work together to ensure all potential areas of concern are dredged to allow adequate draft for vessels traveling to and from the Port of Stockton. The port also conducts its own bathymetric surveys along its docks to determine areas in need of maintenance dredging.
“The port docks are authorized to a depth of 35 feet MLLW and match the depth of the Stockton Deep Water Ship Channel,” says Grossgart. “Once dredging is completed, the port and the Corps conduct confirmation bathymetric surveys of the docks and the channel. These surveys are then provided to industry and pilots so that vessels may navigate the channel safely.”
The Port of New Orleans and four other ports on the lower Mississippi all have interest in having the waterway dredged from the 45-47 foot draft to the 50 foot draft of the Panama Canal. It’s all part of their effort to ensure their waterways are able to accommodate the anticipated demand that the new Panamax vessels require. The ports expect an influx of cargo volumes into their waterways as a result of the widening of the Panama Canal and the prevalence of higher capacity container ships.
Growing Roads, Rails and Ports
“It is important to understand the role played by prospective new tenants whose projects will create welcome new family-wage jobs,” says Evans. “Prospective tenants today drive the process to a higher degree than in the past, where ports often had assembled a variety of property packages to attract new tenants, often permitted and nearly or completely shovel ready.”
Shovel-ready projects are the impetus behind a strong port infrastructure that supports a larger transportation infrastructure. In February of 2015, U.S. Secretary of Transportation Anthony Foxx said it well: “America is in the midst of a growth spurt, and the problem is her roads, rails, and ports do not automatically grow with her,” says Foxx. “We know that we’re going to see a 45 percent jump in the freight we’ll have to move by 2045 – 29 billion more tons. And this is happening in a country where not all ports are doing what you’re doing here – and where the roads and rails linking those ports to markets are not as modern as they should be.”