Beyond Tariff Toll

US Ports Build Capacity for Future Growth

By Mary Parker

Economic ups and downs, factories that open and close, cargoes that come and go – ports are accustomed to being in the fallout zone. But trade wars and tariffs take uncertainty to a whole new level. That tariffs have an impact on cargoes certainly doesn’t need to be told to those involved in handling breakbulk and project cargo at ports and terminals.

“Steel has been all over the place for the past 18 months. The imposition of Section 232 tariffs (on aluminum and steel) has impacted our importers dramatically,” said Pete Grossgart, marketing manager at the Port of Stockton. “They have had to go through the exclusion process and quota process, which some of them were a bit surprised to learn existed, and this has hit our vessel calls.”

In fact, there was a “significant” decline in the number of steel ships coming into the Port of Stockton, according to Grossgart. “We spent three months without a single ship with steel, and once they did come back the product mix had changed – so we are not seeing much rebar, which was roughly one-third of our steel cargo mix two years ago.”

This scenario has impacted tonnage and income, as steel is the cargo that generates Stockton’s highest revenue per tonne.

Cement is another cargo that has been affected at Stockton. The port has historically been a major import point for specialist cement used in California. Before the global financial crisis, volumes were about 2.2 million tonnes annually. It came in from five Southeast Asian countries, with about 40 percent from China. Volumes dropped to virtually nothing between 2006 and 2009. Cement started to flow again in 2012, but by then it was 100 percent Chinese, the only country still producing this grade. Volumes then dramatically increased year on year – until 2018.

California uses a specialized type of cement produced in China, Grossgart said. “Once again this has been the target of Trump’s tariffs. We have two tenants importing cement. One has increased the capacity of their kilns so they are primarily supplying themselves domestically.”

Cement has returned, albeit at levels about 14 percent lower than this time last year. However, right now the economy is strong.

“There is a lot of growth and building going on in the Central Valley – homes are starting to be built again, and there is a lot of building related to transportation too,” Grossgart said. “We have a lot of projects under way that haven’t come online yet – but in the next two years we think we will start handling.”

However, uncertainty is making planning difficult, especially when you don’t know “what side of the bed Trump is going to wake up on,” Grossgart said.

Consolidation for Forest Products

On the opposite side of the country, Jacksonville Port Authority, or Jaxport, has also been impacted by tariffs. Its primary breakbulk cargo is forest products – rolled paper and wood pulp – and that has continued to be very strong from Europe and South America. However, it is seeing some consolidation in that industry, with a number of producers looking to increase tonnage through the South Atlantic as tariffs are put on some forest products.

“Logs particularly have been a challenge for our exporters,” said Frank Camp, director of cargo sales at Jaxport.
“Historically, a lot of logs go out to China for use for various applications. This is a commodity that when tariffs come in, the margins are small. Those importing logs into China are looking for other areas to source that product.”

Jaxport has also seen ups and downs in the various types of metals and steel products it handles, again due to tariffs, Camp said.

However, Port Houston says it has experienced minimal disruption from the China-U.S. trade dispute, a fact that it attributes to being the No. 1 U.S. steel port in tonnage volume.

Steel in various forms move through Port Houston to support the petroleum exploration, production and refinement in the Permian Basin and the region. Its public general cargo facilities at the Turning Basin (City Docks) are well equipped to handle all general cargo types, including high, wide and heavy, breakbulk, project and heavy-lift cargo.

The predominance of project and heavy-lift cargo that moves through Port Houston City Docks is also to support the petroleum and petrochemical industry in either upstream or downstream production activities.

“And in 2019, we are seeing increases in volume of project and heavy-lift cargo for the traditional energy sector, and now also in the wind energy sector,” said Dominic Sun, director, trade development for the port. “This means that we have seen increased volumes of machinery, capacitors and other equipment for plant construction, along with windmill towers and blades to support further development of wind energy in the region.”

On the opposite coast, the Port of Long Beach handles steel through the breakbulk terminal at Pier F. That flow has been maintained because the port does not receive steel from China, but mostly from Australia and Japan.
Media Relations Manager Lee Peterson said that when it comes to breakbulk and project cargoes, technically volume is down about 25 percent calendar year to-date, but that’s due to a spike in volumes last year. “Last year we were so busy. We had the LA Rams Stadium project and the two AES power plant projects. Because last year was so high, this year is down.”

Infrastructure Investment Boom

On both West and East coasts of the U.S., infrastructure investment is driving demand for breakbulk and project cargo flows. In the Southeast, Florida, Georgia, South Carolina and North Carolina are all in the top 10 fastest-growing U.S. states, and are attracting eager employees. With so many people inbound, there is a tremendous amount of investment.

“Population growth drives the need for investment in new infrastructure and replacing infrastructure,” Jaxport’s Camp noted. “That is where we are seeing a lot of opportunity – in power generation updates and replacements. We are seeing a shift from coal-fired to natural gas-powered generation, which requires different equipment – these are the kind of enquiries we are getting on power.”

There is also growth in manufacturing and replacement of parts, which sits comfortably with Jaxport’s facilities. “We have stevedores here that have an excellent skillset,” Camp said. “They have the experience in handling big and heavy project pieces, and we have good rail infrastructure to the berth and the main line, with clearances of 20-foot high and more than 13-foot width.”

Stockton is also seeing an uptick in project cargo, much of it energy-related, especially transformers. Grossgart explained that infrastructure destroyed by fires in California has had to be replaced. “At the start of the year we handled around 12 transformers; we will have two more in August, and I have received an enquiry for another 11.”

Stockton is handling components for wind energy and renewable power projects and biofuel projects as well, with renewables a primary target for the port. Grossgart points to the fact that within 50 miles of the port there are hundreds of orchards: “Typically trees will be productive for 15 to 25 years. In the past they have been pulled out and burned in the fields. Now they are being ground and used to produce energy.” Stockton is looking to ship this product to Europe and to expand markets in Japan, Korea and elsewhere.

The orchards are not the only “crop” offering new opportunities. Rice paddies within two hours of Stockton are producing medium-grain rice for export, including to Japan. Meanwhile, a new MDF plant has been built, which uses the discarded rice hulls as the raw material. The port handled project shipments in support of the construction of this new plant.

Bigger and Better

Houston, Jaxport, Long Beach and Stockton are all investing in new and upgraded port infrastructure. Port Houston is “continuously exploring opportunities” to add acreage and densify its facilities to support increased volumes in breakbulk, project and heavy-lift cargo, Sun said. For example, Dock 23 has been upgraded and its fender systems have been improved. Two years ago, the port added 18 acres of paved laydown area at City Dock 32, doubling the amount of total laydown areas available. At present, Port Houston is carrying out improvements to City Dock 9, including upgrading the load capability from 500 pounds per square foot to 700 pounds per square foot.

To complement this, improvements to the Houston Ship Channel are needed as soon as possible to ensure safety of the waterway as energy and manufacturing exports, as well as the size of vessels, grow at the Port of Houston, Sun said.

Widening the nation’s busiest waterway to allow for improved two-way traffic would mean safer and more efficient economic growth. The ship channel is described as one of the most complex to navigate due to high traffic volume and its narrow, shallow and winding characteristics. Currently a 100-foot bypass makes for near impossible and dangerous maneuvers. The push is for widening of the Bay Reach segment of the channel from 530 feet to 700 feet, along with channel deepening.

Rail is a major focus for many ports, not least at the Port of Long Beach.

“We’re always working on our rail system and have one major capital improvement project, the US$870 million Pier B On-Dock Rail Support Facility, and at least three smaller projects that we are moving forward with in the next decade,” Peterson said. “Yes, these help us move containers, but as we improve the efficiency of the rail system, building in more flexibility and reducing wait times, bulk and project cargo will also move more fluidly through the Port of Long Beach.”

Altogether, the port is looking at about US$1 billion in capital improvements for rail, and that will strengthen its competitiveness and improve speed-to-market. These rail projects will help to reduce truck traffic in the ports as well.

Going Deep

Jaxport is midway through a major channel deepening project – the world’s larger container ships are clearly the focus here, but there will be a knock-on benefit for project cargo shipments, Camp said. The channel deepening is a federal project and will increase draft from 40 feet to 47 feet. “The project started in February 2018 and is on track for completion in 2023,” he said. “We have been in the process of rebuilding all our berths over the past couple of years.”

Notably, Berth 31, a heavy-lift berth at Blount Island Marine Terminal, has been rebuilt. It is now among the country’s highest weight-bearing capacity docks, with load capacity of up to 1,800 pounds per square foot.

At Stockton, access to the port has been significantly improved in the past couple of years. This has included a new link from Interstate 5, the main north-south thoroughfare for the western U.S., a new bridge and a number of road widening projects.

Rail traffic at the port has doubled in the past five years, reflecting high demand for the port’s warehousing and transloading operation – train capacity was doubled about three years ago. A series of other projects are under way to expand existing port facilities or build new ones.

“Obviously the items being transported are getting bigger and bigger – what used to be no problem, such as windmill towers, are now so big that we struggle at times with rail clearance,” Grossgart said. “Having said that, wind components are getting to be so big that they can’t be handled in one piece and some come in three pieces now.”

Stockton has a total of 15 berths and provides a lot of flexibility in terms of where a vessel is worked, he said. “We have 500 acres available for development and on the U.S. West Coast that is more than anybody else. We do have a lot of land – and a lot of it near the dock.”  

Mary Parker is a veteran shipping industry writer.

Image credit: Stockton