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Summary for May 16 - May 20, 2011:
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Thursday, May 19, 2011

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Study: U.S. infrastructure needs $2 trillion

The United States will need to invest $2 trillion in the coming years to upgrade roads, bridges and other related infrastructure necessities in a country that is falling behind the rest of the world with its crumbling transportation system, according to a study conducted by the Urban Land Institute.

The study said the U.S. is behind three emerging countries — Brazil, China and India.

The federal gas tax will need to be increased; tolls will become used more on interstate highways; water bills will rise to pay for pipe and sewer improvements; property and sales taxes will rise; and the private sector will need to play a bigger investment role in infrastructure improvement, according to the study.

Conversely, China is engaged in a $1 trillion infrastructure plan scheduled for completing within five years. India has almost completed a $500 billion transportation infrastructure investment, which the country plans to double by 2017. Brazil has plans to invest $900 billion into energy and transportation projects by 2014.

For the full Washington Post report on the study:

European Commission raids container-shipping lines over anti-trust concerns

Several major container-shipping lines’ European offices were raided this week by the European Union Commission over concerns the regulatory body says it has over potential anti-trust violations of its 2008 law that ended “conferences” or cartel behavior.

“The Commission has reason to believe that the companies concerned may have violated the antitrust rules that prohibit cartels and restrictive business practices and/or abuse of a dominant market position,” the EC said in a statement this week.

Shipping lines being investigated include: APL, CMA CGM, Evergreen Marine, Hanjin, Hapag Lloyd, MSC, and OOCL.

There have been reported complaints from shipping customers in Asia, Europe and the U.S. based upon alleged price-gauging as containerized freight rates started to rise out of 2009’s deep recession, despite soft demand and over-capacity. The practice of slow steaming used, in part, to help counteract over-capacity and the record profits posted by some of the big shipping lines in 2010, are also, reportedly, issues that will be looked into by the EC.

The EC said in its statement that the investigation is in a preliminary stage.

“The fact that the Commission carries out such inspections does not mean that the companies are guilty of anti-competitive behavior nor does it prejudge the outcome of the investigation itself. The Commission respects the rights of defense, in particular the right of companies to be heard in antitrust proceedings.”

Port of Charleston to get harbor deepening study funds

The Port of Charleston had been left out in the cold by the last round of the U.S. government’s fiscal budget but has now secured the $150,000 in those funds it says it needs to perform a feasibility study over dredging its harbor down to 50 feet to handle the next generation of containership vessels reportedly coming through the widened Panama Canal post-2014.

The study for harbor deepening will reportedly be a three-to-five-year project, with the total $12 million to $20 million split between the Army Corps and the port.

Charleston’s total harbor dredging cost is estimated to be around $300 million.

South Carolina Senator Lindsey Graham who, along with U.S. Representatives Jim Clyburn and Tim Scott, made the announcement of the release of dredge study funds, said: “Now, we're back in the game."

Corpus Christi to get $58 mil to extend La Quinta channel

The Port of Christi announced the U.S. Army Corps of Engineers has awarded $58.477 million in funding for the port’s La Quinta Channel extension project.

“This is an important achievement for the port. The extension of the La Quinta Channel is a major step forward towards the development of the La Quinta Trade Gateway Multipurpose facility, one of the most important diversification projects of the Port,” said Mike Carrell, port commission chairman in a statement.

Georgia governor supports $140 mil highway for increased freight mobility

The state of Georgia’s Governor Nathan Deal announced his support for constructing a $140 million, four-lane, 3-mile-long highway that would run between Interstate 95 and the Port of Savannah.

Tacoma’s April box volume up over 5 percent

The Port of Tacoma announced its containerized volume was up for the seventh straight month in April with over 5 percent growth over the previous period in 2010.

The port said it handled 112,908 TEUs for the month, compared to April 2010’s 107,370 TEUs.

The port has posted 465,098 TEUs handled year to date, up close to 8 percent over the first four months of 2010.

The port also said its breakbulk volume is up 75 percent year to date, with auto imports up 46 percent and total tonnage up 14 percent.

Alaska Air Cargo delivers first Copper River salmon of the season

Seattle-based Alaska Air Cargo announced it delivered the season's first shipment of Copper River salmon this week to Seattle-Tacoma International Airport.

The initial salmon cargo was courtesy of three seafood processors: Ocean Beauty Seafoods, Trident Seafoods and Copper River Seafoods, the airline said in a statement.

The air carrier said it flew more than 22 million pounds of fresh Alaska seafood to the Lower 48 states and beyond last year, including nearly 700,000 pounds of Copper River salmon.


Friday, May 20, 2011

Top Story

Panama Canal: “The supply chain is driving us”

By Peter Hurme

The Panama Canal is scheduled to open its widened post-Panamax gateway by the end of 2014 at a cost of $5.2 billion, however the authority that runs it doesn’t envision much of a change in its market share, nor that there are many East Coast container ports yet able to handle increased volume, and that there will likely be a limit to the economies of scale transiting through.

“The principal driver of expansion was the lack of capacity with the existing canal,” said Rodolfo Sabonge, vice president of market research and analysis for the Panama Canal Authority, speaking at Cargo Business News’ Northwest Intermodal Conference in Portland, Ore. this week.

Currently, 5,000-TEU containerships are the largest such vessels able to pass through Panama’s locks.

“First, we needed to expand the canal so that trade could continue growing through it,” Sabonge said, referencing a forecast the authority had conducted in 2000, the year the canal’s oversight was handed back to Panama by the U.S. He said the canal’s capacity at that time was forecast to run out by this year.

The strategy of being able to handle larger ship sizes came later, Sabonge said, where initial research showed a vessel with capacity for 12,600 TEUs could fit through the expanded locks, which has since evolved to 14,000-TEU ships being able to fit through.

“We’re not expecting more transits – it’s economies of scale,” Sabonge said.

“The shipping industry is reacting very fast to the expansion of the canal – we’re not the ones setting the stage, it’s really the shipping industry that’s coming back to us; telling us that with the limitations that we have, that they are able to fit a 14,000-TEU vessel.”

“We don’t really think we’ll ever see those [sized ships] through the canal – the trade is not there – we’re not in that kind of a route.”

Sabonge added that he doesn’t even think the 12,600-TEU vessels will come through the Panama Canal.

What will drive traffic through the newly widened canal?

Earlier at the conference, a study conducted by the U.S. Maritime Administration was mentioned that reportedly shows an average of $410 per-TEU cost savings for eastbound transits through the canal compared to the intermodal system that runs through North American West Coast ports.

The Panama Canal Authority has developed its own costing model and in its own ongoing study on those costs, Sabonge said it is important to take into account more than just carrier costs, but the shipper’s cost perspective on values of time, money, cargo, inland costs, reliability, and carbon footprint.

“At the end of the day it is shippers that are really making the decisions as to where to position their plants and distribution centers,” he said.

The value of the cargo has a lot to do with the routing as well, Sabonge said.

“There is cargo that will never, ever move from [the U.S. intermodal system]. We all know that anything that is high value will continue to move through intermodal. Everybody talks about discretionary cargo moving through the canal. Discretionary cargo is really the low value cargo, like patio furniture, carpeting, tile - all the stuff that fills up a container that is well under $70,000 [in cargo value],” as opposed to container cargo values that run upwards of $300,000 per container, where the difference in loads can include service changes, canal tolls, fuel prices, handling fees or changing ocean rates, he said.

Attendees also heard that supply chain disruptions and risk management strategies are also a big factor, such as going back to the 2002 West Coast waterfront management-labor contraction negotiations meltdown that in effect launched the shipper-driven drive towards re-routing through the canal.

Other speakers at the Northwest Intermodal Conference, including representatives from the two big Western railroads, BNSF and UP, seemed to concur with Sabonge in that since 2002, much of the shift of cargo through the canal may have already occurred.

Sabonge also mentioned the more recent, massive Japan earthquake and tsunami as an example of a serious supply chain disruption driving future risk management strategy.

There is also the factor of what ideal ship size will be deployed if the over 12,000-TEU vessels are not ideal candidates?

Container shipping lines might “deploy the 8,000, or 6,000 [TEU vessel size]…the carrier will deploy the vessel with the highest profitability and economy of scale,” Sabonge said.

“It is not something a port will be able to decide, or us, it is the carrier that will decide how best to deploy their assets,” he said.

Currently, 40.4 percent of the total container fleet is reportedly post-Panamax. By 2014, 48.1 percent will be post-Panamax, and according to Sabonge, “a lot of [these assets] are already on order beyond 2014.” Speaking on the topic of East Coast ports, the supposed beneficiaries of the widened canal, Sabonge queried: “In the case of the East Coast, who is ready?”

“Certain terminals in New York-New Jersey [are ready], although they have the problem of the Bayonne Bridge. Norfolk [is ready]. Miami has announced they will have enough draft for big vessels. The big question mark has to be with Charleston and Savannah,” he said.

“In my view, that’s enough…vessels are not going to be calling ports where there is really no connectivity and density.”

As for current world trade patterns, “there is only a small percentage of cargo coming from Asia that is [currently] going to these ports,” Sabonge said.

Looking ahead, world trade is accelerating in markets like intra-Asia and is projected to grow at a faster pace than trade flowing through the U.S. West and East Coasts, he said.

In terms of where Asia-sourced cargo is routed to the U.S., Sabonge pointed to production trends there.

“When you hear production is shifting from north to south Asia, like to Vietnam, Indonesia, Thailand, Malaysia – anything that hubs from Singapore will come in a post-Panamax vessel to the East Coast with no alternative – basically, that is the natural way to come to the East Coast,” he said.

The Latin American cargo market is also a driver of the Panama Canal’s expansion such as for trans-shipment.

“Carriers are hubbing in Panama – they are adding value to the transit through the canal by taking cargo to and from South America, so carriers are looking at the potential of Latin America; not just competing with the U.S. intermodal system,” he said.

The Port of Long Beach, for example, has joined the larger ranks of East Coast ports in signing a Memorandum Of Understanding with the Panama Canal Authority, where cargo going in and out of the ever-emerging Brazilian market is of interest, Sabonge said.

There were also the trends of other cargo-carrying types of vessels that factored into the Canal’s strategy to expand for traffic in both directions, such as for dry bulkers, tankers, LNG carriers (which are all post-Panamax).

Sabonge added that grain and coal shipments coming down the Mississippi River and passing through U.S. Gulf Coast ports are another westbound opportunity through the canal, destined for Asian markets.

Summing up his presentation, Sabonge said: “We don’t think the expansion of the canal is really going to have the tremendous impact that people seem to think there will be on the intermodal system.”

“We see growth around the world that will allow the Canal to maintain market share and provide many new opportunities – we think this will be the game changer.”

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