New York Ports Losing to Baltimore on Panama Canal Growth
The Port Authority of New York & New Jersey, enveloped in a scandal over lane closings at the George Washington Bridge that’s increased scrutiny of its management, is facing a challenge to one of its core functions as it loses business to North Atlantic shipping terminals.
While known mostly for its three New York City-area airports and Times Square bus terminal, the Port Authority runs the third-largest U.S. port by volume. It lost two percentage points of market share last year and is grappling with operational challenges 18 months before the expansion of the Panama Canal brings bigger container vessels to the East Coast.
A committee assembled by Governors Andrew Cuomo of New York and Chris Christie of New Jersey said this month that the Port Authority may need to change its management structure. The fragile nature of its terminal operations was exposed last year when a computer malfunction at Maher Terminals LLC and a shortage of equipment to move containers led to truck gridlock and cargo bottlenecks that delayed shipments.
“It was clear to us after last summer’s experience we fundamentally had to make some significant changes to the way we operated the port,” Richard Larrabee, the Port Authority’s director of Port Commerce, said in an interview.
At stake for the New York City-area economy is an operation that supports almost 300,000 direct and indirect jobs. The port’s seven facilities, within an eight-hour drive of 20 percent of the U.S. population, is the gateway for $200 billion of goods annually.
The Port Authority has spent more than $2.7 billion to deepen channels, build inter-modal rail facilities and widen roads around the terminals. It’s investing another $1.3 billion to raise the Bayonne Bridge 60 feet (18.3 meters) so that bigger ships can pass under the span, which connects the New Jersey city to New York’s Staten Island.
Unlike other ports, those expensive capital investments aren’t subsidized by federal or state dollars. The Port Authority, which also runs four bridges, two tunnels, a railroad and the World Trade Center site, funds itself through tolls, fares, rent, surcharges on airline tickets and other fees.
The bridges, tunnels and airports, which generated more than $1 billion in operating income, subsidize the agency’s money-losing operations. The Trans-Hudson commuter railroad, known as PATH, lost about $320 million last year, while its 64-year-old bus terminal lost about $97 million. The ports lost less than $1 million.
The Port Authority is a “landlord port,” meaning it leases space to terminal operators and provides infrastructure necessary for operations. The agency’s 2014 budget projects its Port Commerce division will collect $166 million in fixed rent and $77.5 million in other revenue this year, about a 7 percent decline from 2013.
West Coast ports, such as Los Angeles and Long Beach, are spending $5 billion in infrastructure upgrades in preparation for the Panama Canal expansion, about as much as the cost to enlarge the waterway’s lock system, according to a December 2013 report from Colliers International, a Seattle-based commercial real estate brokerage.
“The Southern Californian ports see the Panama Canal as a big deal and intend to surrender nothing to the East Coast ports,” wrote K.C. Conway, U.S. chief economist for Colliers.
The agency’s market share among North Atlantic terminals dropped to 50.4 percent last year from 52.4 in 2012 because of concessions, incentives and the ability of rival ports to provide deeper channels sooner, according to a June report by an industry task force.
The agency lost Mazda Motor Corp. (7261) as a customer to the Port of Baltimore last year. The loss of 65,000 cars annually follows prior moves by Hyundai Motor Co. (005380) and Kia Motors (000270) to the port of Philadelphia. Automobile activity at the New York-area ports in 2014 is projected to decline by about 100,000 vehicles, according to agency budget documents.
In addition, the Port of Cleveland started a new express freight service to Europe, giving Midwestern manufacturers and producers another supply route instead of sending them by truck or rail to New York and New Jersey first, the Colliers report said.
In 2013, cargo volume at New York’s ports declined 1 percent, to 5.5 million 20-foot equivalent units, the first year in the past 15 that cargo volumes didn’t grow, according to the task force.
To win back auto business, the Port Authority has offered manufacturers a 50 percent reduction in fees charged for the use of wharf for each additional vehicle that moves through the port above a certain level.
“We’re still in the automobile business and we very much want to grow that business again,” said Larrabee.
Through April, volume is up 3.1 percent over the prior year, according to the Port Authority.
Bigger ships mean terminal operators will have to load and unload ships more efficiently and improve systems to transfer the cargo to and from trucks and rail.
Yet severe congestion in the summer of 2013 called into question the agency’s ability to handle large volumes of cargo.
A new computerized cargo routing system installed by Maher Terminals at the port in Elizabeth, New Jersey, didn’t work properly, causing traffic backups to the New Jersey Turnpike. The problem, which spread as ships were diverted to nearby terminals, was exacerbated by a shortage of chassis, the wheeled trailers used to move shipping containers.
“If we can’t handle what we have today, how are we going to handle these bigger ships down the road?” John Nardi, president of the New York Shipping Association, an industry trade group, said in an interview.
In response, the Port Authority set up the task force, which was co-led by Nardi and made up of representatives from ocean carriers, terminal operators, shippers, trucking groups, retailers, railroads and labor to improve operations.
The committee also took on long-standing issues such as the random timing of truck arrivals at the container terminals. Every morning, there’s a rush by motor carriers to get in line at terminals in hopes of making multiple moves, creating spikes and lows in traffic the rest of the day, said Larrabee.
One of the task force’s 23 recommendations was for a truck-management system that would measure arrivals, reducing waiting times and allowing terminal operators to use their equipment more efficiently. Other suggestions including adopting technology to monitor truck movements and a website showing real-time information on container availability, and highway and port traffic congestion.
The finances of the port commerce division should improve as charges based on cargo volume become a more significant portion of the long-term leases that the terminal operators have with the Port Authority, said Larrabee.
Port Commerce receives about $26 per container that travels through the port, a $21 throughput charge and a $4.95 per fee that helps fund rail, roadway and security costs. The throughput charge increases $2 every three years and will go up next year, according to Port Authority spokesman Steve Coleman.
“Over time our financial situation gets much better,” Larrabee said.
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