Shortsea Shipping: Poised for a Comeback - Guest Opinion

Shortsea Shipping: Poised for a Comeback

By Joseph Keefe
Wednesday, June 26, 2013
File

The idea that cargo, moved from deep draft ports to smaller, niche destinations, can be accomplished without trucks is something that has taken a backseat over the past five years. That’s because, absent the leadership necessary in Washington to move the viable concept forward, it has fallen off the intermodal Radar, replaced with flashy ideas for high speed commuter trains and further obscured by the pouring of billions of dollars of asphalt onto the nation’s highways. Shortsea shipping, however, is alive and well. In the Commonwealth of Virginia – and elsewhere – it is getting a jumpstart that is already yielding dividends.
Sean T. Connaughton, Secretary of Transportation for the Commonwealth of Virginia and the former U.S. Maritime Administrator, not only believes in shortsea shipping, he envisions a system that utilizes the entire intermodal chain. Overseeing seven state agencies with more than 9,700 employees and combined annual budgets of $5 billion, it would probably be easy for Connaughton to shelve a nascent shortsea program between the ports of Norfolk and Richmond, VA. After all, the trouble of setting it up and keeping it in motion probably outweighs the initial hassle of doing so, especially amidst so many other tasks on his plate. Nevertheless, he insists, “We see the immediate benefit to the economy and the creation of jobs in intermodal development.” 

The I-64 Express
The 64 Express, in service since 2008, is a barge service linking the Hampton Roads Harbor and the Port of Richmond. Running from one to three sailings per week, the Virginia Port Authority hopes to ramp that up even further in the near term, when a new major customer could join the action. That could lead to as many as six sailings daily, something Connaughton describes as “a game changer.” Although this year’s results have been disappointing because one user closed a plant elsewhere, about 7,000 containers nevertheless moved across the docks at Richmond last year.
Since 2008, the service has eliminated the need for as many as 50,000 truck trips along the congested I-64 corridor. Looking ahead, Connaughton hopes that investments in the CSX railhead will make the port of Richmond more accessible, intermodal and facilitate easier interface between the various modes at the port. Today, some cargo is even going back in the other direction and about 4 percent of Norfolk containers are now being moved to the port of Richmond using the shortsea program.

The Bigger Picture
Connaughton concedes that convincing doubters is sometimes a tough sell. He explains, “Shortsea Shipping is still a bit of a ‘chicken and egg’ thing – does the need for the service, or the service itself come first? The challenge is to get the service set up first. Labor is still a work in progress and a challenge.” But Richmond is only one piece of the puzzle. That’s because the entire intermodal picture must work when it comes to the shortsea concept. At the inland port of Front Royal, VA, for example, 35,000 to 40,000 containers are being dropped by trucks annually and then moved to final destinations or the coast via train.“We need to move cargo closer to its ultimate destination before the trucks touch it,” he adds.
Integral, therefore, to the Commonwealth of Virginia’s master transportation plan are the inland ports which can be tied in more efficiently to the ports themselves. Connaughton understands the benefits of ports, and the reduction of road wear and tear that can result from a carefully coordinated transportation system. Active plans in Virginia also include Roanoke and other ‘inland’ ports for intermodal tie-ins. This cannot be done in a vacuum. Connaughton insists, “Stovepiping in government is a detriment to shortsea shipping.”

Looking Ahead: More Work to be Done
Although the Virginia shortsea route currently runs between Norfolk and Richmond only, Connaughton is looking to expand the service to Philadelphia, PA, as well. Before it can all be deemed an unqualified success, however, many other things will have to come together. For starters, the shortsea portion of the Harbor Maintenance Tax (HMT) – the ad valorum tax based on the value of the cargo and paid by the shipper – would ideally be removed. He adds, “If WRDA ultimately is passed, that has to be addressed, as well.” 
Where others see only competition from the other modes of transportation, Connaughton sees opportunities to collaborate. That means upfront investments to establish services that can pay dividends on the backend. He explains, “We need to continue to push now to get new operations started so that when the economy recovers they are in a position to provide services. “From a public benefits perspective, marine highways are a cost effective alternative to expanding highway infrastructure.”

Current Events: Future Trends
As this edition went to press, S. 601, the Water Resources Development Act of 2013 (WRDA), had advanced through the Senate by a vote of 83-14. The legislation, if ultimately enacted, promises to spur vitally needed maintenance and improvements in America’s seaport related infrastructure and waterways. That’s good news for the I-64 Express – and other projects like it. Ultimately, cooperation and collaboration between states, neighboring and not, as well as metropolitan planning organizations is essential. Connaughton believes that this is where the federal government, which can see beyond jurisdictional borders, comes in.
Separately, it was also announced in May that the Maine Port Authority had selected McAllister Towing & Transportation as its partner for the design of a containerized articulated tug barge (ATB) for the New England Marine Highway Project. Prior to the award, McAllister participated in a competitive RFQ and RFP process which followed the award of $150,000 in design funding to the Maine Port Authority as part of a cooperative agreement with between the Maine Port Authority and the Maritime Administration under the auspices of the Marine Highway Program.
According to McAllister, the two partners will be spend the next few months working to design the containerized ATB based on a number of criteria such as shipper and itinerary requirements, cost, speed and capacity. The determining factor throughout this process, however, will be market demand and the requirements of the trade. John Henshaw, Executive Director of the Port Authority said, “We have been working with Maine shippers on this project for three years and we have more work to do. It takes time to integrate with a shipper’s supply chain and to create value utilizing any mode of transportation. The containerized ATB adds another opportunity for more competitive supply chain optimization.” The initial design phase is expected to complete over the summer months and will culminate with the submission of a design to MARAD in September of 2013. 
Shortsea Shipping is alive and well, after all: in Norfolk and Richmond, VA and coming soon hopefully to Maine and Philadelphia, too. The looming passage of WRDA could help to spur much of that on, but if not, then the collective vision of Sean Connaughton, McAllister Towing & Transportation and the Maine Port Authority might just be enough to keep it on track. Let’s hope so.


(As published in the June 2013 edition of Marine News - www.marinelink.com)


‘This should end the debate’

‘This should end the debate’

By : ALEX DÍAZ
Edition: May 30, 2013 | Volume: 41 | No: 20

New study points to big gains from the Jones Act

The maritime industry believes this study proves once and for all that the Jones Act is a big plus. Now it’s up to critics to prove them wrong. Or not.

OK, sitting down? Ready for some news? Here it is: The Jones Act is a tremendous competitive advantage for Puerto Rico, creating a closed loop of shipping routes to and from the U.S. mainland, and offering other benefits that combined, save retailers and manufacturers more than $120 million each year on their cargo shipments.

This, according to a new landmark study by consulting firm Estudios Técnicos that was commissioned by the Puerto Rico Maritime Alliance, or Crowley Maritime Corp., Horizon Lines Inc., Sea Star Line LLC and Trailer Bridge Inc.—the island's four shipping companies—as reported exclusively by CARIBBEAN BUSINESS two weeks ago.

The study does confirm what the March 2013 report on the Jones Act by the federal Government Accountability Office (GAO) said, except that the federal study was heavily criticized for not justifying its results with the numbers. This study fills the gap with numbers that are stunning even to industry executives.

"This is the first time we have a conclusive study that actually calculates the explicit and implicit costs and benefits of the Jones Act for shippers in Puerto Rico," said Eduardo Pagán, Maritime Alliance president and Sea Star vice president & general manager for Puerto Rico & the Caribbean.

"It proves once and for all that all those criticisms levied on the Jones Act are simply wrong. I challenge anyone to take a close look at this study and either come up with an equally empirical and convincing case against the Jones Act or accept that the closed loop created by the law is a big plus to doing business in Puerto Rico," he said.

In other words, unless someone can deliver a solid counterpunch, this should be the knockout blow that finally ends the heated, drawn-out bout between proponents and detractors of the Jones Act. "Otherwise, if the opposition persists, it would reveal itself as pure politics," added José Nazario, Crowley's senior director on the island.

"Most politicians who oppose the Jones Act approach the subject with a bias against the law," said Joaquín Villamil, chairman of Estudios Técnicos. "They make the assumption that this is bad for Puerto Rico without any empirical basis, except some flawed reviews of the law made over the years."

The most talked about was an April 2002 review of the Jones Act by University of Puerto Rico economist José Alameda, that said it costs companies on the island as much as $400 million in higher shipping costs, which they would avoid if the Jones Act didn't exist, a conclusion thrashed by the Maritime Alliance's new study.

"That's absurd, particularly when considering that the entire shipping industry in Puerto Rico invoices $704 million a year," Villamil said.

To be sure, Alameda himself refers to the figures in his study as "estimates" that lack hard data and that shouldn't be used to set policy or change the law (CB, Aug. 4, 2011).

The Jones Act, which dates back to 1920, forces all shipping between the U.S. mainland and off-coast states and territories, including Puerto Rico, Hawaii and Alaska, to be done on ships built in the U.S. and manned by American crews. In the case of Puerto Rico, that covers 77% of all cargo, whether shipped in bulk or containers. The latter, representing 61% of all cargo shipped to the island, was the subject of the Maritime Alliance's study.

LIKE AIR ROUTES

So, what are these huge Jones Act benefits? For starters, the closed loop the study points to refers to the practice by all four carriers of sailing directly between the Port of San Juan and a U.S. mainland port without stopping anywhere else to pick up or drop off cargo.

They are called dedicated routes and are akin to airline flights that depart and arrive on a strict schedule with precious few delays—few, that is, when considering the number of flights that take off and land on any given day.

According to the study, ships serving Puerto Rico have a 98% on-time delivery within what is called a two-hour tolerance.

"If it was supposed to arrive at 7 a.m. and actually gets here after 9 a.m., then it didn't fall within the two hours," explained Crowley's Nazario.

That compares with the 80% average prevailing among international carriers, according to the Maritime Administration of the U.S. Department of Transportation, also known as Marad.

"That degree of precision in the high seas that Puerto Rico enjoys simply doesn't happen with international lines outside the U.S. It only happens in the Jones Act trade," added Richard Rodríguez, general manager of Horizon Lines in Puerto Rico. "That's because international lines try to make sure their ships are filled to capacity, and that means staying in port longer, waiting for cargo, or stopping at other ports along the way to pick up cargo. This produces delays, so they give clients a range of days or weeks in which to expect their merchandise. In Puerto Rico, we give clients a precise schedule, and they can count on their merchandise getting to Puerto Rico, in the case of southbound traffic and to the States for northbound cargo, on such and such day, at such and such time."

Nazario referred to a previous advertising campaign by one of the companies that told clients they could set their watch to the precision of the company's shipping routes.

"Sometimes, depending on the product and the country it comes from, a shipment can take months," Crowley's GM added. "The impact of this cannot be underestimated. The biggest is inventory management. Our clients go from ship to store because they know exactly when they will be receiving the merchandise. Otherwise, if they didn't have that benefit, their customer service would suffer, and they would have to account for far more warehousing, which is added costs."

According to the study, more warehousing means greater capital investments, energy costs, other utilities, labor, insurance, cash fl ow and the obsolescence of certain products, particularly perishable food items.

How would this impact consumer prices at the checkout counter? The study hypothesized with one product, poultry, and found its price would jump from $1.69 a pound (at January prices) to $1.90 a pound, or an increase of 12.5%.

"I don't know of any other jurisdiction with service as reliable as Puerto Rico's," Pagán said. "This has become one of our primary selling points when we approach a client, because we know the huge difference it can make in their business."

$120 MILLION PRODUCTIVITY BOOST

The study seems to strengthen a second big selling point. Not only do dedicated routes save money because of greater speed and reliability of deliveries, but Jones Act carriers also make those deliveries on containers that are far larger and can therefore carry more merchandise per trip, saving clients even more money.

For decades, the standard container sizes had been 20 and 40 linear feet. In the late 1980s and early 1990s, the ground transportation industry in the U.S. began adding larger sizes, resulting in an additional three sizes: 45 feet, 48 feet and 53 feet. Canada soon followed the U.S. lead.

It would be, as fate should have it, a U.S.- and Canada-only innovation not replicated anywhere else. As ground transport companies invested in retooling trucks, trains, routes and berths, so did Jones Act shipping lines, Nazario explained.

That included a new generation of ships and the retooling of existing ones to accommodate five sizes instead of two, as well as significant port investments in loading and unloading equipment and technology.

"It isn't the case that ships can handle any container size you throw at them," Pagán added. "The space on deck and the structure of the ship must be built to fit a certain kind of cargo, and that includes the size of the containers used. That's why international ships can't easily switch to anything other than 40-foot containers."

Jones Act carriers have also developed a tie-in with stateside port and ground transportation companies to handle any container size seamlessly.

The other adjustment made has been with clients in Puerto Rico and suppliers on the U.S. mainland. "The new sizes meant they had to adjust their planning, information systems, accounting, shipping & receiving and other aspects of their logistics management to take full advantage of what the variety of container sizes means for their businesses," Nazario added.

Topping the list of advantages is productivity. A 53-foot container, as used in Puerto Rico routes, represents 43% more cubic feet than a 40-footer, Villamil said. "That's an enormous difference. It means you can fit a lot more merchandise in the same container and take far fewer trips than you would otherwise. When you have a range of sizes, you can plan your routes with far greater flexibility depending on the size of the shipment, the nature of the product, the destination and other considerations. We were able to put a number on the savings, but the benefits stretch way beyond a number."

The number, though, is important. The annual savings when combining the avoided warehousing (thanks to the dedicated routes) and the larger containers, amounts to $120.8 million for companies in Puerto Rico that ship goods to and from the U.S. mainland, under the Jones Act. The larger sizes translate into some 35,319 fewer 40-foot containers used each year on the island.

Only 31.3% of all cargo shipped in and out of Puerto Rico is still put in 20- and 40-foot containers. Larger sizes now command more: 17.5% for 45-footers, 3.8% at 48 feet and 26% at 53 feet.

"This study finally quantifies what we have spent years arguing conceptually," Nazario continued. "This enhances a client's productivity across the entire logistics chain: loading and unloading, ground transportation, maritime transportation, warehousing and so much more."

"The introduction of these sizes has represented a significant complexity to Jones Act carriers in terms of equipment inventories, vessel design and configurations, rebuilds, and higher costs," the study reads. "This is a good example of how Jones Act carriers developed innovative offerings to make transportation services and costs more beneficial to customers, in line with intermodal solutions across the U.S."

Not only have international shipping lines, port administrators and ground transportation companies outside the U.S. shown zero interest in making the same conversion, but they also show no signs of becoming interested in the years to come.

"Every new ship being built and ordered for the international trade remains only fit for 40-foot containers," Pagán revealed. "It's pretty clear that no one in the international trade wants to take the plunge and make these big investments, so our clients in Puerto Rico and companies in the States will continue to be the only ones benefiting from this menu of sizes for a long time to come."

NET SAVINGS FOR PUERTO RICO COMPANIES

On the other side of the ledger is what the Jones Act does cost companies in shipping and logistics. On that front, the study confirms what a previous industry study had already shown.

As previously reported (CB, Aug. 4, 2011), a 2003 study commissioned by the industry and conducted by Boston-based consultancy Reeve & Associates found that if U.S.-Puerto Rico trade were opened to international carriers, they would incur exactly the same costs as Jones Act carriers do today, with only two exceptions: the higher cost of ship-building and depreciation; and the higher wages paid to American crews onboard the ships.

"Every other cost is the same for all carriers: wharfage, dockage, fuel, port fees, inland transportation, sales and administration," Rodríguez outlined. Wharfage is a fee charged by every port authority, including in Puerto Rico, based on cargo tonnage, while the dockage fee is based on the size of the ship.

According to the Estudios Técnicos study, vessel and crew costs represent only 16% of the $670 million in total shipping costs, and of that, less than half, or $48.5 million, is attributable to the Jones Act—the higher labor costs and depreciation.

So, the Jones Act represents $48.5 million in incremental costs that wouldn't be borne by companies in Puerto Rico if the island were exempt or if the law was repealed and U.S.-Puerto Rico trade opened to international carriers.

That, in turn, yields a $72.3 million net gain for the island: the $120.8 million benefit minus the $48.5 million cost.

"It's actually more than that," Villamil cautioned. "Recall that the Jones Act gives Puerto Rico companies a big advantage in terms of offering better service and delivery times to consumers, and that is incalculable." Such benefits include improved relationships, greater customer retention and referrals, more loyalty, and other attributes that lead to higher sales. "How much is that worth to a company?"

LOWER RATES, LOWER PROFITS

Impossible to say. There is another impossible-to-say angle of this entire Jones Act debate that is rarely mentioned, but which the Maritime Alliance study makes sure no one misses.

The study asked, if the U.S.-Puerto Rico trade were to be opened to international carriers, who is to say that they will actually pass along those $48.5 million and offer better shipping rates, rates low enough to even compensate for the lost savings from larger container sizes and dedicated routes?

"We took a close look at international trade," Villamil said soberly, "and what we found was an industry essentially controlled by very few carriers that go as far as setting global shipping rates. There is a lot of collusion going on, and small markets such as Puerto Rico usually end up on the wrong end of the stick. It is a lot harder for a company in Puerto Rico to negotiate international rates than Jones Act domestic rates."

The study adds: "Eliminating the Jones Act wouldn't place Puerto Rico in a competitive market, but instead one characterized by significant concentration. More than 40% of all global cargo is concentrated in three lines: Maersk Line, Mediterranean Shipping Co. (MSC) and CMA CGM Group."

The study tracked global shipping rates and shows that they have risen steadily since the end of the 2008- 2009 Great Recession and "have gone through the roof" since 2011.

Today, the average cost of a container is 33% higher in the international trade than it is in the U.S.- Puerto Rico Jones Act trade, the study says.

About 29% of all exports from Puerto Rico and 54% of imports are international (non-U.S.), "so we had a wide base to study and compare," Villamil said.

"For competitive reasons and because of the deeper economic slowdown here at home, freight rates in Puerto Rico are actually the same today as they were back in 1996," Nazario said. "It's cheaper for a truck to go from New York to Jacksonville [Fla.] than for a ship to sail from Jacksonville to San Juan, which is amazing when one considers that costs have risen mercilessly during this time. It's been a struggle for those of us in the shipping business,but here we are, offering the service as always."

The fact the Great Recession began sooner and has run longer in Puerto Rico than it did stateside and elsewhere, has had a lot to do with that, the study adds.

"Our ships aren't sailing at full capacity, not even southbound," said Rodríguez, referring to the marked difference between vessels that bring merchandise to the island from the States, and northbound ships making the return trips.

Historically, southbound trips have arrived full of cargo, while northbound ones return mostly empty. According to the Maritime Alliance study, southbound trips represent 81% of total volume and 87% of all revenue in the trade, but they are sailing at 80% capacity, a deep dive from the 95% capacity prior to 2005. Northbound ships are faring worse, at roughly 20% capacity, or 80% empty—about 35% less than in previous years.

That cuts heavily into carrier profits, but the fl ip side is that their clients, the companies placing the orders, are now paying lower rates on shipments to the U.S. mainland than to foreign countries.

"Most critics of the Jones Act, when they compare Puerto Rico and international rates, consider only southbound rates, which are higher than northbound," Villamil explained. "But to get a more accurate picture, one has to weigh in the far lower northbound rates to then arrive at an average. That's when you see the math working in Puerto Rico's favor."

At least in the clients' favor. The carriers? Not so much. "Having dedicated routes means that our ships will sail on the hour with whatever cargo we have inside," Rodríguez said. "That's the way the Jones Act trade works. If that means less profitability for the carriers, well, that's what it means. We just have to hold on until the economy picks up and we get greater volume, and that's what we are all doing."

'THE ONLY CONCLUSION'

The strained net income, combined with the huge investment required to compete in a market accustomed to multiple container sizes, has also meant that international carriers have shown no interest in entering the U.S.-Puerto Rico trade.

"If this were as onerous to Puerto Rico companies and as profitable for carriers as the skeptics make people believe, we would have a line of international carriers breaking down the doors of Congress asking for repeal or exemptions," Villamil said. "But that's not the case at all. These global chains aren't going to stop in Puerto Rico just to pick up 100 to 200 containers. They want to keep making stops to fill the ship. Dedicated routes are the last thing they want to do."

Not only are they not clamoring for a change, but "they also have never stepped forth with a study showing that switching from the Jones Act closed-loop market to the open market of international trade would be more advantageous to companies and the economy of Puerto Rico," Pagán said. But then again, "no one in Puerto Rico has ever produced a study with empirical evidence in favor of repealing the Jones Act. We believe this study should end the debate. The numbers don't lie. Unless a critic takes a look at the data and draws a different conclusion, this is the only conclusion to be drawn."

Reporter Dennis Costa contributed to this story.

New study picks up where the GAO left off

Seldom have expectations been as high for a federal agency report to be completed as was the March release of the Government Accountability Office (GAO) report on the Jones Act, which was universally expected to support the arguments of Jones Act detractors— that the law leads to higher shipping costs on the island.

And seldom has a federal agency report been as blasted as this one was. Detractors argued fiercely that the GAO sided with Jones Act carriers and the U.S. defense establishment in preserving the law's protectionism, while Jones Act proponents lamented the lack of figures and rigorous research that would have sealed their position—that the law yields critical benefits that make up for the higher costs.

The Estudios Técnicos study featured in the main story of this Front-Page coverage substantiated three of the proponents' arguments, corresponding to the following sections of the GAO report, quoted extensively below:

DEDICATED ROUTES

"The nature of the service provided between Puerto Rico and the U.S. mainland could be affected by a full exemption from the Jones Act. In particular, foreign carriers that currently serve Puerto Rico as part of a multiple-stop trade route would likely continue this model to accommodate other shipping routes to and from other Caribbean destinations or world markets, rather than provide dedicated service between the mainland and Puerto Rico, as the current Jones Act carriers provide.

"If this were to occur, some stakeholders expressed concerns about the effect that such an altered shipping service would have on the reliability of service to and from the mainland. For example, longer multi-port trade routes make it difficult to ensure that scheduled service will be consistently reliable, because carriers are more likely to experience weather delays or delays at ports, and could even intentionally bypass ports on occasion to make up lost travel time.

"According to some shippers, reduced reliability of service could result in increased warehousing and inventory-related costs for companies in Puerto Rico. Importers' inventory management rely on prompt and regular shipping and receipt of needed goods to stock shelves, which is less costly than warehousing goods on the island.

"Additionally, some stakeholders expressed concern about the possible loss of convenient and inexpensive backhaul (northbound) service. If, under new market conditions, carriers choose not to provide dedicated service, then backhaul services from Puerto Rico to the mainland would also be part of longer multi-port trade routes and may not be direct from Puerto Rico to the mainland. Because of limited volumes in this market, the result could be sporadic service or higher rates."

LARGER CONTAINERS

"While foreign-flag carriers involved in international trade use standardized 20- and 40-foot containers, some Jones Act carriers provide shippers with a range of larger container units. The carriers' larger containers are the same size and type of equipment currently operated within the domestic U.S. trucking and rail transportation systems. Thus, shippers can use the same packing systems they use for other modes of U.S. transportation, a benefit that provides cost savings to the carriers and shippers. This also enables more efficient loading and unloading of containers and trailers, and delivery to their final destination on the island."

SHIPPING RATES

"Freight rates are based on a host of supply and demand factors in the market, some of which are affected by Jones Act requirements. However, because so many other factors besides the Jones Act affect rates, it is difficult to isolate the exact extent to which freight rates between the mainland and Puerto Rico are affected by the Jones Act."

New Houston-Puerto Rico shipping line launched

NSA becomes fifth carrier to serve the U.S.-P.R. Jones Act trade

With its maiden trip having left yesterday (May 29) from Houston and due to unload its containers at the Port of San Juan next Monday, National Shippers of America (NSA) has become the island's fifth maritime carrier, joining Crowley, Horizon, Sea Star and Trailer Bridge as the only companies serving the Puerto Rico-U.S. mainland Jones Act trade.

Isla Verde Express, as the service is called, will carry containers on a fixed southbound and northbound route every two weeks between the Port of Houston and the Port of San Juan. Horizon serves the same route on the weeks NSA doesn't sail, which means the island now enjoys weekly service from the fourth-largest city and seventh-busiest maritime port in the U.S.

NSA will carry cargo originating west of the Mississippi River on the ship MV National Glory, a U.S.-flagged vessel with a capacity of 570 TEUs (20-foot equivalent containers). The ship has been refurbished to use low-sulfur diesel to minimize emissions, leading to NSA's claim that it is the greenest vessel in the U.S.-P.R. trade.

"Shippers west of the Mississippi [River] have few options to move cargo to and from Puerto Rico without having to use an East Coast port," said Torey Presti, president of NSA. "A significant percentage of the [U.S.] mainland-Puerto Rico cargo is from Texas and the western states. We offer a central U.S. location, which together with synchronized intermodal connections, enhances the options for shippers and keeps their supply chains predictable and steady."

Agent services at both ports are provided by Norton Lilly International, headed in San Juan by Miguel Latimer.

In Houston, NSA will sail from the Jacintoport terminal and will use the Intership terminal in San Juan, offering direct rail links stateside and such value-added services in both ports as warehousing, crossdocking, transloading and bagging.

For both southbound and northbound trips, cargo will leave port on Thursdays and arrive the following Tuesday, with the merchandise available at 3 p.m., providing the rest of the week for delivery to distribution centers or intermodal transport without a weekend delay, according to the company's website.

NSA was founded in 2007 by C.C. Chen, an industry executive with years of short-sea shipping experience in Asia as founder (in 1962) & president of Wan Hai Lines. A company fact sheet describes NSA as a "flat organization [that] ensures quick decision-making and responsive customer service."


Centers of excellence and expertise: a boon for importers

Centers of excellence and expertise: a boon for importers

Adrienne BraumillerAuthor page »

It doesn’t take much to recognize the benefits that U.S. Customs and Border Protection’s new Centers for Expertise and Excellence offer to importers frustrated with fragmented ports of entries. I say fragmented because, by nature, ports of entries fragment knowledge, experience, and CBP’s relationship with importers. An importer of petroleum-based chemicals seeking entry through Miami may find their entry documents and products inspected by a CBP officer who has little knowledge of their products, is unable to fully comprehend their product descriptions, and is unduly skeptical of the importer’s entry documents and classifications. That same importer, importing through Houston, may find a CBP officer with a strong knowledge of petroleum chemicals, who totally comprehends the importer’s product descriptions, and agrees with the importer on their filings and classifications. A different place, a different inspector, a different outcome – that is fragmentation.

CBP is now promising to put the pieces together through these Centers or “CEEs”. Centers are offices staffed by CBP personnel who specialize in processing all validation activities, protests, post-entry amendments, and post-entry correction reviews for specific industries. These centers are scattered about various locations in the U.S. depending on the industry they specialize in. For instance, the Center for Electronics is based in Los Angeles and the Center for Petroleum, Natural Gas & Minerals is based in Houston. Importers are assigned to a center based on their industry and file most of their entry and post-entry documents with their assigned center. But centers are not only there to process filings. They also serve as a place for importers or businesses to engage CBP with their questions and concerns. Thus, CBP hopes that centers will promote “bi-directional education” and improve the relationship between CBP and importers. Currently, participation in the CEE program is voluntary and CBP gives priority to applicants who participate in the Importer Self-Assessment or the Customs-Trade Partnership Against Terrorism Programs. However, CBP does not envision the program staying this way. Over the next five years, the agency plans to phase in mandatory participation for importers whose primary imports fall under one of the center’s dedicated industries. This is why it doesn’t hurt for importers to learn what they can about centers and join while membership is still voluntary.

While major procedural and regulatory overhauls tend to rattle businesses, importers can take comfort in the fact that current participants in the CEE program have overwhelmingly rated their experiences as positive. In a recent survey of the trade community, 75 percent of participants indicated that they were very satisfied with their membership in a center, 96 percent indicated that their center helped them resolve issues they had with CBP, and more than 50 percent said they benefited from fast shipment delay resolutions, direct contact with CBP, and more clarity on CBP requirements. But, the participants are not the only ones benefiting. While centers can only process the filings of participants, this does not prevent them from fielding questions from other importers. The same survey showed that many non-participants have used centers to answer questions ranging in subject from C-TPAT procedure to CF-28s and cargo holds and these non-participants seemed to be satisfied with the center’s assistance.

Despite the positive feedback, the expanding role of centers also means that importers will need to change some of their processes since most of the filings that would traditionally be filed with ports of entry will now be conducted with centers. Currently, centers have taken over the following responsibilities for their participants:

  • processing entry summaries
  • summary rejections and cancellations
  • Census rejects
  • issuance of Request for Information and Notice of Action
  • anti-dumping/countervailing duty entries
  • post-Summary adjustments
  • internal advice request
  • protests and petitions
  • drawback
  • prior disclosures (optional)

Of course, ports of entry still have a role to play. After all, it will be the port that your products are entering through, not the center. Responsibilities maintained by the ports of entry are:

  • revenue collection
  • quota
  • Temporary Importations under Bond
  • liquidation (processed at center and posted at port of entry)
  • reconciliation entries
  • prior disclosures (optional)

Despite this shift in responsibilities from ports of entry to centers, the effect on importer’s processes is minimal. This is because most documents will continue to be filed through either the Automated Commercial System or Automated Commercial Environment, and since most importers already make their filings through ACS and ACE, importers will not have to change their filing habits. This is not to say that there will not be any changes that importers find inconveniencing. One process that might frustrate importers is the system for revenue collection. Since ports of entry will maintain responsibility over revenue collection while centers process entry summaries, importers will have to both file their entry summary with their center and send a copy of it along with a check to the port of entry. Despite small hitches like this, in general centers seem to provide more convenience than headaches.

Originally, CBP created four centers, but on April 4, the agency announced in the Federal Register six additional centers which would be phased in over the course of the spring and summer of 2013. Currently, there are seven centers with three more expected by the end of 2013. Those already in place are:

  • The Electronics Center, Los Angeles
  • The Pharmaceuticals, Health & Chemicals Center, New York City
  • The Automotive & Aerospace Center, Detroit
  • The Petroleum, Natural Gas & Minerals Center, Houston
  • The Base Metals Center, Chicago
  • The Industrial & Manufacturing Materials Center, Buffalo
  • The Machinery Center, Laredo

Throughout the summer we should expect to see three more centers created:

  • The Agriculture &Prepared Products Center, Miami
  • The Apparel, Footwear & Textiles Center, San Francisco
  • The Consumer Products & Mass Merchandising Center, Atlanta

In addition to the April 4 Federal Register Notice, CBP published a document titled “Centers of Excellence and Expertise Test Guidelines,” detailing the responsibilities and procedures for participating accounts. This document breaks down the responsibilities of the center, the port, and the importers and is a great reference on how centers will actually work.

As their numbers increase, centers will also see their responsibilities grow. This is because CBP plans to transfer all port-of-entry responsibilities to the centers, including revenue collection. This is mostly good news for importers, as centers promise a whole lot without demanding much in return. Importers will benefit from having most of their filings managed by people who understand their industry and understand their “account.” CBP hopes that the closer working relationship that centers will create between CBP and importers should also support mutual trust and cooperation, and given the recent positive feedback from participants, CBP is probably right.


Export Regulations and Cloud Computing...Beware! from Becker and Poliakoff

Export Regulations and Cloud Computing...Beware!

 

Posted: 28 May 2013 10:05 AM PDT

 

Co Authored by Perry Sofferman

 

Forrester Research predicts that the global market for cloud computing services will have increased from $40.7 billion dollars in 2011 to approximately $241 billion dollars by 2020. You can see the ZDNet article here.  This figure includes the Platforms as a Service, Infrastructure as a Service and Business Process as a Service delivery models. What this information reveals is that while cloud computing is already a significant part of operational strategy for many businesses (as well as governmental agencies), we should expect it to not only grow as a market but to become even more intertwined with the way we conduct business and store data on a daily basis. Consequently, businesses in general and export compliance officers in particular need to be vigilant and make sure that their use of this important technology is consistent with US export regulations.

 

When using cloud services, the user is uploading data to available servers in the cloud provider’s server facility(ies). The type of data uploaded and the location of the server where that data is stored can potentially trigger export compliance issues for the user. In fact, the ultimate location of the particular server used to hold the user’s data may be unknown to either the user or the cloud provider. Data can be redirected to various servers in different countries in order to properly allocate server space based on fluctuations of usage in different time zones.  It should be noted that this is only one example of several possible scenarios where the actual export of restricted data could occur inadvertently by the user.

 

Based on Advisory Opinions issued by the Bureau of Information and Security (“BIS”), there is guidance indicating that in scenarios where exports take place through means of cloud computing:

 

(i) the cloud computing provider is not the exporter (the user is) and

(ii) if foreign nationals employed by the provider access restricted data there may well be a deemed export of such data to such foreign national on the part of the user. 

If, however, a cloud computing service provider is aware that the service will be used to support certain proscribed activities, then the provider will be obligated to properly acquire the necessary license.    Neither the Directorate of Defense Trade Controls (DDTC) nor the Office of Foreign Asset Controls (OFAC) have yet provided substantive guidance on the subject of export regulations in relation to cloud computing, although OFAC has provided some limited guidance related to exports to Iran involving software and services incidental to personal communications. “Cloud Computing” remains an undefined term in the EAR, ITAR and OFAC regulations.

 

Top 5 Tips for Export Compliance Professionals in Regard to Cloud Computing

 

It is critical for compliance officers and others involved in export control management, including providers of cloud computing services, to take steps to better familiarize themselves with the many complex issues at play in this area. A good start would be a detailed review of the BIS advisory opinions, which can be found here.     

In addition, users of cloud services should think about how to approach this issue with their providers. Users might consider gaining a good understanding of where their provider’s servers are located and whether the providers have instituted any safeguards to address export compliance issues. Likewise, providers may want to delve more deeply into the ITAR regulations with particular emphasis placed on the relation between cloud computing services and “brokering” activities.

Compliance officers should make sure that members of their organizations are aware that export regulations are applicable to cloud services and that while the storage of data in the cloud might feel virtual, the penalties for export regulation violations remain brick and mortar.

While exporters remain liable for violations of export regulations, compliance officers should work with their IT departments when negotiating terms to agreements with cloud services providers. For example, require the service provider to notify you in the event servers are added in geographic locations that might be problematic for you. See if it is possible to obtain a right to terminate in such instance. In addition, try to get the provider to indemnify you in the event there is an export violation as a result of a provider’s action or inaction.

Make sure a review of how your organization uses cloud services is part of your standard compliance self-audit so as to identify any possible problems or lapses before they become significant.

In a speech in 2012, Under Secretary of Industry and Security, Eric Hirschorn, noted that a future project for the Bureau might be a review of “for clarification’s sake – the rules regulating cloud computing.”    For both users and providers, such a review should be anxiously awaited.

 

 


NOAA predicts 3-6 major hurricanes, active 2013 Atlantic hurricane season

NOAA predicts active 2013 Atlantic hurricane season

Era of high activity for Atlantic hurricanes continues

May 23, 2013

Hurricane Sandy as seen from NOAA's GOES-13

Hurricane Sandy as seen from NOAA's GOES-13 satellite on October 28, 2012.

Download here (Credit:NOAA/NASA)

In its 2013 Atlantic hurricane season outlook issued today, NOAA’s Climate Prediction Centeris forecasting an active or extremely active season this year.

For the six-month hurricane season, which begins June 1, NOAA’s Atlantic Hurricane Season Outlook says there is a 70 percent likelihood of 13 to 20 named storms (winds of 39 mph or higher), of which 7 to 11 could become hurricanes (winds of 74 mph or higher), including 3 to 6 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

These ranges are well above the seasonal average of 12 named storms, 6 hurricanes and 3 major hurricanes.
 
“With the devastation of Sandy fresh in our minds, and another active season predicted, everyone at NOAA is committed to providing life-saving forecasts in the face of these storms and ensuring that Americans are prepared and ready ahead of time.” said Kathryn Sullivan, Ph.D., NOAA acting administrator. “As we saw first-hand with Sandy, it’s important to remember that tropical storm and hurricane impacts are not limited to the coastline. Strong winds, torrential rain, flooding, and tornadoes often threaten inland areas far from where the storm first makes landfall.”

Three climate factors that strongly control Atlantic hurricane activity are expected to come together to produce an active or extremely active 2013 hurricane season. These are:

  • A continuation of the atmospheric climate pattern, which includes a strong west African monsoon, that is responsible for the ongoing era of high activity for Atlantic hurricanes that began in 1995; 

  • Warmer-than-average water temperatures in the tropical Atlantic Ocean and Caribbean Sea; and

  • El Niño is not expected to develop and suppress hurricane formation.

“This year, oceanic and atmospheric conditions in the Atlantic basin are expected to produce more and stronger hurricanes,” said Gerry Bell, Ph.D., lead seasonal hurricane forecaster with NOAA’s Climate Prediction Center. “These conditions include weaker wind shear, warmer Atlantic waters and conducive winds patterns coming from Africa." 

NOAA’s seasonal hurricane outlook is not a hurricane landfall forecast; it does not predict how many storms will hit land or where a storm will strike. Forecasts for individual storms and their impacts will be provided throughout the season by NOAA’s National Hurricane Center.

New for this hurricane season are improvements to forecast models, data gathering, and the National Hurricane Center communication procedure for post-tropical cyclones. In July, NOAA plans to bring online a new supercomputer that will run an upgraded Hurricane Weather Research and Forecasting (HWRF) model that provides significantly enhanced depiction of storm structure and improved storm intensity forecast guidance.

Also this year, Doppler radar data will be transmitted in real time from NOAA’s Hurricane Operations CenterHurricane Hunter aircraft. This will help forecasters better analyze rapidly evolving storm conditions, and these data could further improve the HWRF model forecasts by 10 to 15 percent.

The National Weather Service has also made changes to allow for hurricane warnings to remain in effect, or to be newly issued, for storms like Sandy that have become post-tropical. This flexibility allows forecasters to provide a continuous flow of forecast and warning information for evolving or continuing threats.

“The start of hurricane season is a reminder that our families, businesses and communities need to be ready for the next big storm,” said Joe Nimmich, FEMA associate administrator for Response and Recovery. “Preparedness today can make a big difference down the line, so update your family emergency plan and make sure your emergency kit is stocked. Learn more about how you can prepare for hurricane season atwww.ready.gov/hurricanes.”  

Next week, May 26 - June 1, is National Hurricane Preparedness Week. To help those living in hurricane-prone areas prepare, NOAA is offering hurricane preparedness tips, along with video and audio public service announcements in both English and Spanish, featuring NOAA hurricane experts and the FEMA administrator at www.nhc.noaa.gov/prepare/.

NOAA’s outlook for the Eastern Pacific basin is for a below-normal hurricane season and the Central Pacific basin is also expected to have a below-normal season. NOAA will issue an updated outlook for the Atlantic hurricane season in early August, just prior to the historical peak of the season.

NOAA’s mission is to understand and predict changes in the Earth's environment, from the depths of the ocean to the surface of the sun, and to conserve and manage our coastal and marine resources. Join us onFacebookTwitter and our other social media channels.


Brookings takes on the Panama Canal Fantasy -Guest opinion

Adie Tomer and Joseph Kane | May 17, 2013 4:25pm

Widening the Panama Canal and the Future of Global Trade Mapping

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Up and down the Atlantic coast, US ports are abuzz. Dredging machines, tunnel excavators, and highway pavers from Miami to New York are preparing metropolitan economies and their ports for a newly expanded Panama Canal. As the thinking goes, an expanded Canal promises bigger ships, bigger cargo loads--and each metro wants a piece of the bigger business.

 

Map_trans_caribbean

But lost in this port-related arms race is what the newly-widened Panama Canal means for the US economy . Too many metropolitan areas simply assume they’ll immediately acquire new freight business when the expanded Canal opens, or that there will be more business at all. These billion-dollar assumptions ignore a more fundamental question: how and where will the Panama Canal affect US’ global goods trade?

Answering that question requires a broader view, one less predicated on ship size and more on economy size. It also requires metropolitan areas to gain a better understanding of their goods trading relationships, and how those relationships power their local economies.

It’s time to have a frank conversation about what investments like the Panama Canal mean for US trade and economic growth.

First, let’s start with a little context. The Panama Canal, set to celebrate its 100th birthday next year, is one of the world’s most important trade assets. It primarily helps connect US Atlantic and Gulf ports to their trading partners in Asia, Oceania, and South America. Driven by those major markets, the Canal already moves over 330 million tons of freight each year.

However, the Canal suffers from capacity constraints. The world's largest ships can no longer fit through certain locks, meaning the Canal was ill-prepared for its second century. In response, Panama initiated a major overhaul including two new locks, plus widening and deepening several existing channels. When complete in 2015, larger container ships will expand potential trade volumes between the Americas and Asia--and more seamlessly connect global markets in the process. The promise of these larger ships is the inspiration behind the Atlantic ports’ major capital projects.

Yet, as ports carry out such extensive projects, questions and skepticism linger over the future direction of freight movement and the long-term economic implications. How will ports handle the extra time it takes to load and unload the new mammoth ships? How will Pacific port investments in the United States and Canada counter the investments at the Atlantic ports? These uncertainties complicate analysts’ and policymakers’ abilities to identify exactly how the expansion will shift the precise location and scope of all freight flows.

The country and its metropolitan leaders need a way to remove these uncertainties. And it begins with a better understanding of our current goods trading relationships at the metropolitan scale.

As it stands, metropolitan data is scant. There is no geographically-consistent database of what goods metropolitan areas consume and what goods they export. Similarly, there is no database of geographic trading relationships with their domestic and international peers, or which ports facilitate the international side of the trade ledger

Imagine if the United States didn’t know how much electronics it imported from China, or how much oil it imported from the Middle East. That’s the situation metropolitan economic and freight leaders face.

It’s time to get a better handle on these regional trade relationships. Local, state, and federal officials should know which metropolitan areas trade the most goods with Asia, and are therefore the most sensitive to the Panama Canal’s capacity. They should also know how these goods flow between markets—whether they’re more reliant on Pacific or Atlantic ports, and how a capacity change on either coast could shift that equation.

This kind of knowledge also extends beyond just the Panama Canal. As other freight investments come online across the United States and the world, public and private sector leaders should have the statistical tools to know what’s at stake. A more thorough understanding of the country’s metropolitan trading network would help inform local investment decisions like we’re seeing in Baltimore and Norfolk. It would also inform a national freight strategy that prioritizes investments with the highest returns.

The metropolitan reaction to the Canal widening is a microcosm for what the country misses when it comes to freight planning. In a relatively fact-free zone, it’s easy for local ports to justify these major investments. But dredging a port or building a tunnel costs significantly more than simply upgrading our knowledge base.

Even with global trade slowing its growth since the Great Recession, there’s little question that goods volumes will continue to rise in the coming decades, whether through the Panama Canal or elsewhere. It’s time we make sure our metropolitan economies have the knowledge to succeed in that environment.

The Brookings Metropolitan Policy team will aim to address that knowledge gap over the coming year. Working with a team of outside experts, we've assembled a geographically-consistent, globally-oriented goods trade database. In turn, the analytics from that database will help us provide public and private sector leaders with a better understanding of exactly what, where, and how metropolitan areas trade goods and the implications for their local economies. We are excited to start sharing those results this fall.


Great news for Gulf Coast Ports: U. S. Achieves Parity with Mexico as a Preferred Manufacturing Location; To Achieve Cost Parity with China by 2015

  Editor’s note: The US has reached the goal once thought impossible by achieving energy independence. This happened, ironically, on the Democrat’s watch and despite confounding environmental constraints. Energy access was the only weakness in the US economy and altered all foreign policy and trade balance equations. The nation is free and we ought to celebrate. This article is another positive sign of the great future we confront. RE)

U. S. Achieves Parity with Mexico as a Preferred Manufacturing Location; To Achieve Cost Parity with China by 2015

But, look before you leap – nearshoring may not be profitable in all situations

04.18.13

 

NEW YORK (April 18, 2013) – In another sign that America is becoming more competitive in manufacturing, the United States is now equal to Mexico in “attractiveness” as a source for manufacturing operations and is on track to achieve cost parity with manufactured imports from China by 2015. However, before companies set up or move production from formerly favored locales, including China, they need to perform thorough, case-by-case analyses as a number of critical factors -- including product type, location, transportation and other variables -- can greatly impact attractiveness and cost-effectiveness. That’s according to new research, including a survey of 137 C-level manufacturing-company executives and an in-depth economic and cost analysis, released today by AlixPartners, the global business advisory firm.

In the AlixPartners survey, 37% of manufacturing executives said they would choose the U.S. as their preferred location for nearshoring (defined as moving production of products closer to the U.S. consumer base).  While an equal percentage of respondents cited Mexico as the most attractive nearshoring locale, the U.S. continues to post impressive gains versus perceptions of just a few years ago. In a similar AlixPartners survey last year, 49% of executives said they would choose Mexico, while 36% said they would choose the U.S.  In the firm’s survey just two years ago, 63% chose Mexico, while only 19% said they would choose the U.S.

 

However, while AlixPartners’ accompanying economic and manufacturing cost analysis finds that some goods can indeed be manufactured at an equal or lower cost in Mexico than in China, many other types of products cannot.  This provides clear evidence that in all cases, many factors need to be carefully analyzed and weighed before nearshoring or reshoring takes place. For example, AlixPartners found that while the “China cost” for items analyzed such as machined aluminum parts, plastic molded parts, non-denim slacks, and knit apparel and sweaters is indeed on the rise, that cost is still lower than Mexico’s in each case – and is forecast to remain lower through at least 2015.

 

“The U.S. is definitely a more cost-competitive source for manufacturing today than it has been in many, many years,” said Steve Maurer, managing director at AlixPartners and leader of the firm’s Manufacturing Practice in the Americas.  “In fact, the cost gap with China has on average been closed by approximately 70% for the products we analyzed. However, some consultants have taken that fact and tried to apply it with a broad brush across all of their clients and all of their clients’ products. As our analytical and product-specific research shows, that could be a big mistake.”

 

With a resounding 84% of the C-level executives surveyed by AlixPartners saying that the decision to nearshore their manufacturing would be an important one during the next year (versus just 53% who said the same last year), it is clear that nearshoring and reshoring decisions are moving to the “front burner” in 2013. According to AlixPartners, factors that need to be carefully analyzed before shifting production include product type, raw materials costs, labor costs, inventory costs, exchange rates, duties, freight costs and overhead costs, among others.

 

“Without question, these are absolutely critical decisions for company leaders.  When it comes to moving production, companies should look twice before they leap,” said Foster Finley, managing director at AlixPartners and leader of the firm’s Supply Chain Practice in the Americas.  “Not only do product-cost variables vary widely by product type, but several factors, such as exchange rates, materials costs and labor agreements, can all have a dramatic impact on the outcome.” 

 

Approximately 58% of the respondents to the AlixPartners survey said that for production that has either already been nearshored or is being considered for nearshoring, they have either reduced or expect to reduce their total “landed cost” by 5% to 20%.  Landed cost is the calculation of all aspects of bringing a product to its point of sale, including transportation costs, duties and the expense of inventory in transit.

 

Regarding landed costs, AlixPartners’ research showed that a number of other variables need to be considered by executives before making nearshoring decisions.  While rising production costs, today’s exchange rates and the cost of transporting goods currently make China a more expensive product source than it was a decade ago, it remains important to consider future costs when making sourcing decisions, says the firm. 

 

But, if current trends remain in place, AlixPartners finds that, on average, by 2015 the cost of importing manufactured products from China will be about the same as manufacturing them in the U.S. However, other key low-cost countries, such as Mexico and India, will remain highly competitive, thus highlighting the need for case-by-case analyses when evaluating nearshoring. According to AlixPartners’ analysis, Mexico and India have maintained cost advantages vis-à-vis China of 15% to 20%, similar to the advantage levels China enjoyed over other low-cost countries in the early 2000s.

 

Furthermore, according to AlixPartners, even when economic advantages are clear and risks are low, there are significant barriers to nearshoring that must be considered, such as the often massive costs of switching manufacturing locations, and the current shortages in the U.S. of foundational manufacturing assets and of manufacturing talent and management.

 

About the Study

The AlixPartners Manufacturing-Sourcing Outlook analyzed manufacturing sourcing costs, patterns and expectations related to meeting U.S. demand. The Outlook includes data from the AlixPartners Manufacturing-Sourcing Index™, which analyzes a variety of manufactured products and compares the cost to build them in various low-cost countries and transport them to the U.S. versus the cost of manufacturing them in the U.S., tracking several key cost drivers. Those drivers include labor costs, transportation costs, raw-materials costs, inventory costs, capital-equipment costs, overhead costs, duties and exchange rates. The Outlook also included an online survey, conducted in March, of 137 C-level executives from manufacturing-related companies across more than 10 industries. Among the companies represented in the survey, approximately half had annual revenue of $1 billion or more, and all of the respondents said they sourced production across multiple continents.

 


The U.S. Could Learn from the EU's Short Sea Policies - Guest Opinion

 

 

 BY TONY MUNOZ

April 24, 2013

 Tony Munoz, Editor-in-Chief of Maritime Executive and the MarEx Newsletter, was a guest contributor for the European Union’s Government Gazette in its first quarter edition - released in March 2013.

Here is his article:

The European short sea shipping network has been an enormous catalyst in building the world’s most efficient and environmentally friendly transportation infrastructure over the last two decades. The vision and foresight – not to mention the political will it took to move the project forward – was unprecedented, and the commitment of stakeholders from across the EU countries will provide benefits for generations to come.

 

Motorways of the Sea

 

Today, the Motorways of the Sea, as it is known in the EU-27, is a major component of the transportation infrastructure supporting a huge and diverse economy, second only to the U.S. The unified effort of eliminating borders, dealing with regional congestion and environmental issues, and integrating the various economies and cultures of the EU serves as a powerful example of what can be done through coordinated and centralized government policy to strengthen long-term prosperity.

 

The strategy of establishing dozens of marketing offices to engage stakeholders at the local level and educate them about the benefits of a regional system of multi-modalism was brilliantly orchestrated from the beginning. It recognized that an integrated transportation network was essential to a strong and unified economy that could compete on a global scale with the other regional superpowers of the world – North America, Southeast Asia, the Middle East & Africa, Central & South America – and, at the same time, serve future generations. Programs like Marco Polo I & II, which incentivized users to join the system, were positive measures that pushed the short-sea agenda forward. 

 

There were other benefits as well. The Baltic Sea, with the largest density of vessels in the world, became the world’s first ECA (Emission Control Area), instituting strict emission-control standards that drastically reduced the volume of greenhouse gasses. Because of the EU’s progressive views on environmental issues, the Motorways of the Sea program has benefited both the environment and the economy.

 

America’s Marine Highway – Fact or Fiction?

 

Unfortunately, the U.S. does not have an effective maritime policy beyond general rulemaking for its EEZ. Recently, the Department of Transportation was awarded an additional $1.4 billion to its $98.5 billion budget for 2013. The Obama Administration provided an additional $492 billion over five years (2014-2018) for planes, trucks and rail. Unfortunately, when it came to shipping, the Administration gave the Maritime Administration (MARAD) a paltry $433 million for its 2013 budget. 

 

What is even more troubling is, with all the years of studies and analyses showing the benefits of short sea shipping on America’s 96,000 miles of coastline and 22,000 miles of inland waterways, there is still no federal policy on development of America’s Marine Highway. In fact, the Administration has tabled discussions about maritime initiatives until 2017, which essentially means maritime policies will wait until the next administration takes office.

 

But the U.S. cannot wait as there are more than 15.5 million trucks on the nation’s highways that log more than 450 billion miles a year. Gridlock annually costs the U.S. economy about $80 billion, and Americans spend 4.5 billion hours stuck in traffic each year. Most urban areas have failing grades for smog, and another 60,000 people will die this year due to illnesses brought on by pollution.

 

No Lack of Funding…

 

Today, the Inland Waterways Trust Fund – funded by a user tax on fuel oil – has more than $5 billion in funds sitting idle because Congress will not release them to rehabilitate the 191 locks and 238 lock chambers that support about 11,000 miles of inland waterways. Furthermore, there is over $7 billion sitting in the Harbor Maintenance Tax Fund, paid for by a user fee on the value of a ship’s cargo and intended for dredging and maintaining the 360 commercial ports in the U.S.

 

Capitol Hill is gridlocked, and policies about spending on maritime infrastructure are on hold. What will the U.S. do when the expansion of the Panama Canal is completed in early 2015? U.S. port authorities are privately investing as are vessel operators. But there is no leadership from Washington.

 

Here is a golden opportunity for the U.S. to follow the European example and provide incentives for the building of a hub-and-spoke system that would take containers from 12,000-TEU post-Panamax vessels and transfer them to smaller freighters or barges that could then transport them up and down the coast or into the interior. One small freighter or barge can displace hundreds of trucks and the attendant pollution and congestion.

 

… But a Lack of Leadership

 

As it is, while ports like Miami and Charleston and New York are busy deepening their channels and installing giant cranes to handle the increased container traffic from an expanded Panama Canal, there is no such equivalent activity at the smaller ports that dot America’s inland waterways. Nor does the U.S. have a fleet of feeder ships to carry the containers inland, presenting another opportunity for government policies that would encourage the building of such vessels, much as the EU did.

 

With the example of the EU to guide us, the way forward for America’s Marine Highway seems clear. Unfortunately, the political will seems to be lacking along with the necessary leadership in Washington. Hopefully, it is not too late.


Friday comment: why now’s the time for air freight to fight back - guest opinion

Friday comment: why now’s the time for air freight to fight back

by Alex Lennane

The air cargo industry is at a tipping point. It has a choice to make. It can either carry on as before, a forgotten and only partially relevant subset of its more glamorous and profitable passenger parent. Or it can become its own industry, with its own lobbying power, investment, trained staff and strengthened relations across the supply chain.

This has, of course, been debated endlessly – but thankfully, the debate now seems to have stopped, and action has started.

Don’t believe it? Why now, you may well ask?

Well, in part, because one airline, some time ago, thought it wise to train its cargo staff, and they are now in a position to pass on the benefits of that knowledge to the industry. While some may see the new and increasingly important TIACA as a kind of ex-KLM mafia, you could also see it as KLM’s gift to the industry. Michael Steen (Atlas), Oliver Evans (Swiss), Stan Wraight (SASI), Enno Osinga (Schiphol), Robert van der Weg (Cargolux)… all began their careers at the Dutch carrier. Sadly, KLM has perhaps had less success than its staff, but right there is proof that a proper training programme has benefited the industry as a whole. Concerns that when this KLM generation has hung up its working boots there will be few to replace it are well-founded.

That, in a sense, is simply a happy coincidence, that at a time the industry needs direction, there is someone who can drive it.

Because there is another reason for this timing. Right now, the air cargo industry has got nothing to lose. Years of neglect – by investors, by passenger airlines, by regulatory authorities, by IATA – combined with the drive and focus of the integrators, and now the ever-improving sea freight sector, have made it frail. Throw into that mix a period of chronic economic weakness, and you’ve got an industry on its knees; an industry that needs to find its voice and show that it plays an essential part in global GDP.

The relationship between air freight and GDP is complex, and one that IATA is studying, but in 2011 the University of Nottingham published a paper, ‘Estimating the effects of containerisation on world trade’, which found that containerisation led to an increase in bilateral trade flows of between 75% and 100% between 1962 and 1990. It’s clear, if you talk to flower growers in Africa, vegetable exporters in South America, high-tech manufacturers in Asia, that air cargo enables world trade, it enables otherwise isolated countries to sell their produce in world markets.

It is also a good time for other, non-industry reasons – slowly but surely, governments are beginning to understand that behind strong national economies lies globalisation. And behind globalisation lies logistics. For some reason that no one seems to be able properly to identify, logistics has been concealed as the powerhouse of globalisation – a cover-up that hasn’t benefited the wider industry at all.

Irregular Customs procedures, lack of financial investment, uncomprehending governments, poor infrastructure, to name but a few, are factors that have conspired to make life more difficult than it should be for forwarders, shipping lines and airlines, but that is beginning to change. Logistics and freight is beginning to get the recognition that it deserves; never has the opportunity been better for bodies such as TIACA to capitalise on that.

Additionally, as governments the world over struggle to kickstart their economies – and in many cases with not a clue as to how to do it – they are starting to turn to the more innovative private sector which, along with its workforce, knows a thing or two about streamlining processes, introducing efficiencies, in a bid to turn a profit. And as governments – and in air freight’s case the UN body ICAO – start to listen, now is certainly the time to speak to them.

So what needs to be done? Well, TIACA has identified several points. Customs procedures are critical. Border delays are particularly harmful for air freight, whose USP is speed. Customs processes need to be modernised, automated and quick.

Equally important, traffic rights for all-cargo carriers should not be determined by the passenger business, but by the economic argument for shippers and countries. Likewise sustainability - CO2 emissions would fall by 12% if countries made proper air traffic management improvements, while noise pollution at airports could be better managed - and would allow for cargo night flights - if there was, for example, better land-planning and noise abatement procedures.

There are many things which could help make air freight a viable industry, and it is up to its members to start acting locally to make it happen.

For some companies, it will all be too late. This isn’t going to be a quick process. A handful of people can’t change everything, globally, now. But as all-cargo carriers struggle beyond the odds to keep flying, there is more reason than ever for the industry to speak with one voice and make changes. The list of once-strong all-freighter operators, who are now distressed in some way, gets longer by the day. We owe it to those who battled to set up an airline - not a job for the faint-hearted - to ensure that freighters are still relevant, and could be profitable again if they had better traffic rights, an understanding from authorities that they have a role to play - they simply need to be allowed to play it.

And, on the week before the CNS partnership conference (IATA’s US arm) begins in Phoenix, let’s hope that the industry turns talk into action. Now is the time.


Excellent Rail Industry and Port Trends Article

Rail Industry Trends Article
Panama Canal expansion spurs railroads, ports to prepare for new business


Rail Industry Trends

— by Julie Sneider, assistant editor

As the $5.25 billion Panama Canal expansion nears its 2015 completion to allow supersize, "Post-Panamax" cargo ships to pass through on their way to markets farther north, eastern U.S. ports and a number of railroads are gearing up for an anticipated increase in international intermodal traffic in the coming years.

East and Gulf Coast port authorities are developing and deepening their harbors in preparation for the influx of giant ships, and eastern railroads are building or expanding on-dock rail facilities, building intermodal centers or advancing other plans to accommodate an expected increase in freight traffic.

The aim of the multi-stage Panama Canal expansion project, which began in 2007, is to enable giant cargo ships coming from Asia to pass through the 51-mile canal's channels. The construction entails two sets of locks, one on the Pacific and one on the Atlantic side of the canal, with each lock containing three chambers with three water reutilization basins, according to the Panama Canal Authority's website.

The project also involves widening and deepening the navigation channels in Gatun Lake, and deepening the Culebra Cut, which required four dry excavation projects. In mid-March, the canal project reached a milestone when dredging work was completed at Culebra Cut, the narrowest point in the canal's navigation channel.

When the entire expansion is completed, it will be the largest project taken on by the canal since its 1914 opening and will double its capacity, according to canal officials.

Among railroads anticipating a bump in intermodal traffic after the bigger canal opens is Florida East Coast Railway L.L.C. (FEC), the only rail provider to south Florida's ports. Based in Jacksonville, Fla., the 351-mile regional is working with PortMiami andPort Everglades to build on-dock rail facilities as part of their expansion programs, which FEC execs view as a big part of the railroad's strategy to grow intermodal traffic.

"We're prepared to handle the cargo, and we've got plenty of capacity," says FEC President and Chief Executive Officer James Hertwig.

Getting Miami Back On Track

In Miami, FEC is part of a plan to reconnect the port with freight-rail service, which was suspended after a hurricane in 2005. The public-private effort has involved reconstruction of a 4.4-mile port lead, which was the original rail mainline to the port; rehabilitating the bascule bridge that connects the port to FEC; constructing an on-port rail facility; and expanding FEC's rail yard to make room for more traffic.

FEC is contributing $9 million to the $50 million project, with the remainder coming from federal, state and port sources.

"By summer 2014, we'll have the on-dock rail facility fully operational, which means that from PortMiami we can hit 70 percent of the American population in a matter of days," says PortMiami Director Bill Johnson. "It will allow us to double stack containers directly to Jacksonville in under nine hours, and connect to Norfolk Southern Railwayand CSX directly to the heartland of America."

Two additional PortMiami projects are under way as part of $2 billion in capital improvements to accommodate the bigger cargo vessels: construction of a four-lane tunnel that will run under Biscayne Bay to connect the port directly to the interstate system; and a $77 million dredging project to deepen the port's channel to 50 feet. The tunnel is scheduled for completion in summer 2014 and the dredging in late 2014 or early 2015.

"When the Panama Canal opens at 50 feet, Miami will be the only port south of Norfolk, Va., at the same depth on the East Coast, and that will be a huge advantage," Johnson says.

Johnson anticipates PortMiami will register an upturn in business starting in 2015. By the decade's end, the port should reach 2 million 20-foot equivalent units (TEUs) — it's just under 1 million now — and 3.5 million TEUs by 2025.

In addition, commercial real estate firm Flagler, an FEC sister company, is developing the South Florida Logistics Center adjacent to FEC's intermodal center in Miami. The center will offer shippers transloading, perishable- and dry-freight warehouse capabilities, helping them reduce drayage costs, Hertwig says.

Meanwhile, FEC broke ground in January on an on-dock intermodal container transfer facility that the railway is building with Port Everglades in Fort Lauderdale. That facility, slated for completion in 2014, will help eliminate about 180,000 truck trips by 2029, according to the port's website.

Also in the works is a Port Everglades project to deepen and widen its navigational channels from 42 feet to 50 feet, and double the number of berths. The project is expected to wrap up in 2016. Moreover, the Florida Department of Transportation, in partnership with the port and Broward County, is overseeing construction of the Port Everglades Eller Drive Overpass, which will elevate a section of Interstate 595 to enable trains to access the port on ground-level track. That project is expected to be completed in mid-2014.

"Within a couple of years of the Panama Canal expansion, you will have two ports with 50 feet of water and on-dock rail," Hertwig says. "And Port Everglades is a unique terminal because it will be for international cargo, but it also will be a domestic facility, where we will bring 53-foot containers in and out of the same facility."

Class I Interchanges In Jacksonville

FEC's traffic moving north of Florida via rail will interchange in Jacksonville with NS or CSX Transportation, whose preparations for the canal expansion are part of the Class Is' broader strategies to manage growth in international freight entering eastern U.S. ports.

Over the past decade, NS and CSX have experienced a shift in international traffic via the East Coast ports, say execs for the two Class Is. They trace that trend to the 11-day shutdown of West Coast ports in 2002, when 10,500 longshoremen were locked out during a contract extension dispute between the ports and the International Longshore and Warehouse Union (ILWU).

CSX has been preparing its infrastructure to support additional traffic "however it wants to come onto the CSX network," says CSX Vice President of Intermodal Bill Clement. That means ensuring the Class I has seamless connectivity to western railroads so that freight flows through Pacific ports. On the East Coast, CSX has taken a similar approach by locating near-dock or on-dock rail facilities to move freight entering the ports, he says.

An example of CSX's infrastructure preparation? Clement cites the National Gateway initiative to create a more efficient double-stack route between mid-Atlantic ports and the Midwest markets. And a cornerstone of the double-stack corridor is CSX's Northwest Ohio Terminal that opened in 2011 near North Baltimore, Ohio.

"One of our main objectives at that terminal is that, whichever port the freight comes over, we'll be able to take it into that facility and get it out to the important destinations in the Ohio Valley and the Chicago market very reliably," Clement says.

Other CSX efforts to improve the flow of double-stack traffic through the East Coast are the Liberty Corridor Freightway, a public-private partnership that offers expanded access to the Port of New York and New Jersey (PANYNJ); the expansion of an on-dock rail facility at the Port of Savannah, Ga.; and construction of a new, near-dock intermodal facility near the Port of Baltimore that will enable CSX to operate double-stack trains from the port's Seagirt Marine Terminal. The new facility will be located south of the Howard Street Tunnel, which lacks double-stack clearance.

All the East Coast ports have been "working hard" to accommodate the larger cargo vessels, and "all have obstacles to overcome in getting them to where they would like to be," Clement says, noting the PANYNJ's Bayonne Bridge project to raise the structure's navigational clearance from 151 feet to 215 feet — enough to accommodate the larger ships.

"We think we are in a good position as far as connectivity on the ports," Clement says. "Our focus now is to make sure that we have the inland capacity, and we're doing some targeted expansion projects to handle that."

Taking A Two-Step Approach

The shift in international traffic direction prompted NS to take two key steps: tighten its relationships with East Coast ports and launch an infrastructure investment program to increase capacity through multiple corridors, says Jeffrey Heller, NS group vice president for international intermodal.

"We reinvigorated our discussions with our East Coast partners about having more on-dock rail, more capacity for on-dock rail, and more synergy between the railroads and all the ports" to reduce costs in order to be more competitive with short-haul truck markets, he says.

In 2012, about 60 percent of NS' international business moved through the East Coast ports versus 40 percent from the West Coast.

The thinking behind the infrastructure investment program was to offer shippers as many options on the NS network as possible "so that, at the end of the day, as an Eastern railroad, we really won't dictate whether the box moves from the East Coast or the West Coast," Heller says. The program included the Heartland Corridor project, a $200 million public-private venture among NS, federal and state governments to enable double-stack international freight capabilities by increasing clearances through some 30 tunnels between Hampton Roads, Va., and the Midwest.

"That has allowed us to take 250 miles or a full day off our route between Hampton Roads and Chicago," Heller says.

Then there's the joint venture between NS and Kansas City Southern to manage the 320-mile Meridian Speedway between Meridian, Miss., and Shreveport, La. The joint venture investment means "we now have additional capacity and velocity between what primarily are the Southeast ports and Dallas," says Heller. "And it facilitates business from southern California to Atlanta."

NS execs also consider the railroad's new Crescent Corridor service, developed to bolster domestic intermodal business, as a complement to business coming through the East Coast ports, Heller says. The corridor features new intermodal terminals in Birmingham, Ala., and Greencastle, Pa., and will sport a future terminal in Charlotte, N.C., that will be able to serve international intermodal customers.

Once the expanded Panama Canal opens, the growth in related traffic will be gradual, Heller believes.

"It's not going to be this surge or tsunami of freight that some people imagine will happen," he says.

East Coast ports and the railroads that serve them aren't the only ones planning for new business opportunities after the expanded canal opens. Texas state transportation officials, too, have been examining how the state's Gulf Coast ports might capture new maritime cargo activity. Last year, the Texas Department of Transportation (TxDOT) organized the Panama Canal Stakeholder Working Group, which was charged with identifying projects that would put the state in a better position to take advantage of the canal's expansion.

BNSF Railway Co. and Union Pacific Railroad were members of the group, which recommended TxDOT draft a formal Texas Freight Plan and work with railroads, Texas ports and other stakeholders to support rail capacity projects that would accommodate growth in imports and exports.

Costs Will Influence Cargo's Direction

UP has been investing in its intermodal network regardless of where freight is coming from, says spokesman Tom Lange.

"We haven't really been preparing for the Panama Canal expansion specifically," he says, adding that UP continually invests in expanding its network capacity.

How or whether freight flows change after the expanded Panama Canal opens will depend on multiple factors, such as time sensitivity of cargo and costs associated with transporting freight through West versus East Coast ports, says Lange. The cost to expand the canal and the billions invested in East Coast ports to handle the bigger ships will "have to be recovered somewhere," he adds.

"We feel pretty good that the total imports going into the U.S. will go from about 30 percent to 33 percent [after the Panama Canal expansion]," Lange says. "We also feel that the total volume of imports will continue to grow. And with our investments in our overall network — and specifically in our intermodal business — we're prepared to handle an influx of ongoing growth in that business."

One question that won't be answered until after 2015 is whether all the East Coast port expansions will amount to overbuilding, as some media reports have suggested.

PortMiami's Johnson is confident in his answer: No way.

"Economists tell us that within the next 20 to 25 years, a minimum 35 percent of GDP will be based on international trade. That's a huge, important fact to understand," Johnson says. "You have to continue to improve and strengthen your ports. Not every port needs to be super Post-Panamax ready, not every port needs to be at 50 feet. But ports need to continue to reinvest in the right strategic investments."

With Miami being the first U.S. port north of the Panama Canal, it must be Post-Panamax ready, and that includes immediate access to rail infrastructure, Johnson adds.

That's music to Jim Hertwig's ears.

"I think it's going to be great for the railroad," he says of FEC. "At the end of the day, it's all about the customers making the decision based on price and time to market. And we already have had pilot shipments where we've moved cargo from ships from Asia to the southeast and had it at destination before the shipper ever got to Savannah. So, I believe we will have not only a service advantage, but a cost advantage in that equation."