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