As imports recover and exports grow through North American ports, a complex mix of factors from currency appreciation to the Japanese earthquake is forcing change upon the continent’s port network, reports Malcolm Wheatley.
For North America’s vehicle-handling ports, it has been quite a year…again. For an industry still reeling from the financial crisis, surging oil prices and natural disasters have put pressure on ports. The signs were pointing to a different outcome.
One year ago the industry’s roller-coaster ride of recession, bailouts and plant closures seemed to have ended. On the pages of this magazine, inland vehicle delivery infrastructure capacity shortages were the grumble du jour. For carmakers, port operators, and shipping lines that handle the flow of vehicles in and out of North America, a period of recovery, even if one more quiet than booming, appeared to beckon.
Neither booming nor quiet captures what has happened, with the economy relatively subdued at the same time that extreme weather has affected many regions in the US this year from arctic conditions in the Northeast, flooding on the West Coast and hurricanes and tornadoes in the Midwest and Southeast; also, global automotive production and vehicle movements have been disrupted by the Japanese earthquake, which will likely have an impact on US volume this summer. But volume is moving in a positive direction. While sales are still down from peaks, light vehicle sales forecasts point to between 12.5m-13.5m units this year, 30% higher than the lows of 2009. That said, averages hide large fluctuations in the experiences of individual ports: some have seen volumes increase by 80%, while others are experiencing either contraction or growth that is tepid at best.
The big picture is that imports–from both Asia and Europe– have risen with the recovering domestic economy, and despite increases in North American production for all manufacturers, they are expected to remain at around 20% of total sales. Sharply rising fuel prices, too, have played a part, sending the demand for fuel-efficient Asian imports soaring: Hyundai and Kia dealers, for instance, have been “clamouring for more product,” according to industry insiders.
The rise of exports and the spectre of Japan
Exports too have climbed, driven by the weakening US dollar, the introduction of new models, and a resurgent domestic industry. What’s more, as the global agriculture, mining and construction industries have recovered, rising volumes of ‘high and heavy’ export traffic have passed through North America’s ports, particularly on the West Coast, where they have been headed out to the construction sites and mining operations of Australia and the Pacific Rim.
“Overall, exports are increasing faster than imports,” sums up Steve Rand, president and chief executive at port operators and vehicle processor Amports. “Domestic United States manufacturers as well as foreign-owned plants are developing offshore markets for their vehicles–with export vehicle volumes in Baltimore and Jacksonville being especially brisk.” But the growth in exports hasn’t been even. At the Californian port of Hueneme, for instance, deputy executive director Pete Wallace points to a spike in exports in 2009- 2010–principally GM exports to China–that is sharply down in 2010-2011. “We’re up 18% on our imports this year, but down 40% on our exports,” he notes. “It’s not just the exchange rate of the dollar that’s affecting trade–there are tariff issues to contend with too.”
But at least one port operator at Hueneme, WWL, expects rising export volumes. According to Mike Wallace, senior general manager, West Coast at WWL PVP, in the next few years the company is aiming to double the 45,000 vehicles it handled at the port last year with export growth leading the way, including vehicles destined for China. The company already handles Honda Acura exports to China, for example. “Exports are a big growth potential for us over the next few years. We are seeing some of that now and we think those numbers could help us to double our current volume of vehicles over the next four years,” he says.
Export growth has been significant enough already to prompt an extensive capital investment programme at the port of Charleston, South Carolina, where the South Carolina Ports Authority has substantially completed and dedicated a major $22m expansion of its Columbus Street Terminal. The reason isn’t difficult to pin down: Charleston saw its total ‘break bulk’ volumes, including ro-ro, climb 48% in the first three quarters of fiscal 2010-2011 thanks mainly to BMW, which exported $4.42 billion of passenger vehicles through the port in 2010, or about 110,000 units.
“Our investment programme has aimed at delivering a ro-ro marine terminal with on-dock rail, high and wide clearances inland, and extensive open and covered storage,” says Byron Miller, vice-president of marketing, public relations and planning at the South Carolina State Ports Authority. “Charleston has predominantly been a container port, and the move into ‘break bulk’ and ro-ro is part of our strategic plan,” he adds. “Now, with this additional investment, we can accommodate three ro-ro ships at any one time, coupled to significant rail leads into the facility–and we still have the capacity to expand further.”
According to data from the US Department of Commerce, the value of BMW exports through Charleston makes the Spartanburg facility the largest vehicle exporter from the United States to non-NAFTA countries. And this year BMW exports are projected to rise still further, growing by 50% to about 240,000 vehicles, with the Spartanburg plant having added a production line in September 2010 to cater for the company’s new X3 model.
Almost without exception, as we spoke to port operators and vehicle manufacturers, the spectre of the March 2011 Japanese earthquake, tsunami and nuclear catastrophe lurked in the background. Figures released in mid-May, for instance, showed that Toyota’s domestic vehicle production had plunged 74% in the month of April; while Honda’s had slumped 81%. It may still be too early to say exactly what the impact will be on vehicle volumes passing through North American ports, but the reaction of Amports’ Rand is typical. “I would estimate that it will be most of the summer getting back on track, and as a result volumes from Japan will remain soft,” he says. “When the parts flow resumes, I think we’ll see a pent up demand for vehicles globally. But in the meantime, the strength of the yen versus the dollar is making it extremely difficult to export vehicles from Japan to the United States.”
Increasing competition on the East Coast
While the big picture is focused on recovering imports, rising exports and Japan, on the ground port operations are characterised by fierce competition. New (and returning) ports have entered the market luring carmakers and shipping lines to new destinations and export lanes. Currency appreciation–and the more recent events in Japan–have seen wildly fluctuating volumes, both inbound and outbound. Grumbles over capacity have subdued, but altered in tenor and direction. And the green agenda continues to shape logistics decision-making, with manufacturers and ports weighing up the carbon consequences of competing locations. It’s a picture aptly summed up by the Dearborn, Michiganbased Donald Carpenter, manager of international logistics at the Ford Motor Company and its export subsidiary.
“As the industry grows, so do the challenges that we face: import and export volumes are increasing significantly, and we continue to look for ways to provide added value to our customers,” he notes. “We are constantly reviewing and updating processes such as forecasting in order to ensure alignment with our requirements in the short-term, as well as plan for longer-term capacity requirements.” In 2010, those processes of reviewing and re-evaluating Ford’s own import and export requirements have prompted changes to the company’s import locations, with Ford now importing fairly substantial volume from Mexico as well as from Europe and Turkey.
“We’ve expanded the number of import locations in North America to accommodate the growth of imports from Europe, as well as to reduce the delivery time to our dealers,” says Carpenter. Consequently, Ford’s existing European import ports at Baltimore, Maryland and Hueneme is now supplemented by Jacksonville, Florida and the Canadian port of Halifax, with vehicle handling at the locations being carried out by WWL and AutoPort, respectively.
Carpenter notes that Fiestas produced at the company’s Mexico operations are now shipped through both Jacksonville and Baltimore–the latter also being the primary port of entry for the Ford Transit Connect van produced in Kocaeli, Turkey. Baltimore now handles around 85% of the 35,000 Transit vans imported into the US annually. Ford also uses Hueneme on the west coast to import Turkish-built Transits. At Jacksonville, the Ford volumes are part of a general resurgence in trade that has seen new vehicle volumes–both import and export–reach nearly 390,000 vehicles during 2010. “Volumes have been strong–it’s been the first good year since the downturn,” says Alberto Cabrera, Jacksonville’s director of cargo sales and marketing. Exports, he adds, have been especially strong, with volumes boosted by the declining dollar.
Baltimore, too, also featured in the plans of BMW, with imported vehicles for its Midwestern customers beginning to flow through the port’s Fairfield and Masonville auto terminals in mid-2010, after an announcement in late 2009. Previously BMW vehicles destined for dealerships in the Midwest had been shipped through the port of Charleston, processed at a facility at the company’s Spartanburg assembly plant, and then taken by rail or truck to their final destinations. The result will be an additional 50,000 imported vehicles a year flowing through the port, under a five year contract aimed at boosting its vehicle-handling volumes by about 13%–not insignificant in a year when vehicle volumes are down by about a third from 2008 levels.
That said, the volume from BMW must be netted off against a reduction in volume from Porsche: in September 2010 the luxury carmaker moved its northeast port of operations from Baltimore to the port of Davisville in North Kingstown, Rhode Island. The move accounts for roughly 40% of Porsche’s US volumes, says Justin Newell, manager of vehicle logistics at Porsche Cars North America, explaining that it made sense from a number of different perspectives.
“The Port of Davisville represents one of the country’s top facilities,” he notes. “From an efficiency standpoint, it is perhaps one of the best ro-ro ports in the industry, and it exclusively handles automobile shipments. The business case showed positive results when considering all costs, especially federal harbour maintenance taxes.”
Operationally, too, he adds, the move–embracing some 11,000 vehicles a year–allows Porsche to better streamline its shipping operations with VW Logistics, which already uses Davisville to bring in Volkswagen and Audi brand vehicles. Porsche’s other ports of entry, notes Newell, are Brunswick, Georgia; Houston, Texas; and San Diego, California. Hyundai and Kia, too, have made moves on the East Coast. Instead of importing through Newark, New Jersey and Baltimore, they have switched to the port of Philadelphia’s Packer Avenue Marine Terminal in Pennsylvania–the first arrivals in volume since Volkswagen left a decade ago. Several factors drove the move, says Art Lim, director of operations at Glovis America, the 3PL for the Hyundai-Kia group. “The primary reasons for changing the port location include cost reduction, containment of future costs, standardisation and improved oversight of quality levels, improved processing service levels, reduction of vessel port calls, and the desire for Glovis America to manage its own vehicle processing facility,” he explains The Glovis deal, which took more than a year to complete, saw the port of Philadelphia agree to spend $1m to upgrade a processing facility for Hyundai, while Philly RoRo Partners contributed a further $3.7m in improvements. According to Philadelphia Regional Port Authority estimates, the move will see up to a hundred more vessels a year at the port.
New players on the West Coast
While such northeast, east coast and southeast ports handle a good proportion of the continent’s import traffic, they’re not the whole story. While volumes are still below the record levels of 2006 and 2007, a small clutch of West Coast ports are still the nearest North American landfall for vessels heading from the vehicle manufacturing economies of Asia: Portland, Oregon; Vancouver, Washington; Tacoma, Washington; and– further south–the Californian ports of Benicia, Hueneme, Los Angeles, Long Beach and San Diego. Portland, for instance, saw a 12% improvement in vehicle volumes during 2010, says Josh Thomas, the port’s marketing and media relations manager. The port is used by Toyota, Honda and Hyundai; with vehicle processors Auto Warehousing having a major presence.
A shorter distance from Asia than most other auto import gateways, thus reducing transit time, bunker fuel requirements and overall cost, around 20% of the vehicles offloaded in Portland are delivered to destinations in the Pacific Northwest region by road, while the remaining 80% are loaded onto rail wagons.
At which point, thanks to ‘river grade’ routes through the mountains to the Midwest and beyond, says Thomas, such rail movements are efficient and economical requiring fewer engines to haul freight trains. Consequently, vehicles imported through Portland are shipped to population centres such as Salt Lake City, Denver, Minneapolis, St. Louis, Chicago, Detroit, and even New York.
“Generally speaking, late 2008 and 2009 were rough times across the board in every category, but we have seen business steadily returning,” sums up Thomas. “Before the slowdown, Portland had posted a record year with more than 400,000 vehicles back in 2006 and slightly less in 2007 and 2008. At 264,871 units, we are still well below our five year average.” Just across the river, at the port of Tacoma, Washington, director of business development Andre Elmaleh tells a similar story of recovery. Used by Mitsubishi, Suzuki, Glovis America (for Hyundai) and Isuzu, Tacoma again sees the Auto Warehousing company performing extensive vehicle handling and value-added services.
“Import volumes bottomed in 2009 [for Tacoma] and started a slow climb back towards pre-recession levels,” notes Elmaleh. That said, he adds, the backdrop is of increased production in the United States of models that were formerly imported–despite which, it seems, the manufacturers doing this don’t seem to be importing fewer vehicles as a result.
According to IHS Automotive forecasts, the US will continue to import about 20% of its vehicles from beyond North America, even as local production increases. This is an outcome corroborated by Glovis America’s Lim. “Our customers–Hyundai Motor America and Kia Motors America–have made strategic decisions to move production of key models from Korea to assembly plants in the US,” he says. “Examples include the all-new Hyundai Elantra now produced at the assembly plant in Montgomery, Alabama; and the all–new Kia Optima to be produced at the West Point, Georgia, assembly plant beginning in the third quarter of this year.”
While Lim points out that one might expect a reduction in import, both Hyundai and Kia will be replacing these models with new or refreshed versions as well as new segment vehicles such as the Hyundai Equus and upcoming Veloster to increase demand and boost market share. And, as on the East Coast, a confluence of carmakers’ cost containment and operational improvement strategies has met with the ports’ thirst for new business. The result? New and resurgent West Coast ports are taking on the majors such as Portland, Tacoma, Hueneme and San Diego.
Richmond on the rise again
The northern California port of Richmond’s Point Potrero Marine Terminal is an example of a resurging port. While Glovis recently shifted its volume of about 85,000 Hyundai and Kia cars annually from the port, Richmond has recently picked up several new customers.
“We’ve seen the move of the majority of the Honda Motor volume from San Diego’s National City port to Richmond, which has been good business for us that we did not have before,” says John Hering, West Coast vice-president of the automobile and ro-ro division of Ports America. “Separately, Subaru also recently announced they too will add Richmond as a second port on the west coast, and split their volume between Vancouver, Washington, and Richmond.”
As on the East Coast, a complex mix of factors is at work. Richmond has invested over $50m in modernising its vehicle handling and associated rail facilities to make them attractive to incoming carmakers and vehicle processors, says its executive director Jim Matzorkis. And the plan is very simple, he explains. “We’re creating a state of the art facility which has the infrastructure to support the inflow of several hundred thousand vehicles a year–which makes our facility very marketable: even with Honda and Subaru moving in, we’ll still have capacity spare,” he says.
“Other ports have capacity constraints: we don’t. We’re not a container port; we don’t handle containers at all, and have no plans to. As a port, automobiles are our future–which is a departure for many ports in the United States, where containerisation has tended to push automobile facilities out.” Those factors helped make Richmond the best choice for an expanding Subaru. “Basically, we only had one West Coast port: Vancouver, Washington,” says Larry Strug, national transportation manager at Subaru of America. “And our growth clearly indicated that we needed another, so we went and looked at all of them, and talked to other vehicle manufacturers, and did the economics. Taking the package as a whole, Richmond won out, through a combination of port costs, inland distribution costs, trucking availability, and issues such as customer service.” For its part, while fully endorsing the operational efficiencies of Richmond, Honda hasn’t been blind to the green impacts of the move to the port, nor the associated costs of trucking and fuel burn.
“The move to Richmond has greatly decreased shipments of vehicles by tractor trailer from Southern California to Northern California,” says Dennis Manns, vice-president of logistics at American Honda. “We were able to eliminate 1,720 truck trips from San Diego to the Bay Area, totalling more than 1.5m miles of truck travel each year. This resulted in an annual reduction of approximately 3,200 metric tonnes of CO2 from American Honda’s logistics operations in the region.” The ocean shipping leg, too, is greener: the shorter steaming distance from Japan to Richmond rather than San Diego should reduce the distance travelled by vehicle transporter ships by around 51,000 nautical miles a year, reducing CO2 emissions by some 25,500 metric tonnes.
Who will emerge next?
The green agenda is also attracting entirely new ports to the vehicle-handling business. The Californian deepwater port of Stockton, for instance–some 80 miles inland, and reachable from the Pacific Ocean via the Sacramento and San Joaquin rivers–currently handles no ro-ro traffic at all. But that’s likely to change, says Stockton director of marketing Bill Lewicki. The port is in receipt of a number of government grants, he explains–including one from the Department of Transportation specifically targeted for improving the waterborne flow of goods between Stockton and Oakland– and has ample space for vehicle storage and processing. It is a designated free trade zone, too, and at least one Asian manufacturer has held exploratory discussions. While conceding that Benicia and Richmond are closer to the sea, and have vehicle-handling facilities that are already built, Lewicki is nonetheless quietly confident. “Eighteen months from now, we’ll have a better story to tell,” he says.
That said, if this year is anything to go by, so too will many other ports, vehicle processors and vehicle manufacturers. Many ports are taking advantage of a post-Japan lull to repair or improve their infrastructure in preparation for the return of higher volumes that are forecasted to come back once production resumes, notes John Felitto, executive vicepresident at Wallenius Wilhelmsen Logistics Americas.
And once improved, they’ll be eager to showcase their offerings to carmakers and processors. Next year, it seems, is already shaping up to be as interesting a year as 2011.