Bulk and breakbulk ports get back to basics

While North America’s great ocean cargo gateways are heavily reliant on containerized throughput, major and minor ports alike are not letting go of their bulk and breakbulk operations. Indeed, many of them are coming to regard this basic piece of their portfolio as a value-added service.

By · July 1, 2011

Economists who rarely agree on anything, seem to be of one mind on a major trend shaping world trade: Demand for raw materials will continue to escalate.

“As the need for grain, wheat, steel, and minerals ramps up, U.S. exporters will be seeking diverse ways of getting their products to market,” says Dr. Walter Kemmsies, chief economist for Moffat & Nichol, a leading coastal and civil engineering services provider. “And these macroeconomic trends will define the next decade for bulk shippers.”

Kemmsies is quick to add that the same thing goes for ports. This begs a question, however: How much new infrastructure is required to accommodate this surge in demand?

“Structural problems persist in the U.S., as it struggles to come out of the past recession,” adds Kemmsies. “Ports need more investment, but seem to have to come up with it themselves most of the time. The nation still lacks a transportation policy.”

Richard Thompson, executive vice president, global supply chain practice for Jones Lang LaSalle in Chicago, concurs: “While we all wait for the government to spend money repairing our highways and roads, rail providers are using money from investors like Warren Buffet and Bill Gates to get the job done.”

According to Thompson, Buffet, who owns BNSF, and Microsoft founder Gates, who owns part of CN, are just two examples of “visionary” businessmen who see the future in rail—the primary surface mode for bulk and breakbulk cargo.

Alan Beaulieu, president of ITR, an economic forecasting firm, says that America’s trade imbalance may be corrected in the near future thanks to high value bulk commodities. “Rare earth minerals will soon be in great demand,” he says, “and shippers will be exploring many alternative methods of sourcing. This includes using some of the smaller seaports and river ports with adequate infrastructure.”

Obtaining the funds for such an enterprise continues to be daunting, say other economists. Jessica Soltz Rudd, senior director with transportation consulting firm Frasca & Associates LLC, notes that advisors can help ports navigate the intricacies of the financial marketplace. “Back in the ‘go-go nineties’ ports were bringing in so much cargo that money for expansion was a given,” she says. “The growth multiples were three times or more each year, and given the capital intensive nature of port operations, money was not that hard to raise.”

But in the wake of a severe recession, and with consumer confidence now just beginning to gain traction, ports are under pressure to justify investment before trying to raise money. “Even with a bond rating of Triple A with Moody’s, S&P, and Fitch…it’s not an easy thing to do,” says Sotlz Rudd. “And once you get the funding, it’s important to stay on your guard and remain proactive. You are only as good as your credit.”

Little ports that can
Finding the money to build and maintain bulk and breakbulk facilities is an ongoing process for many niche ports seeking to diversify their offerings. The Port of San Francisco, which ceded major container operations to its cross-bay rival the Port of Oakland many years ago, is also getting back to basics.

“We believe there’s a real chance we can attract iron ore as a breakbulk commodity for export,” says Jim Maloney, the port’s maritime marketing manager. “The infrastructure is in place, and now all we need is a deal to come together.”

To that end, the port is soliciting interest from qualified respondents for developing and operating a bulk marine cargo-handling terminal at its underutilized Pier 96. The port is seeking to identify one or more qualified maritime cargo terminal operators with a proven capability of designing, financing, developing, and operating bulk terminals at other ports who may be interested in expanding into the San Francisco Bay Area market.

Characteristics of the Pier 96 site include 15 acres of paved land adjacent to the water, a 40-foot deep-water 1,000-foot berth, on-dock rail access at the site, and access to the port’s five-track rail yard.

“The iron ore would come down from Utah or New Mexico via direct rail,” Maloney says. “We looked into coal, too, but determined that there might be too much community resistance to that idea.”

Maloney, who worked for Maersk before coming to the port, notes that San Francisco can still maintain a cargo component in its overall operations if it remains vigilant. “Just as the ocean carrier lines have been adamantly stating, you really can’t take any revenue stream for granted these days. Ports have to remain aggressive when it comes to developing a comprehensive portfolio of services.”

So far, three bids have come in, says Maloney, and the port commission will determine who will get the exclusive negotiating agreement this month. “They may agree then, or ask us to buy more time in soliciting a deal,” says Maloney. “But it looks like it’s going to happen in any case.”

Meanwhile, the little port to the north—Portland, Oregon—remains an ongoing breakbulk success story, with steel and steel-rail throughput figures rising to a year-to-date increase of 150 percent over July 2010. The port also moves more wheat outbound than any other gateway in the country. Other major exports include wheat, potash, and soda ash.

“Portland is a small, but world-class port,” says Kurt Nagle, president and CEO of the American Association of Port Authorities (AAPA). Nagle observes that the major imports arriving at the Port of Portland include cement and limestone, steel, automobiles, and oil. The major trading partners for the Port of Portland include Japan, South Korea, China, Taiwan, and Mexico.

The AAPA’s Maritime Economic Development Seminar, being held in Portland this month, will focus on cultivating operational and financing partnerships, infrastructure, and trade opportunities for seaports.

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East Coast rivals
While the pace of global recovery is cooling, shipping activity through South Carolina’s ports remains up through the current fiscal year, according to port spokesman Byron Miller. He notes that breakbulk volume through the state’s ports—driven primarily by vehicle shipments from BMW and energy related projects—rose 40 percent from 551,000 tons last year to 773,000 tons this year.

Breakbulk tonnage in the Ports of Charleston and Georgetown was up more than 44 percent for the period July 2010 through February 2011, with 657,528 tons handled at the two ports in fiscal year 2011 compared to 455,449 tons handled during the same period the previous year, says Miller.

“Overall volume at South Carolina Ports (SCSPA) increased more than 12 percent from July through February,” he says, adding that the SCSPA anticipates continued, but moderate, growth through the year.

The North Carolina State Ports Authority—which like SCSPA is rightfully proud of its container operations—is aggressively growing it breakbulk operations, too. Breakbulk operations in Wilmington and Morehead City, for example, are up a combined 27 percent over the 2010 performance. This growth is a reflection of the strong global recovery in commodities such as wood pulp, shipped through Wilmington, and metal products and rubber imports, which are shipped via Morehead City.

“We anticipate continued growth in the coming months as new business comes online in Morehead City,” says Glenn Carlson, chief commercial officer of North Carolina State Ports Authority. “Additional dry fertilizer imports are supporting a strong spring performance, and we recently kicked off woodchip operations with regular exporting to begin in June,” he says.

According to Carlson, the authority expects continued moderate growth through the year.

Gulf leaders
When it comes to total bulk and breakbulk tonnage, The Port of Houston is among the nation’s leaders with steel comprising 70 percent of cargo passing though the Houston Ship Channel.
According to the Port of Houston Authority (PHA), more than two million tons of steel every year come across the docks as plate, pipe, coil, beam, with the remaining 30 percent coming in the form of forest products (imported plywood, newsprint), transformers, storage vessels (cylindrical tanks), or roll-on/roll-off cargo.

While it has yet to return to record numbers set two years ago, Houston’s numbers showed sustainable growth in 2010. “The public docks are expecting to see between 2.3 and 2.6 million tons with additional cargo moving through private terminals like Inbesa and Manchester Terminal,” says Patrick Seeba, an analyst with The Greater Houston Port Bureau.

The PHA estimates that it will move between 2.3 and 2.6 million inbound tons of steel this year, followed by 2.6 next year—for both years, they’re expecting 300,000 outbound tons of scrap steel. For non-steel breakbulk, PHA estimates 2 million tons of total traffic, or 75 percent, which is bound for export.

“Like all global shipping, the amount of breakbulk cargo coming through the Port of Houston was dramatically affected by the global recession in 2009,” says Seeba. “While the first quarter of 2010 showed a nearly 71 percent decline in steel coming across the city docks, year-to-date numbers show a steady climb back to normal tonnage.”

Zepol, a leading trade intelligence company based in Minnesota, notes that Houston’s gulf neighbor is growing its bulk and breakbulk business, too. According to Paul Rasmussen, Zepol Corporation’s CEO and president, metric inbound tonnage of “non-containerized goods” at the Port of New Orleans has been impressive.

“Like Savannah and Norfolk, New Orleans has made substantial gains,” says Rasmussen. “This reflects widespread diversification.”

No better example of this “diversification” in New Orleans is the $25 million dockside refrigerated terminal slated to open next month. The new terminal, to be operated by poultry exporter New Orleans Cold Storage, (NOCS) operates a similar dockside refrigerated warehouse, capable of freezing more than 500 tons of food products daily, at the port’s Jourdan Road Terminal.

The new 140,000-square-foot warehouse will be able to store approximately 175,000 tons of product, primarily poultry, at temperatures between -15 degrees and 40 degrees Fahrenheit and blast-freeze 600 tons of product in 20 hours or less.

But the advances in this breakbulk operation did not come without a major funding effort. Nearly $24 million was given by the Community Development Block Grant Disaster Recovery Program of the Louisiana Office of Community Development—Disaster Recovery Unit. “When it comes to economic development, actions speak louder than words,” says NOCS president Mark Blanchard. “As we worked to rebuild our business over the last five years, we got lots of help from our government leaders.”

click here to download the PDF article
click here to download PDF article

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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