Christopher Steele, Global COO and North American President, Investment Consulting Associates (ICA) (Aug/Sep 09)
Since ports have historically served as links to the world economy, they naturally attract masses of activity. The global marketplace demands that goods be moved quickly, reliably, and efficiently at competitive rates - all roles at which ports excel. Indeed, at times when both globalization and potential fuel cost increases continue to drive competitive advantage, locations near ports become even more attractive as areas for expansion - minimizing risk and maximizing opportunity. Ports are also places where people congregate to enjoy the advantages of both land and water. They become natural draws for talent due to both their economic vitality and, if managed with stewardship and vision, quality of life.
The ports of the American Gulf coast - Port Arthur, Houston, and Galveston, Texas; New Orleans, Louisiana; Mobile, Alabama; Pascagoula, Mississippi, and several others - stand to benefit greatly from market changes in energy, globalization, logistics, and general population growth.
Traditional Industrial Growth
These ports have been able to remain centers of new activity even as the overall economy has suffered. Even the automotive industry, otherwise hard struck, has been investing in the Gulf area. In addition to being a place to ship cars, ports also function as ideal locations for preparing cars and trucks for end consumers.
Manufacturers use such centralized locations to install audio equipment, install final customer option packages, and generally prepare the vehicles for transportation. They can then utilize the ports' natural logistics linkages - mainly road and rail - to put the cars onto trucks for regional distribution and trains for more distant travel. In this way, they gain efficiencies and quality control through centralization, and may also take advantage of Foreign-Trade Zone opportunities, adding value at the zone that would otherwise have been subject to import duties.
The Port of Houston has recently gained some of this activity, landing a new car handling facility for Nissan. This facility is located southwest of the city of Houston and was developed jointly by Centerpoint and the Kansas City Southern railroad. It will use three major logistics interchanges: the Port of Houston, the Port of Lazaro Cardenas on the Mexican Pacific coast, and direct rail access to Nissan's Mexican manufacturing facilities. In this way, the port provides both the best location to process the cars and a key link in the company's logistics chain.
Certainly oil and traditional energy industries remain significant players throughout the Gulf Coast. Recent projects in this vein include the Chevron refinery expansion in Pascagoula, as well as a planned coal gasification project near New Orleans, Louisiana. However, newer energy industries have spring boarded from these historic foundations, using the existing facilities and talent to new effect. For example, Port Arthur continues to see expansion in ethanol and biofuels. Terrabon, based in Houston, plans to build a regional $40 million plant to produce green gasoline - a motor fuel made from a non-food stock biomass, in this case to include mainly organic household garbage.
The traditional oil refiner Valero is a major backer of the project, and it's no surprise to find that Valero also has its own largest single refinery in Port Arthur. The ability to leverage or convert existing infrastructure makes the areas ideal for such activities. It's also useful to note that the technology for the plant was developed at Texas A&M - another example of an energy economy institution leading the field into future opportunities.
Interestingly, some of the new activity at the ports may be due to how containerized shipping patterns have bypassed the Gulf Coast somewhat. Containerized freight - which had represented the fastest-growing freight segment over the past 30 years - mainly focused on the large ports of the East and West Coasts for expansion. As a result, the Gulf Coast ports tended to focus on so-called bulk and heavy-lift shipping activity. Bulk and heavy-lift cargo - which include anything unpackaged and usually moved in large quantities - can include commodities such as oil, liquid natural gas (LNG), grain, coal, and lumber. Heavy-lift includes more large, bulky, cumbersome, or otherwise difficult cargoes, such as assembled iron, steel, composites, machinery or similar cargoes.
These capabilities are the exact requirements needed for the wind energy industry. The large, cumbersome, and complex components include the towers, turbines, blade assemblies, dynamos, and transformers needed to both generate and transmit the energy to the grid. These must be moved and assembled at areas with sufficient space, capability, and expertise. In many cases, they also need to have secondary connections via rail and water to their eventual installation points.
Significant growth in wind energy has already occurred as a result. In fact, prior to the current economic decline, some ports had expressed concern that the growth in both bulk traffic and new energy-related growth could put a strain on the area's capabilities if road and rail improvements were not made. These could be ideal targets for federal stimulus investment in the near future.
Both Beaumont and Corpus Christi, Texas, have seen significant increases in wind energy coming through the port, as well as piping for LNG facilities. Wind equipment also tends to take up a lot of space, making it difficult to fit into some ports. Freeport, Texas, which has significant tracts of undeveloped land directly adjacent to the port itself, is taking advantage of this opportunity and is actively courting wind equipment manufacturers and installers. Suzlon Energy of India has begun operations at Freeport and is considering further expansion.
In addition to existing infrastructure, local talent has also proven critical in attracting these businesses. The expertise gained by local engineers in building hurricane-resistant oil rigs is now being used to develop a new generation of offshore wind turbine and tower installations. Companies such as the startup Wind Energy Systems Technologies of Galveston intend to use exactly this expertise to develop a network of up to 50 turbines in the Gulf, each atop towers rising almost 300 feet into the air. The anchor foundations for the towers will be strongly based on technologies developed for offshore drilling and piping operations.