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.
These ports have an extremely bright future as significant international transportation hubs. Even though much container port development had bypassed the Gulf Coast, changes in the Panama Canal and an increase in activity throughout Latin America may provide a new wave of this activity, and this activity will likely want to end up in Gulf Coast ports.
When the Panama Canal first opened in 1914, it represented the culmination of a dream for bringing the East and West Coasts of the United States logistically closer together, cutting ship travel from New York to San Francisco from 14,000 miles down to 6,000. The canal is about to once again make a quantum change in American transport, but this time with an even more global reach. And this time, the immediate beneficiary is the Gulf Coast. A new, parallel canal will open in 2015, marking the start of a new era for the region. This new capacity will not only mean more ships will be able to traverse the isthmus of Panama annually, but that newer, larger ships will be able to make the journey as well.
Until now, ships crossing the canal could only carry about the equivalent of 2,400 40-foot containers. The new locks will be able to accommodate vessels capable of carrying 6,300. This fact, combined with increasing regulation, congestion, and costs to operate in California, could drive significant container traffic to the U.S. Gulf Coast. Gulf ports would not only be able to directly accept these trans-Pacific shipments, but might - through water and rail connections - be able to move them more efficiently and cleanly to the population centers of the South and Midwest. Couple this with the importance and growth of Brazil and other Latin American countries as trading partners, and the size of the opportunity becomes apparent.
The ports of Biloxi, Mississippi, and Houston, New Orleans, and Mobile, are all gearing up to pick up this increased traffic. For example, the state of Louisiana has recently passed a new law offering a tax break of $5 for every ton of general cargo a Louisiana company imports or exports through a state port. The savings can ultimately make it more affordable for businesses to move products through Louisiana instead of competing ports. Louisiana is considering several new port developments in the Mississippi Delta to accommodate this increased flow.
While the country as a whole continues to try to find a way forward out of the recession, the ports along the U.S. Gulf Coast are well-positioned for growth that both builds on traditional area strengths and moves into emerging technologies and trade streams. While there is still considerable work to be done and risks to be overcome, the area serves as a good example of how the strengths of the past can be repurposed to catch future success.
Christopher Steele is president of CWS Consulting Group, a business consulting firm specializing in location strategy, site selection, industrial development, and business attraction. He previously served as president of the Real Estate Line of Business at TranSystems and as a senior manager in Ernst & Young's Real Estate Advisory Services Group. Contact him via his company's website at www.cwsgrp.com.