The Looming East Coast Mega Ship Competition

container ship

By Harry Valentine 2016-07-25 11:02:00

In 2008, Sea-Point of Orleans undertook a study comparing maritime versus railway container freight rates between a California coastal port and the Port of Memphis on the inland waterway. Despite covering three times the distance as trains and paying the Panama Canal a per container transit tariff, maritime savings approached $2,000 per container compared to railway transportation. Such savings formed the basis of the case to enlarge the Panama Canal to transit neo-Panamax ships between Pacific and Atlantic Oceans. East coast ports at Newark, Norfolk, Jacksonville, Savannah, Charleston and Miami have been modified to berth the bigger ships.

Prior to the Sea-Point study, Professor Jerry Fruin of University of Minnesota compared rail versus barge transportation of containers between Port of New Orleans and Port of Pittsburgh. The study revealed savings in transportation costs for large volumes (over 100) of low-priority containers that sailed 1,000 miles and through 21 locks along the Mississippi and Ohio Rivers. 

However, managers at West Coast ports that can berth the class-EEE (18,000 TEUs) size of container ship expressed confidence that their ports will remain competitive despite having to transfer large numbers of containers to the railways that will carry containers to inland destinations. 

Ports and Waterways

At present, the Port of New Orleans transfers bulk freight between barge and ship and containers between ship and trains and trucks. While Port of Newark is well suited to transfer containers between ship and train and ship and truck, it also connects to the Erie barge canal that provides access to Lake Ontario and Lake Erie. Growing support for container-on-barge transportation could encourage future transfer of containers between neo-Panamax ships and barges at Louisiana International Gulf Terminal, with ship – ship and ship – barge transshipments of containers at the Port of Newark being a future possibility.

The Saint Lawrence Seaway can only transit Seaway-max size of ships (1,000 containers) upstream of Port of Montreal during warmer weather, with partially laden older Panamax ships sailing along the Lower St Lawrence River downstream of Montreal. The regular ship that sails between Montreal and Rotterdam is the 2,200 TEU Maersk Pembroke

There are no plans to widen or deepen the navigation channel between Gulf of St Lawrence and Port of Montreal to transit larger ships, or fully laden older generation Panamax container ships. A future Atlantic transshipment port could reduce per container transportation costs to Montreal and Seaway ports.

Atlantic Transshipment Port

While some east coast ports have been or are being modified to berth Neo-Panamax ships, several other ports remain unchanged. The volume of containers of Asian origin entering and leaving the combination of ports of Boston, Portland, Baltimore and Montreal on board older Panamax ships and Ports of New Haven and Wilmington on board Seaway-max ships is sufficient to warrant an east coast Atlantic transshipment port that can berth neo-Panamax ships. Such transshipment between neo-Panamax ships and smaller ships may be possible at Port of Savannah, Port of Charleston, Port of Virginia, Port Ponce or Port of Newark.

The peak season for east coast container traffic occurs outside of the Northern winter, when several inland waterways such as the Erie Canal and St Lawrence Seaway are closed to navigation. During the pre-Christmas peak season, the largest neo-Panamax ships could sail through the Panama Canal to a transshipment terminal at Port of Hamilton, from where smaller ships will carry the containers to multiple ports located along the east coast as well as inland waterways. During the winter off-peak season, the railways would carry containers from Port of Newark to several inland destinations.

Competitive Railways

Railway companies that carry the winter off-peak volume of containers would seek to negotiate to carry that volume of containers throughout the year, leaving the seasonal summer peak of container traffic to the inland maritime sector. Containers from Asia destined for Chicago, Cleveland, Toledo, Detroit and Toronto and possibly Montreal and even Port of Ogdensburg NY could arrive at Port of Newark for transfer to the railways that operate direct railway lines to these destinations. The reduction in per-container transportation cost on board Neo-Panamax ships partially compensates for higher railway transportation costs.

The railway distance between West Toronto’s distribution warehouses and Port of Montreal’s container terminals is comparable to the railway distance to Port of Newark and one third the railway distance to Nova Scotia ports. Neo-Panamax ships can now sail the Europe – Newark service and three to six times the number of containers as ships that sail to Montreal and at lower transportation costs per container. 

During winter, Port of Newark and direct railway connections to Ontario could ‘capture’ much Europe - Ontario container traffic. Winter ice on Gulf of St Lawrence could divert some Europe – Montreal container traffic via Newark.

Class-EEE Ships

At present, class-EEE ships sail between Asian and West Coast American ports where containers are transferred to eastbound trains. The opening of the enlarged Panama Canal to transit Neo-Panamax ships promises east coast destinations lower overall per-container transportation costs. Two companies, Melford and Harbor Port Developers have indicated interest in developing a transshipment terminal for class-EEE ships on the east coast, within close proximity to each other at Nova Scotia, Canada. Both the U.S. and Canada administer their own versions of The Jones Act, making the Canadian location desirable to transfer containers to ships sailing to American ports.

The railway distance between Montreal and Nova Scotia terminal locations is double that to Port of Newark, reducing the competitive gap between neo-Panamax ships and Class-EEE ships that could realize the competitive edge by transferring containers to smaller ships. During warmer weather, smaller ships may sail the inland waterway at competitive per-container transportation costs to the Ports of Ogdensburg NY, Cleveland OH and Detroit MI, with interlining trucks carrying containers across international bridges to nearby Canadian destinations. A revision of the Canadian version of The Jones Act would allow for cost competitive ship-to-ship transshipment for Montreal and Toronto bound ships.

Conclusions

There is developing competition between Neo-Panamax ships that transit the enlarged Panama Canal and Class-EEE ships that serve west coast American ports and transfer containers to eastbound trains. The completion of an Eastern Canadian transshipment terminal that can berth class-EEE ships that sail from Asian ports will prompt competition with neo-Panamax ships that serve east coast ports and transfer containers to trains. Future transportation business plans will depend on strategic alliances among transportation companies and strategic transportation logistics as to how services will be offered to assure competitive transportation costs for inland destinations.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.