Car Crazy

U.S. ports benefit from surge in automotive imports.


By Tom Peters 08-23-2016 11:13:03

(Article originally published in May/June 2016 edition.)

Mexico is the hot spot for automotive ro-ro cargo and, despite Donald Trump’s plan to slap a 35 percent tax on cars imported from Mexico if he becomes president, U.S. ports are eager to attract more business from that country and its growing automotive industry.

Literally millions of Mexican-built autos, representing numerous brands, move through U.S. ports every year. With the world’s leading car manufacturers pumping hundreds of millions of dollars into the Mexican landscape for new production facilities, the number of autos being produced will only grow.

A number of port officials expressed little or no concern for Trump’s threat. But for Joel Valenzuela, Director of Maritime Operations at the Port of San Diego, it is troublesome, especially since San Diego has a thirst for more Mexican business: “I don’t have a clear understanding of what his trade policy is going to be. But based on some of his statements, I think discouraging trade in general is problematic.” San Diego’s National City Terminal, operated under a long-term lease with Pasha Automotive Services, is dedicated to ro-ro, and that segment is “a big piece of our portfolio,” he adds.

Pre-Recession Highs

In this fiscal year San Diego expects to match pre-recession numbers in automobiles, reaching about 440,000 units. The previous high was 438,000 units in 2008. The autos are mostly imported from Asia, but some arrive from Europe via the Panama Canal. Exports go to Hawaii on a weekly service operated by Pasha.

Mexico may play a big part in San Diego’s future because of its proximity to the California port.

“Based on projections, I think their automotive production is going to increase by about 50 percent by 2021,” Valenzuela says. “There are a lot of new plants coming online, and we have done some test coastal shipping from Mexico and think that is a growth area.”

Trump’s possible tariff is not San Diego’s main concern. The immediate challenge is capacity. There are a few parcels of land near the Pasha terminal, and the port is also looking at the rehab of an old tank farm. However, Valenzuela is most excited about a long-term rail project. “Our board has just authorized an environmental analysis to build a connector track,” he explains. The terminal is currently served by a loop track, and the project would connect the loop track to an underutilized Burlington Northern Santa Fe rail yard. “That would enable us to increase rail throughput by as much as 50 percent,” he adds. “We are just beginning the environmental process, so it could be several years before it happens.”

Leading the Way

In the Port of Baltimore there is little concern for Trump’s tax threats. Rick Powers, Director of Sales and Marketing for the Maryland Port Administration, says he doesn’t see any change on the “trade side,” at least not in the foreseeable future. He likes Mexico as the “hot spot” for ro-ro growth but sees opportunity elsewhere due to “a lot of relocation of manufacturers around the world.”

Baltimore is the number one ro-ro port in the U.S. for both autos and tonnage. In 2015 it handled approximately 750,000 automobiles, mainly imports. Powers said a slightly weaker U.S. economy in the first quarter dragged preliminary ro-ro numbers down three or four percent. “You may see that reverse when we get all the numbers,” he adds. “The car business has been resilient, although in ‘high and heavy’ we are still down.”

“High and heavy” ro-ro includes agricultural, construction and mining equipment. When the expanded Panama Canal opens for business on June 27, allowing larger ships to pass between the Atlantic and Pacific oceans, that kind of ro-ro traffic should rise. “I think we will see larger vessels,” he says, stressing that Baltimore is ready to handle them.

A new distribution and processing center for BMW and Mini vehicles has given the Port of Galveston a boost in its ro/ro business. The port’s Senior Director of Marketing and Administration, Captain John Peterlin III, says the new facility comes at an opportune time.

Galveston had a solid business exporting used vehicles to West Africa and the Middle East, but that business took a hit when oil prices dropped, making the vehicles unaffordable for potential buyers in those regions. Peterlin says the new distribution center gives Galveston “a foot in the door for new vehicles” to start moving through the port. The $11 million facility is expected to handle approximately 32,000 BMW and Mini vehicles this year.

Last year Galveston handled a total of 432,000 short tons of ro-ro cargo. The port is served by six ro-ro lines. Like San Diego, the main challenge is finding additional space for expansion. On the north side of the harbor channel, the port has about 100 acres of undeveloped land on Pelican Island. There are 2,600 feet of waterfront available for development, and “That is where our long-term growth has to be,” says Peterlin, adding that the initial development will likely be a ro-ro terminal.

North of Los Angeles, the Port of Hueneme serves as the entry point to California’s Central Coast, and it recently welcomed a new addition to its expanding automotive business. John Demers, the port’s Chief Operations Officer, says General Motors’ move to the port will double its vehicle exports. GM is using Hoegh Autoliners as its carrier, and Global Auto Processing Services is handling GM’s exports to Asia.

Automotive ro-ro accounts for about 55 percent of the port’s revenue. In the last fiscal year, Hueneme handled 300,000 auto imports and 21,000 exports. Imports arrive from Asia and Europe while most of the exports go to Asia. The port handles high and heavy ro-ro as well – industrial, agricultural and mining equipment and machinery.

Looking ahead, Demers does not believe the expanded Panama Canal will have any impact on the port’s automobile business because of the regional nature of the auto trade. “Automakers maintain import hubs,” he explains. “This is the only BMW vehicle center and distribution facility on the West Coast. They have one on the Gulf Coast and three more on the East Coast, so they keep a balance and focus on regional markets.” Demers sees potential growth coming from other auto importers and says the port is aware of some brands “kind of reaching their limit” at certain ports and shopping around. “So we are hoping to get another brand or two,” he adds.

The Port of Jacksonville (JAXPORT), one of the busiest on the East Coast, is well-positioned to take advantage of the growing automotive trade with Mexico, the country Frank Camp, JAXPORT’s Director of Non-Containerized Sales, sees as the biggest growth opportunity for southeastern ports. In past years, over 10 percent of JAXPORT’s automobile volume has come from Mexico.

Camp says original equipment manufacturers (OEMs) still prefer to move product by rail “but that still can be a bottleneck at times. More and more OEMs are going to look toward the ocean for that relief valve, and we are just a few days’ sail from Veracruz.”  He adds that it’s “a big opportunity for us” because the major OEMs are concentrating on production in Mexico.

In 2015 Jaxport handled 671,000 automobiles with the Blount Island Terminal being the busiest for ro-ro of the port’s three terminals. Camp says JAXPORT is always looking for ways to increase efficiencies at its terminals and improve infrastructure, whether it be for space for laydown or for additional operations on the docks. To that end, JAXPORT is looking at expansion opportunities around the port.

Bigger & Better

While ro-ro ports look to expand their business, one of the lines that carry the goods is in the process of introducing new and bigger ships to its fleet. ACL, owned by the Grimaldi Group, is building five G4 (generation four) vessels. The Atlantic Star is now in service, and the Atlantic Sail was scheduled to begin service the week of May 16. The remaining three ships are under construction.

The G4 vessels are the first of their kind and the largest multipurpose ro-ro/containerships ever built. They incorporate an innovative design that increases capacity without significantly changing the dimensions of the vessel. The G4s are bigger, greener and more efficient than their predecessors, the G3s. Their container capacity is more than double at 3,800 TEUs with 28,900 square meters of ro-ro space and room for over 1,300 vehicles.

The ro-ro ramps are wider and shallower than those on the G3 vessels, and the ro-ro decks are higher (up to 7.4 meters) with fewer columns, enabling much easier loading and discharge of oversized cargo. Emissions per TEU have been reduced by 65 percent. The fleet continues to employ cell guides on deck, a feature that will allow ACL to extend its enviable record of never having lost a container overboard in the last 30 years. – MarEx

Halifax-based Tom Peters is a frequent contributor.

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