Competitive Edge


By Paul Benecki 2016-12-05 16:55:01

(Article originally published in Sept/Oct 2016 edition.)

Dredging is more than just digging a ditch. It’s a leg up on the competition.

By Paul Benecki

Dredging projects are driven by market forces and the environment, but they are also influenced by a long list of stakeholders. Port authorities, liner companies, shippers, elected officials and local residents all have a stake in the outcome, and with so many parties involved even the smallest proposals can take years to get funded and approved.

In today's market, however, ports with draft restrictions are under pressure to dredge channels quickly or risk losing business to competitors with deeper water.

With container rates at historic lows, carriers are deploying ever-larger vessels on the longest routes in an effort to keep costs down, particularly on strings from Asia to Europe. The Port of Hamburg saw calls of ultra-large container vessels nearly double in the second quarter versus the same period last year. But draft restrictions prevent these mega-ships from arriving fully laden, so carriers cannot use the full capacity of their biggest vessels when calling Germany’s biggest port. These ships could potentially call with full loads at deep harbors in Wilhelmshaven or Rotterdam instead, so Hamburg has proposed a controversial project to deepen the Lower Elbe in order to retain its competitive edge.

Cascading Effect

Deeper draft requirements aren't only affecting the world's biggest container terminals. The same ULCVs calling Hamburg are displacing container vessels under 10,000 TEUs from the main transoceanic routes, sending them to smaller strings instead. Thanks to this cascading effect, many medium-size ports are being asked to accept vessels drawing up to 50 feet, far more than the depth required for a 5,000-TEU Panamax.

Port Everglades, Florida already gets calls from 8,000-TEU ships, but like Hamburg the largest vessels can only arrive partially loaded due to draft restrictions. This limits the port's appeal as a high-volume, “first call” port for Asia-U.S. East Coast routes.

“We currently have no direct service from Asia,” says Deputy Port Director Glenn Wiltshire. “We lost our only port call from Asia-Pacific when CSAV was purchased by Hapag-Lloyd [in 2014], and those containers have gone to different routes. Right now the Asia cargo we get is transshipped via deep-draft ports in the Mediterranean or Latin America.” The port still handles strong trade volumes within the Americas and the Caribbean, but Wiltshire would like to regain more of the Asia market share – and deeper water is a key priority for Asian carriers.

In addition to its container operations, Port Everglades is one of the busiest cruise ports in the world, and dredging would benefit that business as well. The port has a “pinch point” in the access channel leading to its container terminal: It’s too narrow to allow larger container ships to pass whenever a large cruise ship is berthed on the west side, restricting arrivals and departures. This reduces efficiency, so the port’s $320 million dredging plan calls for widening the access channel by 250 feet to permit unrestricted passage.

WRDA’s Impact

Port Everglades' proposal received its final "Chief's Report" from the U.S. Army Corps of Engineers early this year. With that agency-level approval secured, the project is included in this year's Water Resources Development Act (WRDA), a bill which will give it authorization to move ahead with improvements. WRDA would also do much more: It authorizes navigation projects from Charleston, South Carolina to Craig Harbor, Alaska, plus billions of dollars in flood prevention and environmental remediation proposals. It passed the Senate by an unheard-of margin of 95-3 in mid-September. The few “nay” votes were from senators representing landlocked states.

As a measure of WRDA's importance, South Carolina's entire congressional delegation issued statements backing the bill – with an emphasis on their support for the South Carolina Port Authority's $500 million capital dredging program, which is on the list of authorizations. Senator Tim Scott (R-SC) pointed out that one of every eleven jobs in the state is linked to the Port of Charleston.

Charleston's ambitious plan would make its harbor the deepest on the East Coast, increasing the maximum draft from 45 to 52 feet. The port says the need is clear. “This is a big-ship industry,” stated SCPA President Jim Newsome in his annual “State of the Port” address. “Today, 16 of 26 weekly container services calling the Port of Charleston utilize New Panamax vessels, and we expect to see others upsized in the future.”

Capital dredging takes time, political will and money. In September the Port of New York and New Jersey finally completed the last contract of its 12-year, $2 billion Main Navigation Channel deepening project. David Caldwell, Commander of the Army Corps' New York district, went so far as to say that the $2 billion effort to attract the bigger ships “may be the most important and influential project related to modern-day economics in the Northeast.” It was also relatively economical: The Corps and the Port say the project came in at $800 million under budget.

Once dredged, channels and harbors must be periodically redredged. In 1986 the federal government set up a Harbor Maintenance Trust Fund for dredging upkeep, paid for by levies on port users. Over the past decade, however, Congress has left billions of dollars from the Fund unspent in order to balance the budget, thereby reducing access to the resources needed to keep ports functioning.

In 2014, Congress voted to gradually return Trust Fund spending back to 100 percent of fees collected, a big win for ports. The House version of this year's WRDA legislation goes even further: It includes a provision to take the Trust Fund off budget altogether, putting every dollar of user fees directly towards harbor maintenance.

Whether this proposal makes it into law remains to be seen, but the spending revision enacted in 2014 is already having a positive impact on dredging activity. Leading contractor Great Lakes Dredge and Dock reports that with the additional HMTF funding the Corps of Engineers has substantially increased its expenditures for maintenance dredging, and the firm expects the number of Trust Fund tenders to rise in future years. 

After Suez, What?

On the international front, the International Association of Dredging Contractors forecasts long-term growth driven by the fundamentals: An expanding population in coastal areas means new infrastructure and reclamation; sea-level rise means more coastal protection projects; and growing trade means more port and harbor dredging.

Activity surged in 2014-2015 with the dredging of the Suez Canal expansion. The gigantic undertaking involved most of the major global contractors – Van Oord, DEME, Great Lakes and others, each handling a separate segment of the project. Together they moved a record 200 million cubic meters of sand in nine months. The volume of work was enough to absorb almost any unused capacity, and Royal Dutch Boskalis reported that virtually all personnel and equipment coming off contract were sent to Egypt to join the effort.

But with the Suez project over and the global economy cooling, high-volume, high-margin work has become harder to find. Boskalis conducted a strategic review in mid-2016 and decided to pull 24 ships from service, 10 of them dredgers, and to reduce its workforce by about 650 positions.

Few upcoming projects would rival the scale of the Suez expansion, but there are still high-value tenders to be had. CFE (parent company of DEME and Dredging International) recently won an $800 million contract for construction of the world's longest immersed road and rail tunnel, the Fehmarnbelt Fixed Link between Denmark and Germany. 

The installation of the tunnel below the seabed will require dredging a massive trench, 10 nautical miles in length by 300 feet wide and 50 feet deep. After the tunnel is assembled in the trench, one section at a time, the contractors will backfill above and around it with a protective layer of sand, gravel and rock. CFE will work on the tunnel itself, and Boskalis and Van Oord hold contracts for the dredging work.

China's dredging market is the largest in the world, but closed to international bidders. The majority of its domestic fleet is held by state-owned construction company CCCC, which claims to be the world's biggest dredging contractor by capacity – and even in a shrinking global market, its subsidiaries continue to take deliveries of technologically advanced equipment. Leading dredge shipyard Royal IHC recently completed the largest trailing suction hopper dredger ever made, the Jun Yang 1, for CCCC Guangzhou Dredging Company.

Lex Nijsen, head of four-stroke for leading engine maker MAN, confirms that China is a bright spot in a weak commercial shipbuilding market. But China's contracting is not as busy as it once was, says one U.S.-based dredge broker: "Demand in China is down overall as it is in many other places – South America, Nigeria, many areas where we used to see a lot of activity. The U.S. is probably the busiest place for dredging right now, and we expect this to grow.”

A Leg Up

The U.S. may have more activity than many other markets, but as the IADC notes there will be no shortage of international demand in the long run. For coastal communities around the world, the pressure is on to accommodate bigger ships, keep channels maintained at charted depth and improve marine infrastructure. Where funds are available and the political will exists, dredging and marine construction can drive new business for an entire regional economy. And in a competitive market, that means a leg up. – MarEx  

Paul Benecki is a staff reporter for the magazine.

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