The Florida factor

Bill Johnson has glimpsed the Holy Grail in his own backyard, and he is determined—come hell or deep water—to capture it.

Johnson, the hard-charging director of the Port of Miami, has spent the past five years looking into why so much of the Asian import cargo destined for Florida enters the country through ports outside the state. According to port data, only about 38 percent of Asian import traffic bound for Florida actually enters via the state's ports. About 36 percent enters through the ports of Los Angeles and Long Beach, 13 percent through the Port of Savannah (Ga.), and the remaining 13 percent through various other U.S. ports.

In particular, Johnson has focused on why Savannah, nearly 500 miles to the north, has been such a strong competitor for trans-Pacific cargoes destined for Central and Southern Florida. There are good reasons for Savannah's strength. Though it has a relatively shallow harbor depth of 42 feet, it remains one of only two East Coast seaports—the other being Norfolk—with on-dock rail connections to the two Eastern Class I railroads, CSX Corp. and Norfolk Southern Corp.

Savannah is also near the robust manufacturing areas of Southern Georgia and Northern Florida, where goods are shipped, usually by truck, into Florida's Central and Southern regions for distribution to a population approaching 13 million people.

Port officials acknowledge Miami has been outflanked by Savannah in the battle for the wallets of Florida's importers and exporters, and, by extension, the state's consumers. Johnson, for his part, said Miami has learned a lot from Savannah and plans to use that knowledge to beat the formidable Georgia port at its own game.

"The Florida ports have lost market share to Savannah over the years, and I intend to win that business back," he said in an interview. Port officials believe the state can recapture about one-third of the containerized traffic bound for markets within Florida but which arrives at out-of-state seaports.

A game-changer
The catalyst for Johnson's strategy is, not surprisingly, the opening of the expanded Panama Canal scheduled for August 2014. The $5.2 billion project will deepen the canal by as much as 10 feet, while new lock construction will enable it to accommodate ships built to carry a maximum of 12,600 twenty-foot equivalent unit (TEU) containers, up from a current maximum of 5,100 TEUs.

The expansion promises compelling economies of scale for the seagoing supply chain because carriers can move more containers per vessel through the canal than ever before. It could also permanently reshape shipping patterns if importers that normally bring Asian-originating ocean cargo in through West Coast ports for movement inland via surface transport instead opt for a less-costly all-water route for drop-off at East and Gulf Coast ports. Only 30 percent of all seagoing cargoes are discharged at points east of the Mississippi, although 70 percent of the U.S. population lives there.

Miami port officials estimate an all-water voyage from China to Miami takes 24 days, while a sailing into Los Angeles and cross-country rail service to Miami would take about 22 days and generally be more expensive.

In preparation for the canal expansion, Miami has embarked on a $150 million project—with half the funds coming from state taxpayers—to dredge its harbor and channel from its current 42-foot depth to the 50-foot depth needed to accommodate the larger "post-Panamax" ships. Perhaps just as important, the port is constructing the first on-dock rail terminal to be operational there in 20 years.

The rail terminal will be served exclusively by the Jacksonville-based Florida East Coast Railway (FEC) and will be used to transport cargo to points north and west of Miami, bringing the port within a one- to four-day delivery window of 70 percent of the U.S. population. The first train there will begin operating in the first quarter of 2012, but the service's real impact won't be felt until the opening of the expanded canal.

A shift in distribution patterns
Officials at Miami, which vies with Port Manatee on Florida's West Coast for the title of the closest U.S. port to the canal, believe the deepening of Miami's harbor and the launch of on-dock rail service will make it the first port of call for post-Panamax vessels. They also believe the expansion project will change the way goods are distributed within Florida, across the Southeast, and even into the nation's midsection.

"We will be able to serve markets like Atlanta and Charlotte in two days, and Memphis and Nashville in three days," said James Hertwig, FEC's president and CEO. FEC is also the exclusive on-dock rail provider at Fort Lauderdale's Port Everglades and the Port of Palm Beach farther to the north.

Between 12 million and 13 million people reside in Central and South Florida, making it the largest East Coast population center outside of the New York metropolitan area. Because of its large retiree and tourist population, however, the region is heavily skewed toward consumption, with relatively little production.

Historically, goods bound for Central and South Florida have been produced in manufacturing centers in South Georgia or Northern Florida around Jacksonville. They would then usually be trucked—at a significant cost—down the lengthy peninsula to the southern part of the state, or be diverted west toward its center near Orlando. Generally, there are few backhaul opportunities due to the lack of manufacturing in the region.

The traffic imbalance is striking, according to various sources. Hertwig said that for every four loads headed south there is only one moving north. Charles W. Clowdis, managing director-transportation advisory services for consultancy IHS Global Insight, said the ratio is closer to five to one in favor of southbound loads.

But as more Florida-bound goods come from Asia, all that could change. Florida port interests believe that deepening Miami's harbor to handle post-Panamax vessels will open up the state's Southern and Central regions to an avalanche of Asian imports that can be whisked across Florida and into surrounding states, thus remedying the directional imbalance.

In a 2010 report, the Florida Chamber Foundation said the widening of the canal, along with the continued growth in Latin American and Caribbean markets that already use Miami as their main port of entry, offers Florida a "once-in-a-lifetime opportunity to transform its economy by becoming a global hub for trade, logistics, and export-oriented manufacturing activities." The state is located "at the crossroads" of east-west and north-south trade lanes that will be home to more than 1.1 billion consumers by 2030, the report said.

Miami, which is expected to handle 900,000 TEU containers in 2011, expects a doubling of its traffic to between 1.7 million and 2 million TEUs by 2020, and to between 3 million and 3.5 million TEUs by 2030. About half of the growth over the next decade will come from a general increase in waterborne commerce, with the remainder coming from stronger trade flows through an expanded canal, according to port officials.

Showdown with Savannah?
Still, it will not be easy to wrest market share away from Savannah. The Georgia port is in a geographically desirable position, capable of feeding western, northern, and southern destinations via rail and truck. Miami, by contrast, is at the end of a long peninsula and lacks Savannah's geographic advantages.

Johnson, however, argues that Miami's location is actually a benefit because of its proximity to Latin and Caribbean markets, as well as its strategic positioning in the middle of an enormous arc sweeping between Texas and Virginia.

Another potential shortcoming is that Miami's basin, unlike Savannah's, is too small to allow the post-Panamax vessels to turn around in the harbor to head out. Kevin T. Lynskey, the Port of Miami's assistant director for business development, said the port has come up with a plan to address that shortfall. He said the turning radius in the basin is being widened as part of the dredging project, and that the port should be able to handle the larger ships.

A Florida-based source close to the situation said Savannah's solid position as an on-dock rail feeder will make it a formidable impediment to Miami's plans for growth in the post-Panamax world. Miami "will get some traffic, but not to the degree that everyone expects," said the source, who asked not to be named.

Making connections
Yet developments are afoot that suggest the opposite. Private-sector interests have joined forces to develop Florida's first inland port—a facility designed to link the seaports, via road and rail, with a centralized warehouse and distribution cluster that will serve population centers throughout Florida and the Southeast United States. The 2,300-acre facility, located in southwest St. Lucie County about 90 miles from the Port of Miami and 50 miles from Port Everglades, will cost about $2 billion and take about 15 years to complete.

The first phase will be finished in 2014 to coincide with the expanded canal's opening and the completion of Miami's dredging project.

The inland port "will create an entirely new industrial model for Florida, ultimately providing a connection to direct on-dock rail service at Florida's key seaports, along with easy access to all major highways," said John Carver, who heads the ports, airports, and global infrastructure practice for Chicago-based real estate and logistics services giant Jones Lang LaSalle (JLL), which has been named the exclusive project advisor.

According to JLL data, there are 12 inland ports in operation across the United States. Each port shares several common characteristics, namely proximity to at least 3 million residents living within a 200-mile radius, a direct connection to a seaport via one of the four major Class I railroads, designated status as a Foreign Trade Zone, and access to an abundance of industrial real estate.

Florida is perhaps the most glaring hole in the inland port network, Carver said. "It's the only state in the country with this kind of volume that doesn't have a dedicated facility like this," he said.

Editor's Note: MODEX 2012, coming to Atlanta's Georgia World Congress Center February 6-9, will feature a keynote by Panama Canal Authority CEO Alberto Alemán Zubieta. He will be discussing the expansion of the Panama Canal and its impact on supply chains and global trade. For more information, go to www.modexshow.com.