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February 09, 2012

Upgrading America's Maritime Infrastructure

Last fall, Tony Munoz, editor-in-chief of The Maritime Executive Magazine, decried the fact that President Obama's $447 billion infrastructure plan contained "'ZERO' bucks for maritime." ["For Whom the Bell Tolls," 19 September 2011] Munoz doesn't dispute the fact that other infrastructure areas besides maritime infrastructure are in bad need of repair, he simply can't understand why maritime infrastructure is being so completely ignored. He continues:

"During 2010, China spent about 9% of its GDP on infrastructure and Europe invested 5%. The U.S currently ranks twenty-third in overall infrastructure quality, somewhere between Spain and Chile and spends only 2.4% of GDP on infrastructure. ... The federal government currently spends about $50 billion annually on all forms of transportation. But the U.S. maritime sector gets 'ZERO' bucks annually and is currently not part of the economic recovery plan to rebuild infrastructure and create jobs."

Munoz notes that "America’s maritime heritage is the backbone of the nation's economic greatness." He continues:

"While Americans need jobs, U.S. shipyards and waterways are empty. The only ships congesting U.S. ports are owned by foreigners and manned by foreign mariners. Today, the greatest trading nation with a $14.7 trillion economy doesn't own a deepwater fleet or its own intermodal system. Why? Because there has not been a national maritime policy since the Reagan Administration."

Although I sympathize with Munoz' point, the fact is that there a glut of shipping capacity already afloat and the U.S. is unlikely to ever regain much marketshare in the shipbuilding industry. But it is also true that America remains a trading nation and it is dependent on its ports for most of that trade -- a point that Munoz goes on to make. He writes:

"The U.S. has the 9th largest coastline (86,000 miles) in the world and 25,000 miles of inland navigable waterways. The U.S. has 360 commercial ports employing 13.3 million Americans, which contribute $3.15 trillion to the economy and provides $212.5 billion in federal taxes. U.S. inland waterways handle 63 million tons of cargo and contribute $74 billion to the economy. Yet the federal government has 'NO' maritime policy."

You can tell from Munoz' capitalized words that he is not a happy man -- but he is not alone. Paul Teague, from Procurement Leaders, insists that supply chain and procurement professionals need "to be concerned about logistics risks, including the condition of ports and compliance with the many regulations that come with global trade." ["Pay attention to logistics risks," Procurement Blog, 30 August 2011] Teague, however, is not just concerned about U.S. ports. He's concerned about many of the international ports upon which U.S. supply chains rely as well. He continues:

"There is plenty to be concerned about on both counts. A report last week cited the need for major improvements in India’s ports. They are operating at about 90% capacity. But, like ports in the US and elsewhere, they could soon get busier. Expansion of the Panama Canal to accommodate much larger ships is putting pressure on US ports to ensure that they too can handle the larger ships. In fact, US ports are racing to get the resources they need to dig deeper channels that will handle the huge new ships that will become the norm after the Panama Canal expansion is complete."

While Munoz is unhappy with the folks in DC, Teague seems more sanguine about the efforts of states and private groups are making to improve port and harbor infrastructure; but he decries the fact that the infrastructure has not been being upgraded all along. He continues:

"Already, the country’s leading ports have committed more than $8 billion in terminal improvements over the next five years in recognition of the expected doubling of volume by 2020. Boston alone has spent more than $70 million so far to upgrade its major terminal. The investment in Boston and other US ports is long overdue, in some eyes. US seaports - and highways, rail lines, and airports - are stuck in the last century, according to the report Falling apart and falling behind, by the Building America’s Future Education Fund. Meanwhile, China is investing about $3 trillion in overall infrastructure improvements. Procurement executives and other business leaders should be monitoring infrastructure improvements as a matter of business due diligence."

When most people think about maritime commerce, they picture bulk and container ships plying the high seas. Seldom do they think about America's coastal or inland waterways. However, Mark Yonge, vice chairman of the Marine Highways Cooperative, told the editorial staff at SupplyChainBrain that "in the next several years, he sees more shippers realizing that these waterways are the intermodal transportation alternative for the future." ["The Importance of Marine Highways to Cargo Transportation," 13 October 2011] The article continues:

"Forty to 60 percent of all European cargo moves on so-called 'highways of the sea,' Yonge says, and the leadership of the Cooperative, formed by government and transportation industry members and associations, hopes to see a similar success in the U.S. in the future. Obviously, there are barges on the Mississippi and Great Lakes, and services operate between Washington State and Alaska. But that kind of water-borne cargo movement is destined to grow. Right now, Yonge says, there are a number of companies developing special-purpose vessels designed to ply these marine highways. He's confident that the initiative will be successful if only because the transportation industry will come to see coastal and inland waterways as an intermodal alternative."

You might be wondering why the transportation industry is suddenly going to discover the importance of inland and coastal waterways when they have been largely ignored for so long. The article explains:

"The continuing driver shortage in trucking and ever more congested roadways argue in favor of using marine highways. 'Our national highway infrastructure will never be able to handle the increase,' he says. 'We can't maintain our surface highways as they are today. So marine highways will provide the extra capacity needed in the future. The challenge for us as maritime operators is to create marine highways that can provide equal service or better service to existing surface transportation carriers such as railroads or the trucks. 'It's evolving,' says Yonge. 'It happened in Europe and became a great success, and eventually it will be one alternative for moving cargo here.'"

Before becoming too excited about the future of inland and coastal waterways, a Congressional Research Service report issued a year ago reminds us that "the prevailing perception is that coastal and river navigation is too slow to attract shippers that utilize trucks and that the additional cargo handling costs at ports negate any potential savings from using waterborne transport." ["Can Marine Highways Deliver?" 14 January 2011] The report goes on to state, "There are other significant obstacles as well." The report does conclude, however, "Under highly specific circumstances, marine highways might attract truck freight. Freight corridors characterized by an imbalance in the directional flow of container equipment; shippers with low value, heavy cargoes, and waterside production facilities; and connections with coastal hub ports over medium distances may be suitable for container-on-barge (COB) or coastal shipping services. ... There are questions, therefore, whether marine highways will divert enough trucks to provide public benefits commensurate with their costs."

Even waterways that do host significant traffic, like the Mississippi River, are in need of attention. In 2010, American businesses and farmers pleaded with the Federal Government to add "tens of millions of dollars to the [Army Corps of Engineers'] budget for fiscal 2011 ... to allow the agency to dredge the ports and channels around New Orleans and Baton Rouge, La., to a standard depth and width necessary for cargo ships to pass." ["Crucial Trade Waterway Under Threat," by Cameron McWhirter, Wall Street Journal, 14 December 2010]. The Mississippi River is not the only waterway facing challenges. Locks along other river systems are rapidly deteriorating. ["Old Locks Jam River Traffic," by Jennifer Levitz and Cameron McWhirter, Wall Street Journal, 6 January 2011] Levitz and McWhirter report:

"The Obama administration, promoting water transport as a cheaper and energy-saving alternative to trucks and rail, issued $68.2 million in grants in fiscal 2010 to ports and local governments to buy barges and build infrastructure to move cargo by water. But the Corps, which maintains 12,000 miles of waterways and 241 locks that move one-sixth of the nation's freight, says 54% of those locks are 50 years old or more. And 36% of the locks, which allow boats and barges to pass from one water level to another along a river or a canal, are more than 70 years old. On the busy Ohio River system, 2,500 miles of waterways that begin near Pittsburgh and run to the Mississippi River, river haulers lost nearly 80,000 hours to lock outages in 2009, up from about 55,000 hours in 2005, according to the Corps. Some of the outages were planned, to allow for repairs, but many were unplanned, the Corps said."

Inland waterways are particularly important for the agricultural and energy sectors. "Some 60% of U.S. grain exports and 20% of coal used for electricity generation is moved by barge, according to Waterways Council, an industry group." Even if funds could be found to upgrade inland and coastal waterways and shippers were convinced to use them, some environmentalists wouldn't be happy. Levitz and McWhirter report:

"Some environmental groups are fighting the Obama administration's plan to boost use of waterways to haul freight, arguing that it would further harm already-polluted rivers. 'The environmental impact to the rivers involved has been quite devastating over a long period of time,' said David Conrad, senior water-resources specialist at the National Wildlife Federation. River shippers, however, believe 'the rivers are more pristine than ever before, with the navigation industry adhering to safety and environmental protection standards that exceed those required by federal law or regulation,' said Debra Colbert, spokeswoman for the Waterways Council. 'The fact is that transporting commodity freight via our inland waterways is simply the most environmentally sound way to move cargo,' she added."

Obviously, there is likely to be a lot of debate about the future of America's maritime infrastructure in the days ahead. One argument, however, will remain constant throughout the debate -- the U.S. is a trading nation and it cannot foster a healthy economy without a healthy maritime sector.

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