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What's been bad for West Coast ports has been good for their East Coast counterparts. Earlier this year, after a labor standoff dragged out for months and debilitated delivery of cargo bound for California, shippers began diverting seaborne containers east. (Tweet This)
Even as West Coast port activity has normalized, some of the new trade routes have stuck. In the first half of 2015, West Coast market share slipped to 50 percent of overall U.S. import volume, versus a 55 percent stake during the same period in 2014, according to the Piers waterborne trade database owned by IHS. East Coast market share jumped to 43 percent, 3 percentage points higher than the prior year's first six months.
But as peak shipping season gets underway, the multibillion dollar question everyone in this industry is asking: Can the Eastern hubs hang onto the business?
Piers data indicate that seven of the 10 fastest-growing ports in the U.S. are located on the East Coast. The fast-growing port, Savannah, clocked a 33 percent jump to 805,571 TEUs (the amount of cargo that fits into a 20-foot-long container), the largest-volume increase of any major container port in the first six months of this year.
Zepol, another import and export trade data firm, reports similar findings: double-digit percent volume increases at all of the major East Coast ports from January through mid-July, versus a year earlier. Based on Zepol's calculations, Savannah is up 31 percent; Miami up 21 percent; Charleston, South Carolina, up 15 percent; Norfolk-Newport News, Virginia, up 10 percent; and the New York-New Jersey complex up 12 percent.
Gulf Coast ports also garnered notably more business, with Houston's container volumes jumping 23 percent.
"There has been a shift, and some of that volume is going to stick because Houston and the Southeast ports were able to handle it," said Larry Gross, president of Gross Transportation Consulting and a senior consultant for FTR Transportation Intelligence.
Gross pointed out that while West Coast congestion boosted business for other regions dramatically, the shift east represents an acceleration of a trend that's been gradually taking root for years. In 2002, a devastating lockout at the West Coast ports served as a wake-up call to shippers importing from Asia. "What freight forwarders realized is they could no longer rely on a single port of entry and began to go to a four- or five-corner strategy," Gross said.
That four-corner strategy consists of multiple trade routes around the United States, with points of entry in the Northwest, the Southwest, the Southeast and the Northeast that serve as hedges against unforeseen circumstances or uncontrollable issues—like a labor lockout—in one region.
Following that standoff from a decade ago, East Coast ports did hang onto a small fraction of the market share they temporarily gained as importers diverted cargo. The same dynamic is playing out again now.
"We think that a certain percentage of that cargo will stay in New York and New Jersey, and stay in the East Coast," says Richard Larrabee, director of port commerce for the Port Authority of New York and New Jersey. "We are in constant touch with the shippers throughout the U.S. and in parts of the world, and there's no question that the issue of reliability has come into their equation."
Dollar Tree is expected to send more cargo through Charleston, as the discount retailer builds a $100 million-plus regional distribution center in Cherokee County, South Carolina. Earlier this summer, sports apparel retailer Under Armour, headquartered in Baltimore, began sending shipments from Shanghai through Baltimore's port for the first time in eight years.
Shipping lines including Maersk and CMA CGM have been expanding operations along the East Coast corridor, a long-term bet that more business is here to stay.
That "reliability" that Larrabee refers to is key, since it takes an additional week or longer to ship a container from Asia to an eastern port such as New York-New Jersey compared with Long Beach or Los Angeles—and at double the cost or higher, depending on a variety of factors.
Ensuring reliability is also the driving force behind new labor negotiations. Managers of East and Gulf Coast ports, through the United States Maritime Alliance, recently opened discussions with the International Longshoremen's Association—more than three years before the current contract expires.
The big focus now is the expansion of two major canals: the Suez Canal, which officially came online this week, and the Panama Canal, which is expected to open to larger ships early next year.
Increased capacity through both of those waterways is expected to help drive down shipping costs for goods headed to the eastern United States.
But the ports have to be able to handle the supersize vessels that will be coming. Ports along the eastern corridor have poured billions of dollars into expansion projects, dredging harbors and making terminals bigger. In the New York metro area, it also meant lifting the roadway on the Bayonne Bridge—a $1.5 billion undertaking.
Some ports are better prepared for rising volumes than others. Virginia's port in Norfolk is deep enough to handle the larger ships, but Savannah and Charleston are not. Officials will begin dredging the Savannah River next month. In Charleston, $2 billion is expected to be spent over the next decade to construct a container terminal, expand road and rail access, and dredge the channel.
The risk is that bigger ships may come but not as many, meaning less volume growth.
"If my thesis is right that we're just accommodating bigger ships and we may or may not get more cargo, then we're sort of taking a bet on the future," says Larrabee. "We think long term—where's the port going to be in 20 to 30 years—and so digging a deeper channel, raising a bridge, building more rail infrastructure, building more roads is really a 'if we build it, they will come' philosophy."
Still, some industry experts think the Panama Canal expansion could provide a major boost to the East Coast. C.H. Robinson and Boston Consulting Group recently released a report forecasting that up to 10 percent of container traffic to the United States from East Asia could shift from to Eastern U.S. ports from the West by 2020.
"Companies accustomed to shipping to the West Coast and relying on relatively fast rail service to cover most of the country will need to take a much more segmented and dynamic approach," Sri Laxmana, ocean services director at C.H. Robinson, said in the report. "When time is of the essence, that routing may continue to make sense. But for other products, the savings of shipping through the Panama Canal will likely outweigh the extra time in transit."
The growth at major East Coast hubs is not without steep challenges. More traffic equals more congestion, especially at ports where real estate is limited.
"The biggest challenge that my industry has, this port has, is congestion," Larrabee said.
At the New York-New Jersey complex, that's been especially true for truckers, who can sometimes wait hours in queues outside terminals just to make a single pickup. It's a serious issue for an industry whose drivers are paid based on the number of deliveries (rather than time), and which is already suffering from steep driver shortages.
"Most of the truckers have implemented peer congestion surcharges to their customers," said Tom Adamski, prIncipal of first coast logistics and NJ Motor Truck Association's intermodal chairman. "Unless we really do something dramatic, congestion will prevail. It's discouraging to try and get more trucks to work, but you can't lure more trucks to go into a congested area."
One of the toughest hurdles is getting containers off the docks. As with the ports of Los Angeles and Long Beach, a big issue already playing out for East Coast ports is a lack of available chassis to move them.
Chassis operators insist a chassis shortage isn't to blame; rather, chassis are scattered around the port, not in the positions required for the next pickup. There also aren't enough mechanics, they say, to make the necessary repairs when needed.
Officials and operators have proposed implementing a chassis pool, in which operators share equipment.
"We have to collaborate more and have a more united system," said Keith Lovetro, chief executive of Trac Intermodal, one of the largest chassis providers in the country. "We have to coordinate with the terminal operators, with the chassis providers, with the unions in terms of gate operations so it's becoming more integrated, and that takes a little time and that takes more communication."
—CNBC's Sabrina Korber contributed to this report.