Panic-laced talk of capacity shortages at North America’s West Coast ports has gone silent. Hardly a surprise, given that world trade flows are expected to drop 12% this year. Suddenly, ports the world over have spare capacity, suggesting lower, or slower, near-term investment in port infrastructure. A logical initial response, but one that could resurrect problems when the world economy rebounds.
Today’s events make the fall of 2004 a distant memory. The global economy took off, with economic expansion hitting a searing 4.9%. By late summer, West Coast ports were so clogged that delivery of holiday season goods was doubtful. Catastrophe was averted – container capacity grew at a double-digit pace –but the surge only lasted for a year. At the same time, Asian port capacity swelled almost three times as fast. It looked like we were staring down a repeat of 2004, until the recession set in.
Expansion of West Coast ports has proven challenging. Increasing capacity has required additional extensive investments in road and rail systems. Most established Western ports face considerable congestion issues, and few easy solutions. Moreover, constituents are rarely in favour of vastly expanded traffic through their cities. In addition, emissions from the diesel motors of large ships have resulted in threats of moratorium on expansion of the critical Los Angeles-Long Beach port system.
Vancouver has responded. With capacity of less than 2 million twenty-foot equivalent containers (TEU) in 2004, the port boasted 3.6 million in 2008. Plans for the future are impressive, but fall short of requirements. Net of Japan and China, Asian ports plan on adding 10.3 million TEUs through 2012. At the same time, China has plans for 15.3 million additional TEUs. Key developed markets are planning to add 19 million TEUs, impressive, but well shy of planned emerging market additions. For their part, West Coast port additions appear light, at just 3.8 million new TEU in the 2009-12 period.
Thus far, a troubling situation. But the expansion conundrum has given rise to the port of the future. Ports have traditionally developed around large market centres, where there is immediate demand for off-loaded goods. From there, additional goods can be transported inland to other markets. But given congestion issues, and today’s critical need for reliable, just-in-time delivery of goods, the uncongested port is looking like a much more attractive alternative. Few unexploited deep-water ports exist on the Western seaboard, but a few key projects have been given serious recent consideration.
Perhaps the most likely is the Port of Prince Rupert, in northern BC. The port is a natural deep-water facility that chops three days off travel time from China to LA. This ice-free port has direct rail access that can take goods to the US Midwest more reliably and in less time than from the big US ports, because its small population of 13,000 presents no barrier to the movement of goods. In addition to impressive bulk facilities, the port added 500,000 TEU of container capacity in 2007, and has longer-term plans for an additional 2 million TEU, and could potentially add more in the future. While not a full solution, Prince Rupert has the potential to add significantly to badly-needed capacity.
The bottom line? International trade is likely to surge when the world economy recovers, and will again test the world’s trade infrastructure. Key ports will again be put to the test. Those that invest during the current window of opportunity are likely to see their business surge in the medium term.