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Saturday, September 21, 2019

Maritime Logistics Professional

Discount the Impact of Vulture Projects

Posted to Martin Rushmere (by on November 16, 2009

Build it and the traffic will come - eventually?

Port bosses on the West Coast have been awarded high grades for their foresight, confidence – and courage -- in building new facilities during the slump. Against this, a warning of probable failure has been issued for "vulture projects."
That expressive term comes from economist Dan Smith, a principal with international consultants The Tioga Group, who applies it to projects such as Punto Colonet in Baja California. "These are based on the expectation of profiting from another port's misfortunes – such as Los Angeles and Long Beach getting too congested – rather than a solid financial and economic case being made for the project's own prospects", he tells me, "and they are high risk. On the other hand, a port such as Redwood City (a break bulk port in the San Francisco Bay) is making a sound decision with the start of its new gypsum terminal. They are banking on the traffic coming back and they are correct. This is the right time to do it."
Dan Smith commends Southern California for refusing to be deterred by the continuing slumps in traffic and going ahead with the TraPac terminal and others. He chides the "gloom and doom" merchants for prophesying a huge loss of business to the East Coast and says they will always supplement California. (I stand unconvinced and will not be surprised if there is a steady swing away from the West Coast.)
He makes a pertinent observation that much of the hoo-hah over changes in volumes through the West Coast and Canada in the last 10 years is due to "transloading" – multiple moves of cargo from ships to different modes of transportation – which has inflated the percentage of volumes going to and being won back from the East Coast. In a presentation to the Association of Pacific Ports this month, he quantified it, saying that the average for the West Coast (including Canada for overall statistical accuracy) is actually 48 to 50 percent, rather than lows of 47 percent and highs of 53 percent.
Hair splitting you say? Divide 3 percent into 6 million containers and see what you get.
And, Dan Smith notes that in 2007 the West Coast was expecting 84 percent of its growth to come from China at a 6 percent compound annual growth rate. Today it's 70 percent and a 5 percent CAGR.
His message to the West Coast is "Don't panic" but ocean carriers and  shippers are still looking for fast transit times, low stevedoring costs, fast turnaround times – all the usual blessings. That means ports will have to innovate, reduce costs and extend the life of existing terminal infrastructure. All, of course, mixed with impeccable "green" credentials.
For my money, Canada will gain more than we expect, at the West Coast's expense.
 

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