Good morning and thank you for this opportunity to brief you on the progress at the Port of Houston Authority. For the past ten years I have had the privilege of serving as chairman of the Port of Houston Authority which owns, manages and leases the public facilities at the Port of Houston. I was recently reappointed by Harris County Commissioners Court and Houston City Council for a sixth term and I genuinely appreciate the opportunity to continue working to ensure that the port remains the economic powerhouse that it has been for nearly 100 years.
As the nation’s first port in terms of foreign waterborne tonnage, the Port of Houston receives at least 7,700 ship calls and 150,000 barges on average each year. These vessels transport more than 220 million tons of cargo through the port each year. More than 150 public and private terminals operate along the Houston Ship Channel, which is home to the world’s second largest petrochemical complex. Among the largest ports in the world, the Port of Houston has been ranked first in the U.S. in foreign waterborne tonnage for 13 consecutive years and second in total tonnage for 18 consecutive years. It is the seventh-largest U.S. container port, handling nearly 1.8 million TEUs or twenty-foot equivalent units, a measurement for containers, annually.
An enormous portion of the Texas economy relies on the port. The most recent economic study shows that more than 785,000 jobs throughout Texas are in some way related to ship channel-related activity. The overall economic impact of the port is nearly $118 billion. This economic activity generates $3.7 billion in state and local taxes. While economic growth remains tepid at the national level, the Port Authority has had a good year. In August, we saw an increase in one of our leading cargo indicators as container volume rose, and there was consistent improvement in lagging commodities, most particularly steel. Steel continues to improve, with August posting the highest month for steel since March 2009. September’s numbers also give us many reasons to remain optimistic. We expect overall growth in container tonnage for 2010 continue through the end of the year. Compared to the first nine months of 2009, this year has seen a nine percent increase in total container tonnage, and total operating revenues are up 8 percent, primarily due to increased containerized cargo activity. Total operating expenses are up 6 percent over the same period in 2009. Also, net operating income is up 42 percent and net income is up 172 percent over the first nine months of 2009. Total tonnage has been up six out of the first nine months of this year, and more importantly, up consecutively May through September which is a very positive trend. In other words, business is coming back from the slowdown we saw in 2009 due to the national recession.
There are several factors that contribute to Houston’s strength in the marketplace, including a diverse cargo portfolio and extraordinary infrastructure and capacity. Unlike most ports, Houston exports more than it imports. That helps keep the port strong and less vulnerable to the kinds of economic disruptions that a weak economic climate can create. Many businesses along the Houston Ship Channel take raw materials and create finished materials that are either transported somewhere in the U.S. or exported through the port. For example, high-quality steel from Japan and France is transformed into drilling pipe that is used for energy exploration all over the world. Throughout the port’s history, the port authority has been a leader in meeting the unique requirements of breakbulk cargo. As the largest breakbulk and project cargo port in the U.S., we offer customers a convenient and efficient intermodal gateway to local and global markets. Nearly 65 percent of all major project cargo for this country moves through Houston in some form or fashion. On any given day, you can watch parts of refineries, wind turbines, railroad locomotives, and other gigantic pieces of machinery and equipment being moved at the port. We remain the leading experts in handling pieces of cargo as large as a two-story home. In a world where much has been miniaturized, there is nothing miniature about the big jobs done every day at the port.
From humble beginnings in 1914, Houston’s port has been a powerful engine propelling the area’s growth. Whenever the Port of Houston has grown and expanded its capacity for handling cargo, the city and surrounding region have grown and prospered as well. Continuous improvement is a key to our sustained success. We have been focusing on improving the facilities we have so that as demand grows, we have the capacity to handle it. During 2009, the Port of Houston Authority had some $200 million in capital improvement projects to enhance our facilities, and an additional $191 million in capital improvements scheduled for this year. In the near-term, we have about $625 million in capital improvement projects planned for 2011 and 2012. We believe it is important to be ready for the return of business and new business opportunities. Our Bayport terminal will continue to be built out in phases to meet market demand. The Port Authority just completed a project to increase berth space to 3,300 feet with nine wharf cranes and we are now designing the next wharf and container yard for Bayport. We will award those construction contracts in 2012, so the newest facilities are available for increased traffic when the Panama Canal improvements are completed in 2014. The Corps of Engineers has extended the construction permit for Bayport to December 2020. At buildout, Bayport is expected to generate more than 29,200 permanent jobs.
Bayport is critical to our continued ability to capture and expand our market share in containerized cargo, especially the rapidly growing trade with Asia.Before 2002, there was no direct shipping service from Asia to Houston. Houston developed this market segment and defined the Asian import Gulf Coast trade. Had we not gone after that cargo, container vessels transiting the Panama Canal would have off-loaded in Savannah and never entered the Gulf of Mexico. In recent years, containerized imports from Asia have grown from 8 to 32 percent of our containerized cargo volume. National retailers have discovered Houston’s many advantages in recent years. For many years, containerized goods from Asia arrived at West Coast ports, where they were distributed eastward across the U.S. primarily by rail to reach Houston and Texas’ large consumer markets. Issues with labor on the West Coast stimulated shippers to seek new routes. Labor relations at the Port of Houston are among the strongest in the entire maritime industry, in distinct contrast to other U.S. ports that have experienced worker strikes and lock-outs in recent years. Here, organized labor and management work largely in a spirit of cooperation. Representatives of both management and labor cite mutual respect and understanding as key factors. That presents a very attractive environment for shippers.
Instead of shipping 70 percent of its cargo by rail from the West Coast to markets in the central part of the country, shippers discovered how easily they can distribute goods from Houston to inland markets by both truck and rail. They have also discovered how reliable this south to north distribution system is versus moving goods from west to east. As a result, retailers have built gigantic new distribution facilities here and are able to stock their stores as far as Chicago from Houston. Any of you who have driven west of Katy on I-10 have seen the new distribution center built by Rooms to Go. This facility, with 1.25 million square feet to 1.5 million square feet, is the third-largest contiguous distribution center in the Houston area. Only Wal-Mart Stores' two facilities of 2 million square-feet apiece in Baytown have more contiguous space. We continue to pursue these new lines of business and anticipate continued growth especially once the $5.25 billion expansion of the Panama Canal to double the capacity of the 50-mile-long canal is completed in 2014.
East Asia trade is the fastest-growing market for the Port Authority. Imports from Asia traversing the Panama Canal have increased 54 percent from 2005 to 2008 while total tonnage has increased 30 percent during the same period. The West Coast of South America, another key trade route utilizing the Panama Canal, showed 20 percent total trade growth with Houston during this same period. Trade with Asia has been the Port Authority’s fastest growing market segment for the last 10 years and accounts for 16 percent of our overall trade. The Port Commission recently approved a two-year, $340,000 professional services contract for Ben Line Agencies Limited Singapore to promote Asian trade with Houston. The Port of Houston is the most modern, efficient and fastest growing container port on the US Gulf Coast. It is also the only port in the region presently capable of handling an influx of one million additional containers. Ultimately, the Panama Canal expansion will result in volumes many times more than this level of influx. Shipping lines are increasing their calls to Houston, trucking companies and rail lines are increasing their ability to serve the needs of the port, and its markets and additional warehouse and distribution center space are under construction to accommodate the increased cargo.
The anticipated increase in cargo resulting from the expansion of the Panama Canal will likely be containerized cargo. The continued growth of the Bayport Container Terminal should parallel the growth of containerized cargo via the Panama Canal. The Port of Houston handles about 70 percent of the containerized cargo in the U.S. Gulf, and about 96 percent of the waterborne containers moving through Texas ports. A total of 1.8 million TEUs or twenty-foot equivalent units, which are used to measure container capacity, currently move through the port annually with a projected 150 percent growth to 4.5 million by the year 2030. That growth will be fueled by a population explosion in Houston, which is projected to more than double sometime between 2030 and 2040, and the expected completion of the Panama Canal expansion in 2014. In just the next few years alone, the amount of container traffic handled by the port through the canal could grow from approximately 20 percent of current volumes to more than 35 percent. All this expanded trade also comes at a time when the transportation industry is looking for increasing efficiencies. How does that benefit Houston?
Paramount in customers’ minds is access to multimodal logistics hubs when selecting industrial sites. Easy access to major traffic arteries in and out of Houston is essential to our customers. We work closely with affected communities and the Texas Department of Transportation to make sure that roadway improvements keep pace with the constant increase in cargo moving through our port. We look for any opportunity to keep cargo moving. Projects such as direct connectors to freeways to avoid delays at traffic intersections, long-term plans for handling roadway and train intersections, and plans for creating railway corridors are of particular interest to us. Making our freight rail system work better will help the port continue to grow, especially if fuel costs continue to escalate. In 2005, the port authority took the lead by working to promote state legislation to allow the creation of a freight rail management district. This entity has the ability to seek out and accept federal funding to implement a freight rail plan. It will take a tremendous federal investment to create the kind of freight rail corridors Houston needs to improve the movement of cargo by rail. It is a long-term project we are supporting and hope to one day see come to fruition. At present, 75 percent of cargo moves by truck, but fuel prices and traffic congestion will continue to push more cargo onto rail. Houston is well connected by rail to the rest of the country, especially northward. It is essential that we unravel our local maze of rail lines that once passed through farm fields that now are neighborhoods and heavily trafficked areas. Besides, look at who is investing in rail. Warren Buffett, one of America’s wealthiest individuals, has made significant investments in Burlington Northern Santa Fe, Union Pacific and Norfolk Southern Corporation. He clearly sees that rail will become increasingly important. Rising oil prices and their impact on transportation costs will continue to drive retailers to seek regionalized distribution networks closer to their stores or end customers. Luckily, the Houston region remains economical in terms of real estate and development costs so that million-square-foot distribution centers are not budget-busting propositions for businesses looking at Houston.
I mentioned before that throughout history whenever the port has grown, Houston has grown. Being able to maintain our ability to grow is essential to the continued success of our region. One of our many advantages over other ports is the sheer size of the port, extending 25 miles along the 52-mile-long Houston Ship Channel. This has long provided us the room to grow and develop a variety of different cargo-handling facilities. It has also allowed private industry to flourish. We have begun the process of studying where best to develop new facilities. We call this process “Terminal Next,” and you’ll be hearing more about it as we continue to study the marketplace and opportunities. We own little over 1,100 acres on Pelican Island in Galveston, but no decisions have been made as yet about if and when we plan to build on that property. We continue to discuss possibilities with the Port of Galveston, and we also continue to look at other sites to determine what is best for the Port of Houston.
We have only one obstacle that routinely stands in our way. Beyond the damage from storms, the Houston Ship Channel experiences constant silting from the Texas rivers that feed into it as well as the bayous that carry stormwater to the channel. Silting alters the existing depth and width of the channel by raising the bed, causing situations where ships cannot transit the channel. In addition, the channel crosses Galveston Bay, which is a large, shallow body of water with an average depth of only nine feet. The Houston Ship Channel is carved into these shallow waterways at a depth of 45 feet and a width of 530 feet for 52 miles from Houston to the Gulf of Mexico. It is a gigantic asset that requires constant maintenance. Each year, the Corps of Engineers submits a budget to Congress that includes Houston’s needs as well as the needs of waterways throughout the U.S. The Corps never gets all that it asks for, and the gap between what it asks for and what it receives grows wider every year. For example, for Fiscal Year 2011, the total request for the Houston Ship Channel as identified by the Corps is about $41.6 million. The President’s budget has allocated $23.8 million, the House Appropriations Committee markup is $25.8 million and the Senate Appropriations Committee markup is $29.0 million. The port generates more than $100 million a year in Harbor Maintenance Tax that goes to Washington, but obviously not all of it returns. All of the nation’s busiest ports face the same problem, and we have all been fighting for years for legislation to ensure that harbor maintenance dollars are used for just that and not pork barrel projects like bridges to nowhere. It is a battle we hope to win one day. Failing to maintain our nation’s important economic assets is just plain foolish.
I want to thank you again for this opportunity to speak to you today. Can I answer any questions?
2010 HAR H-Town Day- Olga Rodriguez
Port Update Olga L. Rodriguez
Port of Houston <ul><li>*7,700 ship calls a year </li></ul><ul><li>*150,000 barges </li></ul><ul><li>*225 million tons of cargo </li></ul><ul><li>*150 public & private terminals </li></ul><ul><li>*World’s 2nd largest petrochemical complex </li></ul><ul><li>*1 st in foreign tonnage for 13 years </li></ul><ul><li>*2 nd in total tonnage for 18 years </li></ul><ul><li>*7 th largest U.S. container port </li></ul>
Economic Power <ul><li>*785,000 jobs, $118 billion economic impact </li></ul><ul><li>*$3.7 billion in state and local taxes </li></ul><ul><li>*Container tonnage up 9 percent </li></ul><ul><li>*Operating revenues up 8 percent </li></ul><ul><li>*Operating expenses up 6 percent </li></ul><ul><li>*Net operating income up 42 percent </li></ul><ul><li>*Net income up 172 percent </li></ul>
Market Strength <ul><li>*Exports exceed imports </li></ul><ul><li>*Largest U.S. breakbulk and project cargo port </li></ul><ul><li>*65 percent of all major project cargo comes </li></ul><ul><li>through Houston </li></ul>
Continuous Improvement <ul><li>*$200 million in capital improvement projects </li></ul><ul><li>under way in 2009 </li></ul><ul><li>*$191 million in capital improvements </li></ul><ul><li>scheduled for this year </li></ul><ul><li>*$625 million in capital improvement projects </li></ul><ul><li>planned for 2010 and 2011 </li></ul><ul><li>*Bayport construction through 2020 </li></ul>
Asian Trade <ul><li>*Asian containerized imports have grown from </li></ul><ul><li>8 to 32 percent of containerized cargo volume </li></ul><ul><li>*Fastest growing cargo for 10 years </li></ul><ul><li>*Up 54 percent from 2005 to 2008 </li></ul><ul><li>*16 percent of Port Authority trade </li></ul><ul><li>*Trade with west coast of South America up </li></ul><ul><li>30 percent </li></ul><ul><li>*Panama Canal expansion complete in 2014 </li></ul>
Panama Canal <ul><li>*Increased cargo will be containerized </li></ul><ul><li>*Port handles 70 percent of containers in </li></ul><ul><li>US Gulf </li></ul><ul><li>*96 percent of containers in Texas ports </li></ul><ul><li>*1.8 million TEUs now </li></ul><ul><li>*4.5 million TEUs by 2030, 150 percent growth </li></ul><ul><li>*Houston population doubles 2030-2040 </li></ul>
Customers Need <ul><li>*Access to multimodal logistics hubs </li></ul><ul><li>*Easy access to major traffic arteries </li></ul><ul><li>*75 percent of cargo moves by truck </li></ul><ul><li>*Increasing traffic congestion, rising fuel prices </li></ul><ul><li>will push more cargo onto rail </li></ul><ul><li>*Freight rail corridors </li></ul>
Growth <ul><li>*Port grows, Houston grows </li></ul><ul><li>*Room to grow </li></ul><ul><li>*Terminal Next </li></ul><ul><li>*Pelican Island one of many potential sites </li></ul>
Ship Channel Maintenance <ul><li>*Constant maintenance dredging needed </li></ul><ul><li>*FY 2011 $41.6 million needed </li></ul><ul><li>*President’s budget $23.8 million, </li></ul><ul><li>House Appropriations $25.8 million, </li></ul><ul><li>Senate Appropriations $29.0 million </li></ul><ul><li>*$100 million generated annual for harbor </li></ul><ul><li>maintenance </li></ul><ul><li>*Not all funds return to Houston </li></ul>