Good morning. What a pleasure to join HAR again at this annual event to update you on activities at the Port of Houston.
I have had the great pleasure of serving as chairman of the Port Authority for the past 11 years. It has been a remarkable time for our port, a time filled with great change, growth and opportunity. It has certainly been the highlight of my life to have been a part of it.
I am happy to report that business at the port remains strong in many areas. Steel has been an especially strong performer for us this year. Year to date in September, we handled 62 percent more tons of steel than just one year ago. I expect we will continue to have an outstanding year at the port. Overall general cargo tonnage is up 13 percent over 2010 ’ s numbers.
Containerized cargo was up four percent in September as compared with a year ago. This is a sign that retailers are becoming more optimistic about consumers. Nationally, however, containerized cargo figures are flat despite reported retailer confidence. Holiday orders typically pass through ports in August and September so that they arrive on store shelves no later than late October. Long Beach, the second-busiest container port by volume in the US, reported August 2011 imports to be 14 percent lower than 2010 volumes. September volumes are expected to be 15 percent lower than in 2010 at Long Beach. The remaining top five container ports - New York/New Jersey, Savannah, Los Angeles, and Oakland are all reporting flat or falling container numbers. This seems to indicate an overly cautious attitude towards inventory in many parts of the country. I am glad to see Houston ’ s numbers are not following these national trends. Ship and barge traffic are each also up by six and 15 percent respectively so I remain optimistic that the port will continue to contribute positively and generate the kind of economic activity our area depends on. Other elements in the marketplace point to long-term business optimism. The experts that track commercial real estate trends have noticed that industrial real estate surrounding our nation ’ s ports are leading in the recovery of industrial real estate overall. According to the annual Port, Airport and Global Infrastructure report by Jones Lang LaSalle, overall vacancy rates for seaports have dropped from last year by 1.4 percent to 8.5 percent, outperforming the 9.7 percent vacancy rates held by the general industrial real estate sector. The report calls it a “ coast inward ” recovery and examines the nation ’ s top 12 ports. The ports are rated according to cargo performance, infrastructure investment plans, and real estate fundamentals such as value-to-lease rate ratio and local vacancy rates. Houston scored 89.5, up from 84.8 last year. Ports across the country envy the kind of resilience Houston displays. During 2008, 2009 and even 2010, many ports lost 20 to 25 percent of their container volume. Houston did not. Business remained flat with some small growth as time went on. So when business began returning, Houston was in a far better position than ports that had to replace their losses before beginning to grow again.
The fact that Houston exports even more than it imports remains our ace in the hole. The ratio of exports to imports is 65 to 35 percent at the Port of Houston. Our leading export is plastic resins, which leaves the port in containers. Plastic resins represent 41 percent of our overall containerized export tonnage. Plastic resins are a product of the petroleum refining process, and Houston exports more than 25 percent of all U.S. resin export volume. Who are the port ’ s best customers for plastic resins? The largest importers of plastic resins are China, Brazil, South Korea and Japan. The plastic resins are used to manufacture every manner of industrial and consumer product from toys to telephones and computers. Plastic resins are a longstanding leading product that moves through the port. But just when you think there is nothing new under the sun, something you ’ ve never seen before starts moving through the port. A few years ago, it was wind turbines and blades arriving in massive quantities to provide alternative sources for electricity. This year it has been proppants. Trust me – I had no idea what a proppant was until one ton bags of them started arriving from China. These granules are essential to an energy exploration process in shale known as hydrofracturing or fracking. The proppants are used to prop open fissures so that energy can be extracted. We first started seeing this product in October of last year. Before that, not one proppant had crossed our docks. Then suddenly the last quarter of 2010 posted 19,000 tons of proppants every month. This year, we may end the year with 224,000 tons of proppants, up from zero before October 2010.
The port is definitely the proverbial economic canary in the coal mine. Our docks are the first to see changes in the marketplace. Our recent gains in the containerized cargo business are a prime example. The Port Commissioners at the time stuck their necks out and, without a customer in sight, decided to build the Barbours Cut Container Terminal in the 1970s. It was a risky undertaking despite the fact that the Port of Houston was where the very first container ship unloaded its very first load in 1956. Today almost everything is shipped in containers except for extremely large and bulky items such as steel, wind turbine blades, and the like. But in the 1970s, containerized cargo was in its infancy. Nonetheless, led by Fentress Bracewell, the Port Commission took a chance on this growing business niche. Barbours Cut established Houston as the premier container port in the U.S. Gulf. By the late 1990s, we ’ d captured 70 percent of the Gulf market and our docks were overflowing with containers. We then began the very long and difficult process of securing a construction permit from the U.S. Army Corps of Engineers to build the Bayport Container Terminal. Just based on projected population growth for Houston, we knew we needed more container handling capacity. Bayport was designed to be build out in phases over a 15- to 20-year period based on customer demand. We broke ground in 2004 and started receiving ships in 2007. During this process, business changed very dramatically. It changed in a way that we could not have predicted much less have imagined.
Before 2002, there was no direct shipping service from Asia to Houston via the Panama Canal. 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 never entered the Gulf of Mexico, but simply would have sailed on and off-loaded on the East Coast.
This market opened up for Houston because labor unrest and capacity issues at West Coast ports caused shippers to rethink and diversify routes. Houston stood out as an excellent alternative due to our stable relations with labor and overall business friendly environment. Houston also stood out due to an old real estate adage: Location, location, location. Houston offers excellent transportation connections via road and rail to the consumer rich Midwestern markets throughout Texas all the way to Chicago. Major retailers starting with Wal-Mart came into the Houston market, built gigantic distribution facilities either near the port, or as far away as Katy in the case of Rooms-To-Go, and began receiving regular shipments. These distribution facilities easily stocked stores throughout Houston, Texas, and beyond because our transportation infrastructure is good, and the port is constantly working with TxDOT to ensure that highway growth matches demand.
Very quickly, the East Asia trade became the fastest-growing market for the Port Authority. Imports from Asia via the Panama Canal increased 54 percent from 2005 to 2008 while total tonnage increased 30 percent during the same period. The value of trade with Asia has grown nearly 53 percent from $10.8 billion to $16.5 billion.
Currently, a $5.25 billion project is enlarging the Panama Canal so that it can handle much larger ships, especially container vessels that can carry more than twice as many containers per ship. The project should be complete in 2014, the year that both the Panama Canal and the Houston Ship Channel will celebrate their golden anniversaries. Without question, the expansion of the Panama Canal is the single most important development in international shipping in the 21st century. For Houston and Texas, an enlarged canal stimulates economic development in a number of important ways. Due to careful planning and certain advantages the Port of Houston has over other ports, I believe we are well positioned to take advantage of the economic bounty a larger Panama Canal can bring.
The anticipated increase in containerized cargo going to Houston via the Panama Canal could be 15 percent in the next few years, with a projected 150 percent increase to a total of 4.5 million TEUs (twenty-foot equivalent units) by 2030. Some experts project the increase in containerized cargo trade via the Panama Canal could be as much as 35 percent for Houston. No matter how large the increase is, we plan on being the first port of call once those ships enter the Gulf of Mexico. Preparing for this exceptional business opportunity is our foremost task. The timetable for the development and completion of Bayport has been accelerated. In addition, staff recently presented the Port Commission a strategic plan for redeveloping the Barbours Cut Container Terminal so that it can handle the larger ships. We ’ re evaluating all of our wharves and making significant improvements. Last year, we invested $158 million in projects designed to improve efficiencies and infrastructure. Staff has identified potential Port Authority infrastructure and capital improvements needs totaling $3 billion over the next 15 years.
One of our most critical needs is dredging. Since 2005, the Houston Ship Channel has lost an average of eight percent of usable channel depth and/or width per year. Despite the best efforts of our congressional delegation, federal appropriations to maintain the channel have been insufficient. Appropriations have also been inequitable, with average annual funding only one-fifth of comparable East and Gulf coast ports. How can we expect to handle larger ships if the ship channel cannot be maintained at its authorized depth? We realize that despite generating large revenues for the government through taxes and customs duties, we can no longer expect a return from our efforts. Instead we are examining how we can finance dredging ourselves. We cannot afford to lose the potential trade via the Panama Canal so we will do what it takes to make sure we bring this business to the port.
As I mentioned before, it is an extraordinary time for the Port of Houston. As our 100th anniversary draws near in 2014, the port is poised to begin its second century as the most modern and efficient port in the Gulf. We recognize the importance of investing in our future, because it is also the future and economic health of our communities and Texas.
Thank you for your interest in the Port of Houston, and I ’ ll be happy to answer any questions you have.
H-Town Day: James T. Edmonds
HAR H-Town Day James T. Edmonds October 20, 2011