Posted: June 18, 2010

By Philip Newswanger

philip.newswanger@insidebiz.com

After a dramatic and devastating two years, port officials have decided to accept that the double-digit growth of the past 20 years is no longer a reality.

Instead, they have accepted that less than 10 percent growth is acceptable, though even at that rate, port officials said they believe Virginia will become the number-one port on the East Coast.

The downturn in cargoes over the past two years marked a turning point for the port, sanctified by a string of successes that were unprecedented.

So port officials have accepted that the halcyon days are over. Replacing them is a new normal - that of 5 percent growth or less.

The history of Virginia's rise was etched in the faces of those who attended a seminar last week on port growth, sponsored by Cox and Inside Business and moderated by local public radio personality Cathy Lewis. About 200 people attended the breakfast discussion at the Founders Inn in Virginia Beach.

They remembered when internecine wars between the facilities, each operated by a separate company, drove away business.

They remember seeing ships bypass Virginia for Baltimore, even though the Chesapeake Bay port was 12 hours away from the ocean.

The Virginia Port Authority's deputy executive director, Jeff Keever, put the past few decades in perspective.

"We were a small little port competing with ourselves," Keever said. Among all U.S. ports, big and small, the port ranked 30th for the amount of cargo that flowed over its docks.

Since then, Virginia has ascended to among the top 10 ports in the U.S. with a ranking of six due to the leadership of port officials, Keever said.

The port's assets are legend and have been repeated and embellished through the years: a deep and unobstructed channel served by two major railroads, Norfolk Southern and CSX, and a rich economic development environment that has produced a slew of distribution centers, both here and at Front Royal, where the port authority's inland port is located.

And there's the future.

The widening of the Panama Canal will permit even bigger container ships to swing over to East Coast ports, bypassing West Coast ports.

More so, port officials are looking ahead to a fourth marine terminal, Craney Island, though when construction will begin on the $2 billion project isn't known.

Meanwhile, the port authority has cemented a deal with APM Terminals to lease its $500 million facility in Portsmouth, a deal that might quash three bids to lease and manage the port's state-controlled operations.

"I know of no other ports on the East Coast that can grow," Keever said.

Northern ports, such as Baltimore and New York, are constrained by available land.

Ports to the south, such as Charleston, have encountered environmental obstacles.

North Carolina has encountered opposition from local neighborhoods for its super-port at the mouth of the Cape Fear River.

World trade contracted from 2008 to 2009, the result of the financial meltdown in the U.S.

U.S. ports saw their business decline from 10 to 20 percent. Virginia was no exception, with freight flows down by 16 percent or more.

But trade is recovering, according to port officials.

John Crowley, vice president for legal and regulatory affairs at APM Terminals, Americas Region, predicts 5 percent growth in trade.

But Crowley hedged his prediction.

He said that the port and shipping industry will have to go out and capture the business rather than wait for it to arrive, as has been done in the past.

But the level of freight won't return to the same level of previous years, Crowley said, though it won't be negative. That is the new normal, he said.

APM is committed to cutting costs.

"That's what the customers are looking for," he said.

He also said APM, which is a subsidiary of Danish-based shipping conglomerate A.P. Moeller-Maersk, is doing its best to cut greenhouse gas emissions and has been for the past one and a half years.

In 2008, APM cut its green gas emissions by 8 percent, Crowley said. The goal for 2010 is a 10 percent cut in greenhouse gas emissions.

Doing so also cuts costs, Crowley said.

"We're not only cutting costs but improving the environment," he said.

"I think the new normal is looking at new opportunities," Keever said. "I think growth is going to come back."

But he added that growth will be modest and not shoot into double digits.

"Virginia is better positioned than any other port on the East Coast," Keever said when trade begins flowing again.

One new opportunity is marketing Portsmouth Marine Terminal for breakbulk cargoes, such as cars, trucks, tractors and construction equipment, when its container business is shifted to APM Terminals.

But that remains in limbo as the international longshoremen's association, the dock-workers union, voted down a contract for a 30 percent cut in pay to handle these type of cargoes at PMT and for freight loaded into a barge destined for the port of Richmond.

The vote affects only union members who handle the breakbulk freight and not containers, which is governed by a contract that covers ILA from Maine to Texas.

"We were very disappointed in that vote," Keever said. "To get that business, we need that concession from the ILA."

Keever said port officials will revisit the issue in another six months.

"Maybe there was too much on the plate this time," Keever said.

Norfolk Southern's container business grew by 40 percent from 2000 to 2008, but dropped in the ensuing years, according to Jeffrey Heller, vice president for Norfolk Southern's international intermodal department.

"We will return to growth," he said.

Heller expects more traffic for the East Coast and his company when the Panama Canal opens for wider and longer ships.

Norfolk Southern trains also load containers in southern ports as well in Virginia.

NS is committed to future East Coast business. Heller said that 60 percent of the units it hauls flow through the East Coast.

The rail holding group has injected $300 million into three major projects east of the Mississippi to move freight: the Heartland Corridor, the Crescent Corridor and the Meridian Speedway.

Federal and state monies have unwritten a portion of the three projects.

The Heartland Corridor, which will open a direct route for containers stacked two high between Hampton Roads and Columbus, Ohio, will be finished by September. The three-year project, which reconfigures 28 tunnels in West Virginia, was financed by private and public monies.

Katie Carney, vice president and director of Customs Compliance for Hipage Co. Inc., a customhouse broker and freight forwarder, said her clients' business has been down 30 to 40 percent, though her clients expect business to rebound to 20 percent growth by the end of the year.

"In my day, the new normal is every day," she said.

Carney said the port has all the assets in place, from cranes to foreign trade zones, to handle additional business. Yet she said the region's highway system needs improvement. If not, the region will get more congested and lead to poor service for trucks entering and leaving the port.

Greg Grootendorst, chief economist for the Hampton Roads Planning District Commission, said the port, one of the pillars of the region's economy, needs to maintain its competitive edge and for the port to grow it must contain costs.

He said the APM Terminal, one of the most technologically advanced facilities in the world, enables the port to remain competitive on the international stage. But he also said the work force, as well as the port, has to remain competitive.

"We have to look at all these assets," he said.