By Mark R. Smith, Contributing Writer
It’s been a wild few years in the port and free trade zone industry.
While that observation may seem obvious given the rough ride most businesses and citizens worldwide have endured―considering the myriad problems and tension caused the COVID-19 pandemic and its resultant complications―there have been more issues affecting its performance, too.
It’s not just the high demand for consumer goods, supply chain issues and the ensuing inflation and various concerns of recession (or not), but China’s subsequent port closures and work slowdowns, plus the Russian invasion of Ukraine, etc.
All of these challenges have impacted the port industry, particularly at two of the largest ports in the U.S., Los Angeles and Long Beach, which have more keenly felt the influence of erratic vessel schedules and missed bookings.
However, there has been some better news of late, too. For instance, according to the Descartes Global Shipping Report entitled July U.S. Container Import Volumes Increase from June and Continue to Track 2019 Performance, U.S. container import volumes increased by 5.1 percent from June 2023 to 2,187,810 twenty-foot equivalent units in July 2023.
The increase is consistent with the rise that occurs in peak season in non-pandemic years. However, despite the volume increase, port transit times remained close to their lowest levels since Descartes began tracking them.
Still, the same report also revealed that the top 10 U.S. ports overall in container import volume were up by 88,987 TEUs versus June, with nine of the 10 reporting increases. The ports of Savannah (47,900 TEUs) and New York/New Jersey (43,169 TEUs) showed the greatest overall container volume increases; with the Port of Los Angeles posting the greatest decrease (-68,874 TEUs).
What’s the news in the port industry today? Unsurprisingly, “It’s a mixed bag right now,” said Donald Brinkman, principal and ports practice lead for CSRS in Lake Charles, La., which has led industry leaders to look in a new direction for revenues.
“The deep water ports are in pursuit of leadership in offshore wind production,” said Brinkman. “That’s a hot topic.”
So is acquiring funding for this new market. “There is another race for shallow water ports that have challenges in acquiring funding,” he said. “They’re trying to acquire grants after funding was bolstered under the federal government’s Infrastructure Investment and Jobs Act.”
The second round in the Port Infrastructure Development Program grants are in the books “and there are more” en route, he said. “Large ports have the same issues with funding, but they have access to more grants.”
Brinkman continued, “We’re also seeing smaller ports, which are those that just have barge traffic, trying to expand their FTZs and maximize opportunities.”
He is also on the Professional Development Board of the American Association of Port Authorities, where he and his colleagues work to promote education and training for the port industry. And as is the case in many other professions, he’s wondering not only where the workforce is, but also who will direct the industry as the future arrives.
“One thing that is prevalent, especially in the aftermath of COVID-19, is the challenge of finding the next generation of leaders. They need to start somewhere, learn the business and develop. I’m a good example of how a professional can evolve,” Brinkman said, “As a civil engineer in the municipal public works and transportation sectors, I moved over to the port industry. It proved to be an easy transition, despite my not having a maritime background.”
Brinkman pointed out one more trend, this one with a geographic bent. “One thing I’ve been exposed to as a consultant who has developed a broader view of the industry is that the ports of entry along the southern parts of the U.S border, specifically those in Texas, are just booming.”
For instance, they’re booming in the Rio Grande Valley to the point that “even the inland ports are benefitting,” he said. “Laredo operates the 13th biggest foreign trade zone among land ports and I find that unique.”
But that’s not all. “I also find they’re just as important to commerce for our nation,” said Brinkman, “just like seaports.”
Justin Ryan picked up on Brinkman’s comments about the burgeoning value of FTZs. “In the current business environment, the cost savings an FTZ are an asset,” said Ryan, manager, FTZ 64 and grant administration at the Port of Jacksonville, where recent investments include the dredging of the port. It’s now 47 feet deep and marks one of the “most transformational” projects in the port’s history.
“The channel was deepened from 40 feet, to accommodate the larger vessels calling the U.S. East Coast,” Ryan said, “The 47-foot channel gives the Port the ability to accommodate vessels of up to 14,000 TEUs, which is up from our previous maximum vessel size of about 11,923 TEUs.”
The impact of FTZs is big: Today, there are 1,200 active operations in the U.S. FTZ program that employ 480,000 workers, in 197 geographic regions in warehousing, distribution and manufacturing, according to the National Association of Foreign Trade Zones. In northeast Florida, Ryan said the Port has added two counties to its zone, so it’s now up to 10, which builds “on our position as the largest FTZ in Florida, by land area.”
“It’s a large ecosystem,” Ryan said. “What I’m noting lately is that interest in our FTZ has to do with our geographical advantages, which allow warehouses, distributors and manufacturers to easily access materials. That speaks to our success, as well as our infrastructure, which offers efficient access to ocean, rail and truck service.”
The Port has also added five new vessel services in the last two years, “which add to our velocity,” he said. “We can access more than 70 countries from the port, while also providing same-day access to nearly 100 million U.S. consumers.”
Another plus, said Ryan, is something not many port executives can point to today: northeast Florida’s workforce. “We have three military installations in our area, so we have many veterans who transition from the service into the private sector” with ample skills and experience.
Growth industries in the region include cold storage, biomedical due to the growth of its older population, as well as food and beverage, due to easy access to markets via I-10, I-95 and I-75.
“Another market that’s doing well is warehousing and distribution, for big warehouses as well as flex space, in buildings ranging from 5,000 to 1,000,000 square feet,” said Ryan. Tenants include such firms as architecture and design manufacturer Cosentino Group, e-commerce retailer 1A Auto and cold storage provider FlexCold.
“Overall, we are seeing increased interest in our program. I don’t see any big challenges on the FTZ side, given the growth we are experiencing,” said Ryan. “It is an exciting time for Jacksonville.”
Sea of Green
Heading north to the mid-Atlantic, the Port of Baltimore is an example of a location that has felt the same effects as the rest of the industry during the past three-plus years, but has also enjoyed a rebound while addressing its challenges.
“There are many positive aspects of the maritime shipping industry,” said Richard Scher, its spokesperson. “Business has rebounded nicely from the pandemic. At the Port of Baltimore, our most recent cargo volumes through May showed that our roll on/roll off farm and construction business was up 30 percent, containers were up 10 percent and overall general cargo was up eight percent from our record year in 2022.”
Scher continued, addressing the Port’s role as “a major job generator,” with “more than 15,000 direct jobs; while adding that about 140,000” more jobs in Maryland “are connected to the Port.”
Then comes the topic that’s at the forefront of many industries, as a more discerning clientele and equally demanding public work toward building a greener economy.
Ports are “also becoming a greener industry,” said Scher. “Ships today are using ultra-low sulfur diesel fuel and ships being built today are being engineered and designed with more green technologies. In our case, the Port of Baltimore’s diesel upgrade program replaces older cargo-handling equipment and dray trucks with newer, cleaner and more efficient models.”
But that’s not all. “We’ve replaced or retrofitted engines in more than 120 pieces of equipment such as forklifts, top loaders, locomotives and tugs; this has resulted in the removal of more than 5,100 tons of emissions,” he said. “Our dray truck replacement program has replaced more than 275 trucks with cleaner, newer versions.”
While such efforts are occurring more frequently, the Port of Long Beach “was the first green port in the world in 2005,” said Noel Hacegaba, its chief operating officer, who touched on the state’s current goal is to use “zero-emission cargo handling equipment by 2030 and to operate zero-emission trucks by 2035, with the supporting charging infrastructure.”
But that’s hardly all of the news. Earlier this year, the state of California also announced plans to develop a 400-acre offshore wind port called Pier Wind. “The state has set a goal to generate 25 gigs of wind power by 2045 via the effort,” Hacegaba said, thus plans to build 1,000 to 1,600 massive wind turbines “that are as tall as the Eiffel Tower” on floating wind farms off its central coast.
The project, which would contribute toward lowering the national cost of offshore wind power by 70 percent by 2035, carries a hefty price tag of $4.7 billion. It will have “massive economic development ramifications,” he said, “creating new jobs and spurring considerable activity here in Long Beach and the entire Los Angeles Designated Market Area.”
Noting that many federal grants in the industry are used for such environmental initiatives, as well as port security, and remain available is among its points of light, Scher added that “It’s still not back all the way from pandemic impacts,” he said. “Shipping delays and ocean freight rates are still significant challenges.”
“The good news is that cargo volumes are bouncing back now for ports and Baltimore has experienced that rebound,” said Scher, calling its overall prognosis going forward “Very good.”
So what’s the bottom line? “The entire industry continues to rebound positively from the pandemic,” he said. “Consumer purchasing has been trending more towards e-commerce, so ports like Baltimore that have strong supply chain networks are going to be in good shape.”
Lisa Diaz agreed while offering the view from her standpoint. Diaz, vice president of regulatory and compliance and FTZ operations with Jacksonville, Fla.-based Shoreside Logistics, offered that “There has been a big shift” in general operations within the warehousing industry.
She’s noting that educated clients are among Shoreside’s best customers. After the pandemic “and normalizing,” they’re “getting smarter and more strategic about how they approach their businesses, therefore they want additional capacity, guaranteed warehouse space and guaranteed labor,” said Diaz.
“None of that had been an issue in the past, but after the pandemic, many people didn’t come back to work,” she said. “So larger clients tied up any space or capacity they could get.”
“We still have to meet the numbers for all of our clients [and] products still need to be on the shelves. That’s the biggest change I’ve seen in the past two years. The customers can’t go without product on shelves and now they share in the cost of capacity to ensure it gets there on time.”
This, naturally, affected the way Shoreside conducts business.
“We’re an asset-based trucking company with just under 1,000,000 square feet of FTZ warehouse space in Jacksonville and an FTZ yard in Yuma, Ariz., which is on the Mexican border,” she said. “We also had to take a stronger approach to protecting our businesses just as our clients did. For us, the customers want guarantees, all the way down to how many forklifts we have.”
“So,” said Diaz, “we want guarantees from them, too, such as volume, and together we have to plan for it.”
That’s meant the development of a whole new model at Shoreside. “It’s different from the third-party logistics transactional model, in which a customer needs a warehouse to help with its distribution, there are no minimums and it’s first-come, first-served,” she said. “In this model, the warehouse owners hold on to the product and hope to move it as soon as possible, then replenish it to meet their return in investment.”
Today, Diaz said, that set of rules has “evolved to more of a fourth-party logistics relationship.”
“This is a pivotal time in the industry for small-to-medium customers,” she said. “Many small customers are trying to do it themselves, but some have closed or have been absorbed. We had one client that had been with us for three years, but was absorbed by a partner that changed its logistics platforms and pointed the new enterprise in a new, healthier direction.”
What’s changed in this scenario is that “the larger companies can pay for this guaranteed capacity approach and choose to because it’s safe. For us it’s attractive because it’s usually for a longer term,” Diaz said.
Running with those thoughts while listing his own ‘notable trends’ was Joseph Ortega, senior manager of brand development for the South Florida-based Convoy Beverage Alliance.
Ortega’s first observation is how the rise of online shopping and Direct-to-Consumer sales “has led to an increased demand for efficient warehousing solutions that can handle individual consumer orders effectively,” Ortega said. While another is supply chain resilience, Ortega added, “Companies are exploring options, such as turning to FTZs, to mitigate supply shortages and ensure a stable supply of products.”
Lastly, he cited “technological integration. Warehouses are incorporating technologies like Internet of Things, automation and data analytics to optimize inventory management, order fulfillment and overall operational efficiency.”
He was also quick to note how what’s taking place in the warehousing and FTZ sector meshes with enhanced efficiency. “Through the integration of technology and automation, warehouses can streamline processes and reduce errors, leading to faster order fulfillment and improved customer satisfaction,” he said.
Ortega went on to note how cost savings are available “with the right approach.
“Utilizing an FTZ can provide financial benefits, like duty deferral and reductions, leading to significant cost savings for companies importing and warehousing, in our case, alcoholic beverage products,” he said. “All told, FTZs enable businesses to store goods without immediately paying customs duties. This facilitates quicker distribution, allowing companies to respond rapidly to market demands.”
While there are promising trends, the industry also faces its share of challenges, Ortega said.
“For instance, regulatory complexity is a challenge we navigate quite frequently,” he said. “The alcoholic beverage industry is subject to strict regulations, which can be especially intricate when combined with the requirements of FTZ operations. Navigating these regulations requires careful attention and expertise.”
Another issue concerns he aforementioned infrastructure and space constraints. “Warehousing facilities need to adapt to accommodate larger inventory volumes driven by increasing demand,” he said. “This may involve expanding current spaces or finding new locations. We have gotten ahead of this trend and have secured sites for continued future expansion.”
That said, Ortega and his colleagues at CBA have an optimistic outlook for the industry, with specific attention on the growth of the aforementioned FTZ storage.
“As our customers continue to recognize the benefits of FTZs, there will likely be an increase in the number of other companies opting to operate within these zones as well,” he said. “FTZ storage will contribute to more efficient supply chain management and cost benefits for both of our importers and exporters.”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.