Decade of American dredging heralds new era of great prosperity for America and the world
 Before
the massive dredging of American harbours, the United
States was closed to mega ships because of its shallow
waters, and some say, shallow thinking.
But now, with US$1 trillion expected in infrastructure
spending to replace America's crumbling Interstate Highways,
even greater prosperity is in the offing today.
Dredging US harbours brought fresh spending power
to the Democratic coastal regions during the Obama years.
Now massive highway spending in Republican "fly-over
states" will generate even greater prosperity.
More than make-work projects, these programmes will
make imports more affordable, especially with the explosive
growth of e-commerce. Which means more customers more
profitably served.
With the dredging mostly done, big ships can now
access American harbours when only 4,000 - 6,000-TEU
vessels could go before. The number of 18,000-TEU ships
is expected to double by 2019 from 58 to 105.
One of the first to appreciate the implications of
this growth was the US east coast Port of Savannah,
20 miles from the mouth of the Savannah River. For years
Savannah had enjoyed a high volume trade in reefer poultry
exports to Asia via Panama, which gave it an enviable
50:50 balanced trade.
As part of the burgeoning collection of southeastern
states, with their business-friendly right-to-work laws,
the region became a magnet for industry and productive
people. Good rail and road connections gave Savannah
a freight delivery reach most everywhere east of the
Mississippi River south of Boston.
Savannah, already battling bureaucrats for permission
to dredge, first noticed that its Asian imports were
not only growing, but also growing faster than Asian
volumes through LA and Long Beach. So Savannah studied
the implications of coming Panama Canal expansion -
then 10 years away. It then took Far East promotional
tours, telling shippers to "keep it on the water"
and "treat the ship as your warehouse" rather
than railing or trucking goods east from the west coast.
Pre-dredging a lightly loaded 6,000-TEUer could scrape
into Savannah. Post-dredging, the 13,000-TEU Cosco Development,
shifting 9,900 TEU at berth, was the biggest ship to
call, and 9,000-TEUers call routinely.
But dredging was a painful 15-year process, from
the submission of the first plan to final approval,
accompanied by court battles with environmentalists,
who sought block every move. In 2013, the port authority
even paid off environmentalists $30 million to give
them eco jobs if they dropped their lawsuit against
dredging.
Already, the other east coast ports, seeing Savannah's
success, started to make moves of their own. Again,
the key was dredging because if the new mega ships were
unable to dock, there was no point in buying new cranes,
reefer racks, road and rail facilities. It was clear
that dredging was Job 1 if there were to be any jobs
to come.
Savannah's mistake was thinking that after 15 years
of slogging through the bureaucratic swamp, they were
far ahead of rivals, thinking that it would take them
15 years too. But Savannah's early dredge to 12.8 metres
proved popular locally, so there was now a political
will to expedite dredging elsewhere, and with Obama's
2009 TIGER (Transportation Infrastructure Generating
Economic Recovery) grants to finance it, work commenced
in coastal regions.
New York-New Jersey dredged to 14.6 metres. Charleston,
South Carolina, boasted of the deepest harbour on the
east coast with 15.8 metres alongside. And even little
Tampa, Florida, hardly a serious player, had ambitions
to exploit its proximity to the Panama Canal and had
dredged to 13 metres. Meanwhile the major ports LA and
Long Beach with their 13 to 16-metre drafts as well
as Oakland with 15 metres alongside, were keeping up,
each docking the 18,000-TEU CMA CGM Benjamin Franklin.
The concurrent advance of the mega ship had caused
great disruption in the industry. Even Taiwan's famous
go-it-alone Evergreen Marine, had been panicked into
joining the lemming-like rush that everyone knew was
contributing to the rampant overcapacity that had plagued
the market for a decade, and had been ruinous to freight
rates.
But everyone was doing it anyway - ordering bigger
and bigger ships that require smaller crews to achieve
economies of scale. If they didn't, they reasoned, non-participating
carriers would be outclassed and driven out of business
by those who did. Even medium to smaller players like
Hong Kong's OOCL and Dubai's UASC ordered 20,000-TEU
ships before they themselves were gobbled up by bigger
carriers.
Mega ship development, encouraged by accelerated
global dredging mostly in Europe in the early days,
brought on an explosion of mergers and acquisitions.
Back in 2005, the global shipping community was talking
about Canada's CP Ships merging into Germany's Hapag-Lloyd,
which had been the biggest M&A news in years.
Not much happened until 2014, when an unprecedented
consolidation tsunami began to topple all before it,
starting with Hapag-Lloyd's purchase Chile's CSAV (Compania
Sud Americana de Vapores), once rated as the seventh
biggest container carrier in the world.
Then Germany's No 2 player Hamburg Sud bought Chile's
No 2 player CCNI (Compania Chilena de Navegacion Interoceanica).
Soon after Cosco took over China Shipping Container
Line (CSCL), then French shipping giant CMA CGM acquired
Singapore's Neptune Orient Lines and its main container
carrier unit APL (American President Lines). At which
point Hapag-Lloyd bought UASC (United Arab Shipping
Company) and then Cosco took over of Hong Kong's OOCL
(Orient Overseas Container Line). Then Maersk bought
Hamburg Sud. And while this was going on, Japan's Big
3, MOL, NYK and "K" Line, announced they would
merge their container operations into something called
the Ocean Network Express, or ONE, for short. And if
that wasn't enough, Korea's No 1 carrier, Hanjin Shipping,
went belly up.
Making another big impact was the fall in the price
of crude oil in 2014 to below $50 a barrel from $100
in 2012. This was widely attributed to the development
of American shale gas oil that undermined Middle East
producers' hold on the market. It also knocked out much
conventional wisdom of the day. Techniques such as slow
steaming to reduce bunker burn that had made shippers'
Just-In-Time strategies impossible to pursue, became
irrelevant.
While US roads were as bad as ever, further hobbled
by regulation, rail services to the northeast and Midwest
had improved. Low-slung rail cars facilitated double
container stacking through mountain tunnels, which reduced
the need for detours. The continuing upgrading of trackage
by Class I railways increased train speeds. And once
Trump did away with the Obama era coal restrictions,
rail volumes and profits soared.
Then there was the impact of the Suez Canal. Even
without its expansion in 2014-15, allowing ships to
pass in opposite directions simultaneously it was having
an impact on east coast US trade. But in 2006, little
Far East cargo went that way. Yet good container volumes
from the Indian subcontinent and Southeast Asia went
some way to fill westbound ships.
Suez traffic from Asia grew during the expansion
of the Panama Canal, which had to impose seven-day delays
during different phases of construction. For garments
and footwear from Bangladesh and India, the Suez route
was business as usual.
But over the years as the ship sizes increased, and
freight rates fell, it thus became more affordable for
Far East cargo to opt for the Suez route. As time went
on, Suez with virtually no limit on ship size, began
to think of retaining this cargo flow after the Panama
expansion, lowering rates accordingly. With US east
coast ports open to bigger ships, bigger ships using
the Suez Canal, picking up cargo in the Mediterranean,
came to call along the Eastern Seaboard.
Augmenting this flow was a practice called "wayporting",
a system of dropping off North American east coast-bound
containers from the mega ships otherwise bound for northern
Europe. Boxes were dropped off in ports from Oman to
Spain - Jeddah, Suez, Malta, Tangiers etc. This allowed
other ships pick them up for transatlantic delivery.
Shallow draft Montreal reported having 30 per cent of
its cargo come through Suez during this period.
There was nothing revolutionary about the concept
as it had been long the standard procedure for getting
Far East cargo to West Africa. What made it novel was
the speed at which it was dropped off by and picked
up at the various wayports as container handling became
increasingly automated.
It all went to show what this decade of massive American
dredging, which started with little Panama's plan to
widen and deepen its canal in time for its 100th birthday,
sparked truly revolutionary developments worldwide and
stand to bring unparalleled prosperity to America, if
not the world, in the near future.
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