North American ports on a rising tide

New vehicle handling is recovering strongly in North American ports, with OEMs and operators looking to improve processing throughput, scheduling and capacity. But will increases in North American production lead to fewer imports? Additional reporting by Christopher Ludwig.

As the new vehicle market rebounds in North America, including rising imports and exports, some ports and terminals are facing capacity constraints, particularly around rail transport and scheduling for processing and accessory installation. While many operators—and even carmakers— might consider this a luxury problem compared to the pain of recent years, in such a competitive market, vehicles need to move swiftly through ports to meet demand. “We are very concerned,” admits Larry Strug, national transportation manager at Subaru of America, regarding a lack of rail wagons out of the ports it uses.

The growth of imported vehicles at ports showed mixed results in 2011 owing in part to the disruptions in Asia, while 2012 has been stronger. The Japanese and Thai tragedies last year had impacts on certain west coast ports in particular. There were other disruptions too, such as vehicles temporarily diverted from Vancouver, Canada to Tacoma, Washington following a labour dispute. But the underlying recovery towards the end of last year and thus far in 2012 has been strong. Terminal operators are adding processing capacity and ports are adding space for automotive.

However, the medium term growth potential for vehicle handling in US ports may be dampened as more foreign carmakers expand their North American production capacity. For example, while BNSF Railways has experienced a significant import increase on the west coast, according to David Fleenor, head of automotive group, he notes that a production shift to North America would mean fewer imports arriving by sea and more by land from Mexico.

That is a view shared by Andre Elmaleh, director for auto and port-operated business at the port of Tacoma, which expects between 129,000 and 140,000 units this year. He believes that the trend to source production within North America has limited the potential growth for imports.

Marcel van Dijk, business development manager at the port of Los Angeles, also admits that a challenge may occur when Nissan, the port’s only automotive customer, builds its new plant in Mexico, thus reducing imports from Japan. In the meantime, however, Nissan’s growth at the port is leading to a 3-5 acre (1-2 hectare) expansion.

The good news for some operators in the US, however, has been a rise in exports. For a few ports, such as Baltimore, Maryland and Jacksonville, Florida, exports are actually close to parity with imports, which gives land providers a better chance to balance equipment utilisation. General Motors, for example, recently began using Baltimore to export cars to northern Europe as well as to import vehicles from Mexico, according to a port official.

For most American and Canadian ports, however, the trade deficit remains considerable and export growth represents incremental volume. In Mexico, on the other hand, exports are not just recovering to the American market, but have also been growing substantially to South America, in particular to Brazil (although recent trade disputes could slow this growth).

Mexican ports in the lead
The scale of Mexican export growth is exemplified in our ports survey for 2011, which includes data for Canadian and Mexican volume for the first time. The numbers reveal that the port of Veracruz, on Mexico’s eastern coast on the Gulf of Mexico, was the largest vehicle handling port in North America in 2011, at more than 750,000 units (including 588,000 exports).

Carmakers such as the Volkswagen Group, Ford and Nissan are using Veracruz for import and export, including to and from South America. VW, which has a plant in Puebla, several hours’ drive from the port, uses Veracruz to import products from Europe, and then sends Mexican-made product on the return load to Brunswick and Davisville, Rhode Island, as well as for export back to Europe.

Lázaro Cárdenas, on Mexico’s west coast, also cracked the top 20. The port’s throughput increased by 20% to 150,000 units last year, with demand strong for exports, according to Steven Rand, president and CEO of Amports, which operates the terminal at Lázaro Cárdenas.

With VW’s recent decision to build an Audi plant in Mexico by 2016, together with Honda, Mazda and Nissan all planning to open new factories in the country by 2014, capacity at Veracruz and other Mexican ports could come under strain if expansions in port and rail capacity are not made.

Alejandro Couttolenc, commercial manager of the Veracruz Port Administration, says the port is in the midst of implementing a third shift to increase productivity; it will also add 35 new berths, including some for car carriers. Railways serving the port have increased the number of wagons available for transporting vehicles, while Veracruz customs authorities have implemented a programme called ‘Fast Track’ for exports, which means that vehicles do not have to queue with other cargo.

A shifting network
Although carmakers tend to use ports over a long period, they still shift locations because of space, service and cost. In recent years, for example, Mercedes-Benz has changed from Jacksonville to Brunswick, Georgia, while BMW shifted imports from Charleston, South Carolina to Brunswick and Baltimore; Porsche also switched from Baltimore to join VW Group imports at Davisville. Furthermore, OEMs have opened or re-opened new locations in the North American network, such as the port of Richmond, in northern California and the port of Philadelphia, Pennsylvania.

Before Honda began using Richmond during 2010, the port had hardly any vehicle traffic. In 2011, it handled 110,000 imports as Subaru joined Honda in the autumn.

Prior to that Subaru would truck vehicles from the port of Vancouver, Washington, its largest port. It now uses Auto Warehousing Company (AWC) for vehicle processing and BNSF Railway for transport to south-central and southeastern states.

“We chose a second west coast port because of the level of quality and amount of PDI that we needed,” says Larry Strug. “Our objectives are to use ports that are closer to our markets and ones that offer more competitive transportation. We also want to achieve a higher level of port accessorisation.”

James Matzorkis, the port’s executive director, says that last year Richmond expanded its vehicle processing facilities and can now handle 40% more accessorisation.

Philadelphia, which had been dormant for new vehicle traffic since the 1990s, has been home to Hyundai and Kia imports since Glovis moved its operations there from New Jersey and Baltimore in 2010. Last year it handled around 125,000 vehicles. A port authority official says that the number of vehicles handled at Philadelphia increased by 12% in the first quarter of 2012 and that it expects 150,000 units this year.

According to Art Lim, director of operations at Glovis America, which uses seven ports in the US, Philadelphia’s efficiency is stabilising and it has achieved reductions in transport cost and dwell time, aided by the use of Glovis’ port processing subsidiary Global Auto Processing Services (Gaps).

Lim points out that customers are adding more accessories, which can slow down vehicle processing as volumes increase. Furthermore, space constraints at some ports may lengthen dwell time, particularly when vessel bunching occurs.

Premium VPC operations
Mercedes-Benz USA (MBUSA) operates in-house all of its vehicle processing centres (VPCs) at ports of entry, which include Baltimore, Brunswick, and Carson (near Los Angeles/ Long Beach), California. Like Glovis, improving throughput and the scheduling of processing and accessory installation is a main focus of MBUSA’s vehicle logistics.

Earlier this year, MBUSA created a new management position to oversee the operations at its VPCs, assigned to Ted M. Boudalis, who had previously been responsible for the Baltimore terminal.

According to Boudalis, MBUSA expects to process nearly 250,000 vehicles in 2012 at its VPCs alone, including volume for BMW, which signed a five-year deal for MBUSA to process its vehicles at the Baltimore terminal in 2010. At 94 acres, Baltimore is MBUSA’s largest terminal, expecting around 125,000 vehicles (marginally more than in 2011). At the end of 2010, the company moved to a new terminal that consolidated processing, body and paint repair shops in the same area, whereas at the old terminal vehicles in need of repairs had to be shunted 30 miles (50km) offsite.

The Brunswick terminal was opened two years ago after MBUSA switched from the port of Jacksonville. The 50-acre terminal was built from a greenfield site, with volume expected to be around 75,000 cars this year.

Carson is MBUSA’s smallest terminal at 38 acres, although it handles a similar volume to that of Brunswick. The site has some constraints because the terminal facilities are split between three parcels of land—the loading area at the port, the terminal and an offsite storage area—with the terminal nine miles from the port. “If a vehicle comes off ship and isn’t immediately assigned to a dealer, we’ll move it to the offsite storage, and then when it’s assigned we’ll move it to the VPC,” says Boudalis. “Each of those segments is a truck shuttle.”

Because of Carson’s size and multiple locations, MBUSA is currently studying its options for the terminal.

MBUSA has been refining processes at its VPCs to handle increased output and reduce dwell time. This has included switching from a conveyor-type system for processing vehicles to a more varied approach, where one person rather than six works on each car at once. This method is subject to fewer delays should there be an issue with one vehicle, since the cars are not moving down a line.

According to Boudalis, the average amount of time it takes for a vehicle to be processed at an MBUSA terminal is now around 0.8 days, compared to 1.8-2.8 days three years ago, and up to five days before then. The time it takes for a vehicle to leave on a truck, however, still ranges two to three days.

To reduce this time, MBUSA has worked on the releasing scheduling, in particular to help carriers by processing vehicles destined for the same regions at once, which could include processing cars that were otherwise further back in priority, although Boudalis admits that level of scheduling is still too sophisticated for some of the manual-based systems that MBUSA uses. But he adds that the most important thing is that processing is done in sync with trucking providers. “If the VPCs give carriers 500 units a day, it doesn’t do me any good if the carriers can only handle 300,” he says.

Ford looks to software improvements
Another carmaker looking carefully at processing scheduling is Ford Motor Company, according to Denny Carpenter, international logistics manager. Ford uses Hueneme, California, Baltimore and Jacksonville for imports and exports, while also using Brunswick, New York/New Jersey, and Portland, Oregon—its newest port—for exports.

Carpenter says that Ford is developing software that will maximise port throughput for exports and inland transport for imports, which it is testing at Hueneme. It will consider shipping schedules, labour capacity, space availability and daily workload among other factors. “We expect to reduce cycle time by 20%. It will also provide predictable data for import deliveries, such as the availability of transport equipment at the port,” he says.

Ford is evaluating its network this year for a global tender for ocean carriage and port processing and Carpenter reveals that it plans realignments. Ports that Ford does not currently use, such as Charleston, Norfolk, Virigina and Wilmington, Delaware, would now be under consideration.

3PL developments
Third party providers are also making process improvements and investments as volumes increase. Stan Gabara, executive vice-president for business development and logistics at Pasha Automotive Services, says that San Diego’s import volumes are gradually climbing following recovery from the Asian tragedies last year. The port expects 15% growth in 2012, according to Frank Cerrito, general manager.

Last year, Pasha tied its land parcels together at San Diego, thus expanding its acreage at a vehicle’s first point of rest (FPOR) and improving throughput velocity. “We bring the accessorisation out to the cars and then release them to the carrier at the FPOR. This saves one-and-a-half to two days by avoiding the need to move 80,000 cars,” Cerrito says, adding that after adding 10 acres last year, Pasha’s space will expand by 15 acres to 200 within the next two years.

Amports, which handles vehicles at a number of ports in the US and Mexico, also saw strong demand for exports through its terminals in Baltimore, particularly for Chrysler and Honda.

AWC opened its first east coast location at Baltimore this year, spurred by the increase in exports to Africa, the Middle East, Europe, and the Caribbean, according to Mark Berg, sales and marketing regional director.

Wallenius Wilhelmsen Logistics, which runs several terminals including those at Baltimore and Hueneme, expects a 10% growth in vehicle processing in 2012 compared to 2011, according to Richard Heintzelman, executive vice-president and head of commercial for WWL Americas.

With the growth in vehicle volumes, Subaru’s main challenge is obtaining adequate inland capacity. “Subaru experiences sporadic shortages and we are waiting for rail to react; we are very concerned,” admits Larry Strug. “Truck capacity is also an issue for us, although more in the short term.”

Porsche Cars North America also faces inland transport issues. It currently uses Davisville, Brunswick, Houston, Texas, San Diego and Halifax in northeast Canada. Justin Newell, manager of vehicle logistics, says that even if Porsche is not an active rail user, it feels the impacts of wagon shortages. “For inland transport, we use truck primarily and we try to avoid rail. Yet, the railcar shortage places a strain on the trucking network. This has led to increasing dwell time at the ports. It used to be two to three days and now it is five to seven days. The problem is a lack of transport equipment or a shortage of drivers, depending on the carrier.”

At Tacoma, a heightened focus on vehicle dwell time has led to better space utilisation, but it also creates demand peaks when a vessel arrives. “We need railcars on a justin- time basis. When Hyundai and Kia were productionbased, the situation was different. Now that they are more demand-oriented, dwell time has declined dramatically,” saysElmaleh. “Since our five OEM customers usually operate on different vessels, we receive a more efficient spread of vehicles. However, we also need port processor AWC to have adequate staffing, and we need to have truckers in place.”

The recovery in volumes has led to capacity expansion. At Portland, where rail delivers around 80% of imports as far as the east coast, marine manager John Akre says that new and improved rail yards enable operators to build wagon loads away from the main line, which preserves velocity by limiting potential blockages and delays for other users.

The port of Davisville has invested more than $22m in upgrading terminal areas and vessel berths, adding more than 20 acres closer to the berths and improving stevedoring efficiency. In October, the port will begin a dredging project that will deepen the draft to 32 feet (10 metres), according to Evan Matthews, director at the port.

Environmental considerations are also playing a role in the expansion. In 2011, the port of Long Beach approved a $240m, 20-year lease renewal with Toyota for the use of a 144-acre auto terminal. The new lease includes measures that will decrease air pollution with the use of cleaner fuel in trucks and an energy- and water-efficient design of new buildings. “The vessels are also participating in our Green Flag programme, slowing as they come and go in order to reduce air pollution,” says Art Wong, assistant director of communications.

WWL has been implementing environmental improvements at various port locations, including the use of solar panels, electric vehicles, and high efficiency lighting.

Exports have been increasing among several ports. At Portland, Akre reveals that the Ford exports which began to South Korea in January were the port’s first regular ones since the 1990s. At the Georgia Ports Authority, Bill Jakubsen, sales manager, notes that WWL and Höegh Autoliners recently increased services from Brunswick to the Middle East.

Although Hueneme saw exports drop in 2011 following a decline to China, officials there expect exports will increase following the Free Trade Agreement signed between the US and South Korea, which went into effect in March.

Among the top ports, the only one with a positive trade surplus in vehicles is the port of Charleston, which handles a large share of BMW production from its plant in Greer, near Spartanburg, South Carolina. The port recently invested $23m to upgrade a terminal, according to Allison Skipper, public relations manager of the South Carolina Ports Authority. She predicts increased exports after BMW adds the X4 model to its production lineup.

At Jacksonville (Jaxport), which handled more than 427,000 vehicles last year, Honda’s exports increased in April when it began to ship CRVs from its Marysville, Ohio plant.

Nissan, Ford and GM have also increased their exports to the Middle East, Africa, and Mexico, according to Roy Schleicher, executive vice-president. Within the next year, Jaxport plans to build rail spurs into its port processor at Blount Island Terminal, which will provide more rail capacity. Besides moving the vehicles closer to the processor, the additional tracks will permit more wagon storage and cause less congestion at the terminal.

Jaxport is one of the few ports where exports could approach parity with imports. Although imports currently account for 60-65% of the total throughput, Schleicher says that the ratio may possibly be 50:50 as early as the next fiscal year as exports continue to grow more quickly than imports.

Export growth from North America is a significant trend, admits WWL’s Heintzelman. He says that by handling ocean services at the same time as vehicle processing and inland distribution, WWL is in a unique situation to influence the flow of operations that would otherwise be posed by handoffs to multiple parties. “The manufacturing shift to North America can pose challenges at those ports that are not yet ready to support increased volumes as well as those with limited rail infrastructure and capacity,” says Heintzelman.

For now at least, the growth in imports continues to present OEMs and terminal operators with some of the more traditional challenges in capacity, but the full impact of a shift to greater North American production—including exports within the region from Mexico and beyond to Asia, South America and Europe—is yet to be fully understood. Examples such as Hyundai and Kia, Mercedes-Benz and BMW have shown, thus far, that increasing local production does not necessarily lead to a decrease in imports, as different models continue to arrive from overseas. But unless upgrades are made in rail infrastructure and wagon capacity, particularly from the growing production in Mexico, the pace of today’s growth could come under threat.