Space Coast port courts new lines of cargo business, makes investments to ignite growth.
Port Canaveral has one of the most eclectic business mixes in the port sector.
It is the world’s second largest cruise port, manages a popular park with beaches and fishing amenities, operates a marina and ramps for recreational boaters, supports a fishing fleet, serves as an entertainment destination with restaurants, a new interactive museum about the port and the Space Coast, and leases space to a host of industrial tenants.
The man-made port also handles cargo ranging from liquid petroleum and salt, to lumber, juice concentrate, wind turbines and military equipment. But it generates 80 percent of its revenue from the cruise industry.
Until now, port officials have never aggressively chased cargo. They took whatever fell in their lap.
That is changing in a big way. Since taking over as chief executive officer in 2013, John Walsh has placed renewed emphasis on diversifying Canaveral’s cargo portfolio to protect revenue streams from the cyclical nature of various commodities. In fact, before joining the organization three years ago Canaveral wasn’t even on the Florida Department of Transportation’s logistics planning map.
The Canaveral Port Authority now is standing up a dedicated container terminal for the first time, has designs on becoming a gateway for automobile imports and exports, is trying to bring rail directly onto port property and has numerous other initiatives to help shippers service the Central Florida market.
The main pitch: doing business with a centrally located port near a huge population center and tourist destination is much cheaper than trucking product to and from other ports in the Southeast.
In the past 12 months, the cargo department has grown from one to four members. Early this year, Port Canaveral hired Alberto Cabrera away from the Port of Jacksonville, two hours’ drive to the north, to be senior director of cargo business. George Arocha is the new director and general manager of cargo and terminal operations, responsible for providing customer service to existing cargo clients, managing projects and overseeing operations of Canaveral’s new container terminal. He spent the past 13 years managing the Port of Miami Terminal Operating Co.
The diversification strategy is part a broader effort to spur economic growth and job creation in a region hit hard by the recession and NASA’s termination of the space shuttle program. It also has taken on additional importance with the recent downturn in breakbulk and bulk cargo volumes. In fiscal year 2013, Canaveral moved 3.8 million short tons of international and domestic cargo compared to 3.9 million tons the year prior and 4.5 million tons in 2011. Petroleum products account for 80 percent of all tonnage, but the recent explosion of domestic production, with the help of hydraulic drilling and fracking, has put a temporary dent in oil imports.
General cargo, which includes container shipments, only registered 10,365 tons last year.
“We think that [volume] can grow by 20-fold in the next 10 years,” Walsh said, with the increase primarily from automobiles and containers filled with fruit, produce and other commodities. “Canaveral can reach every major Florida market in under three hours, so that allows distribution out and back with trucks.”
Container Startup. Port Canaveral, located midway between Jacksonville and Miami, announced June 23 that it had signed a 35-year agreement (20 plus three five-year options) with U.A.E.-based Gulftainer to operate and further develop a new container terminal. The port authority and the state of Florida are investing $42 million to reconfigure a piece of port property into a container terminal with two new berths capable of handling 8,000-TEU vessels and a paved yard. The facility represents the first serious foray into the container business for the port.
The deal is estimated to bring in at least $380 million in new revenue for the port. The base lease is for $20,000 an acre plus a throughput arrangement of $20 per TEU, with minimum TEU volumes for three-year periods stepping up over the life of the agreement, according to Walsh. Revenue from ships on dockage, wharfage and line handling goes directly to the port and all items automatically adjust for inflation.
Gulftainer will also invest $100 million in buildings, plug-in stacks for refrigerated containers, cargo-handling equipment (reach stackers and rubber-tired gantry cranes), a second set of ship-to-shore cranes, RFID tracking for containers, a gate system, back-office technology and talent to run the 40-acre terminal, which is expected to open for business in March.
Canaveral has already purchased two used post-Panamax cranes from the Georgia Ports Authority for $25,000 each. The port authority is saving $5 million over the cost of purchasing two new cranes, even after spending $1.4 million to transport the cranes by water and another $6 million to $8 million to refurbish them.
During an interview from his office overlooking the harbor, Walsh maintained there is room for another container port in Florida even though ports in Jacksonville, Everglades (Fort Lauderdale), Miami and Tampa all have major container terminals and expansion plans.
Those ports are eyeing the 3 million 20-foot shipping boxes that enter or exit Florida by truck or rail via ports in other states as a growth opportunity. The common assumption: shippers prefer to reduce high trucking costs associated with importing goods into South Carolina, Georgia and other states by using ports close to Florida consumers. According to analysis conducted by noted port economist John Martin, Florida ports could realistically capture a quarter of that volume, or about 775,000 TEUs, with the right infrastructure and policies.
“Our focus is on cargo that is not coming into Florida right now, so it’s not to take cargo from Jacksonville, Miami or Everglades,” Walsh said. “We see those all as established markets. It makes no sense to basically pick existing cargo coming into Florida.” There are enough out-of-state imports for all the ports to share, “and then, Florida is growing, so we want to be able to meet that growth,” he added.
In fact, Florida is projected this year to surpass New York as the third most populous state and hosts more than 60 million visitors each year.
Gov. Rick Scott has made international trade and logistics a major pillar of his economic growth agenda since taking office more than three years ago, funneling hundreds of millions of dollars to the state’s ports for infrastructure improvements to prepare for the bigger ships and new feeder routes from the Caribbean that are expected to become the norm in ocean shipping once the widening of the Panama Canal is completed in early 2016. He has also encouraged companies in Florida to use the state’s ports for their international business.
Walsh credited the Florida Ports Council for bringing individual ports together to work toward the common benefit of the state rather than blindly pursuing their own ambitions. The Ports Council essentially decides how to divide grant money provided by the Florida Department of Transportation and the ports present a common front to government on environmental issues, dredging policy, and other challenges, he said.
“If product is reaching Florida businesses it should come over Florida docks,” he said.
Trying to steal business from other ports by slashing tariffs or using other tactics would be counterproductive because the other port directors would retaliate in the grant allocation process.
“If I were being predatory, I probably wouldn’t get the votes to benefit from the grant funding. We’ve learned we can accomplish a lot more by being united. It’s not in the best interest of the state if we just go at each other,” Walsh said.
“We want to create Florida jobs, save the customer money and provide better service, without doing harm to our other Florida ports. We don’t want to take their business,” the Canaveral port director said.
“We want to create a fair playing field for all the Florida ports. It doesn’t do any good to move unemployment around the state.”
Walsh, who was instrumental in planning development of the container terminal in his previous role as deputy executive director for infrastructure, said drayage costs between Canaveral and Central Florida are much less than those associated with the ports of Charleston and Savannah.
According to industry sources, one-way southbound truck rates to the Orlando area average in the ballpark of $650 to $900 compared to about $165 to haul containers out of Port Canaveral. Northbound rates can be 25 to 50 percent less because of the supply-demand imbalance between available trucks and limited Florida production for other domestic markets.
“If you’re bringing in 2,000 boxes a year, that cost becomes compelling,” Walsh said.
So far, Canaveral has not secured any commitments from ocean carriers to make the port a destination. Two people, one from the port authority and one from Gulftainer, have made an East Coast sales swing and plan to knock on more doors this fall. Container lines that still provide door-to-door service should be good candidates for Canaveral because of the truck savings they could achieve, the port director said.
Port Canaveral initially hopes to attract feeder services from the Caribbean, but over time could bring in direct calls to meet customer demand, he insisted.
Brazilian jet maker Embraer, for example, has an assembly plant in Melbourne that plans to dramatically increase production. A biweekly direct call carrying components from Brazil makes sense for the company. Disneyworld and Rooms to Go, which has many stores in Central Florida, get most of their imports through Charleston and Savannah. Grapefruit growers who currently ship 20,000 to 30,000 TEUs of product from the Indian River area to Charleston for export to Japan are also good candidates for Canaveral, according to the port director.
Canaveral’s advantages include a 45-minute transit from the outer channel to the dock compared to 1.5 hours in Jacksonville and 3.5 hours in Savannah. That allows vessels to be worked sooner and cargo to be delivered faster, while also reducing costs for expensive harbor pilots, Walsh argued.
“Canaveral has a very strategic location to the I-4 corridor where all the distribution centers are. They have a good capital budget, good cash flow, proximity to the open sea and they have a terminal operator with worldwide connections,” said Martin, whose company, Martin Associates, has done market research for Canaveral and other ports in Florida.
Interstate 4 runs across the state through Orlando.
“When you have a world-class operator like Gulftainer, that’s surely a positive in your bank,” he said.
Canaveral officials project the container terminal will handle about 60,000 to 100,000 standard shipping units the first year, with volume growing to 200,000 TEUs by 2017. Walsh said the rail infrastructure will enable the port to reach an estimated throughput of 700,000 TEUs in 10 years.
Walsh predicted the port’s cargo revenue will grow from $5 million to $15 million annually within five years and reach $100 million in a decade as a result of the port’s cargo and infrastructure initiatives, which are expected to generate 10,000 to 15,000 new jobs and increase the port’s net economic impact from $3.5 billion to $20 billion. The port is projected to generate $69 million in total revenue and an operating income of $8.2 million in fiscal year 2014, which ends on Sept. 30.
In his state-of-the port address on June 16, Walsh confidently stated the port’s total revenue would reach $250 million by 2024.
As part of the cargo expansion, Port Canaveral is deepening its harbor to accommodate larger vessels and undertaking a large capital program for on-dock rail connections to the Florida East Coast Railway.
The outer harbor, where bulk carriers and oil tankers load and unload, is being dredged two additional feet to a depth of 46 feet, while the inner harbor will be excavated three more feet to 44 feet.
The port authority and the state of Florida are self-funding the $50 million dredge project (including a new west turning basin for cruise ships and a 100-foot channel widening) because of uncertainty over whether Congress would appropriate funds for the project, even though the Army Corps of Engineers was given authority to proceed. Brevard County and state officials view the port’s expansion as a major jobs generator for the region and didn’t want to indefinitely wait for approval, especially with the Panama Canal expansion expected to change shipping patterns. But the authorization, and dredging to Army Corps standards, ensures the agency will be responsible for maintaining the new channel depth going forward.
Under the law that governs Army Corps’ operations, ports can apply to get reimbursed for the federal share of the funding they assume, but there is no guarantee in the current budget environment Congress will do so. The state of Florida, for example, is picking up the tab for the $77 million federal share to deepen PortMiami. The alternative funding process, however, enabled Canaveral to get the dredging done 10 years sooner than normal.
The project is expected to be completed by the end of the year.
And Canaveral is not stopping there. It is already funding a feasibility and economic study for deepening the harbor to 55 feet, deeper than any other East Coast port.
Canaveral only has a three-mile channel, a soft bottom and few environmental challenges—such as coral reefs in Miami or a freshwater river in Jacksonville—which make the project affordable. Dredging to a 50-foot depth would cost an additional $65 million and going down an extra five feet would be another $60 million, Walsh said.
“We think 50-52 feet will be easily justifiable, but we have to do the studies to see if 55 feet really makes sense,” he said.
On-Dock Rail. Work is progressing to bring a direct rail spur onto Canaveral’s cargo terminals, primarily to handle breakbulk, dry bulk and liquid bulk commodities, as well as containers.
The FEC Railway currently operates a rail yard in Cocoa, Fla., 10 miles west of Port Canaveral. Shippers pay an estimated $17 per ton, or $374 per truckload for non-containerized cargo, to make the run in each direction, according to a study conducted by Martin Associates for the FEC.
The plan is to take control of a grossly underutilized, 17-mile rail line that connects the Kennedy Space Center’s industrial area to the FEC and extend it 12 miles further to the south and east across the Banana River into the port. Walsh called it the “most expensive railroad per delivery in the world.”
The Surface Transportation Board, which has authority to issue permits for new rail services, has assumed the lead federal role for obtaining an environment impact statement, with input provided by NASA, the Army Corps and a dozen other agencies.
Improvements to the existing short line and bridges, along with the extension and a 15-acre terminal are estimated to cost $75 million, Walsh said. Short spurs to various terminals would also be built.
The arrangement would give NASA use of the rail line without having to maintain it any longer.
The environmental study is expected to last 14 to 18 months and construction could begin in early 2017, according to port officials.
Inland Port. Canaveral is simultaneously working with officials in Titusville and Flagler Global Logistics, an FEC sister company, on a multi-modal inland port concept. No Class-A warehouses exist near the port, Walsh said at the board meeting. The establishment of rail-served manufacturing centers and warehouses that can consolidate, assemble and distribute international shipments is designed to appeal to shippers, who can influence where their ocean service providers go—and considered critical for Brevard County’s plans to become a southeastern distribution hub.
The inland port, expected to be in limited operation next spring, would utilize a barge service capable of carrying containers and railcars to connect Port Canaveral via canal and the Intracoastal Waterway to a former oil dock owned by the Orlando Utilities Commission in Port St. John, 13.5 miles southwest on the Indian River. The facility would also tie into the FEC’s mainline that runs between Miami and Jacksonville, where it interchanges with two Class I railroads that cover the eastern half of the United States.
Port Canaveral is pursuing $15.7 million in TIGER grant funding from the Department of Transportation for the $24.5 million marine highway project. The discretionary program allows the department to support a broad array of projects beyond highways if they meet rigorous criteria for meeting economic, safety, environmental or urban planning goals.
The project would involve the construction of a barge berth at the power plant, the installation of a transfer bridge for loading and unloading railcars with a locomotive; tracks for storing, marshaling and building trains; an at-grade crossing across U.S. 1; and a refurbishment of the existing power plant rail spur to the FEC yard in Cocoa.
Bulk imports, primarily slag (a binder for cement), will be offloaded from vessels to empty hopper and box cars, which would then be loaded onto the barges along with intermodal containers. Officials envision bulk exports of ethanol, wood pellets, perishables and other commodities, as well as containers, arriving in Titusville on FEC trains and being transshipped to barge for delivery to the port and onward to the Caribbean, South America and Latin America.
Officials estimate a one-way trip would take a little more than 2.5 hours at a speed of 5.5 knots.
The rail barge is viewed by port officials as a way to jumpstart rail service from Canaveral until a direct rail link is built to the north side cargo berths. The rail portion of the barge facility is likely to be used less once hard rail is in place to serve customers shipping to and from the heartland, but is still more practical for short distance moves to warehouses in Titusville, Walsh said. Containers with products for local or regional distribution that require storage, additional manufacturing input or customization would get barged to the logistics park. The barge will also be used for bulk customers and auto and truck transfers to facilities in that region, as well as oversize loads.
Meanwhile, the infrastructure would give Canaveral the ability to launch rail-sea service to Cuba if the United States ever resumes open trade with the communist nation, according to a November feasibility study conducted by TransSystems.
In its grant application, the port authority stated that moving bulk, containerized and vehicular freight to and from the inland port by barge would help preserve causeways and bridges because trucks wouldn’t be needed to reach the facility or intermodal rail ramps via Interstate 95 and state route 528. Highways would also be spared wear and tear by converting truck freight in the southeast along the I-95 corridor to rail mode, which is especially important given projected increases in tonnage at the port. The barge service would also reduce congestion for Cape Canaveral residents and cruise tourists that use the causeway to reach the port, which is located on a barrier island. It would allow the movement of overweight containers directly to Titusville for transloading without having to split shipments at the port to meet truck weight restrictions for public highways. And shippers of lower value, heavy bulk products would gain greater efficiency by using rail instead of truck because materials would only need to be handled once, while companies shipping goods in containers would similarly reduce costs for shuttle-truck service to the warehouses or rail ramps.
Shippers will directly save an estimated 3 cents per mile by using rail instead of truck to reach the port, or $125 million over 30 years, according to the port’s analysis.
Canaveral’s application also makes the case that vessels serving Canada, Europe, Africa, Central and South America and the Caribbean could use the port to reach central and western Florida markets, knocking off 575 nautical miles from going around the Florida peninsula to the ports of Manatee and Tampa Bay, and reducing fuel consumption and emissions in the process.
Canaveral’s case could be bolstered by the fact that DOT’s Maritime Administration has made the establishment of marine highways—vessels/barges carrying cargo along the coast or on rivers to replace truck traffic on busy freight corridors—a top policy priority. So far, however, there have been few self-sustaining engagements that have succeeded.
The port authority said it has identified prospective rail-barge equipment and held conversations with potential operators. The Florida Department of Transportation has pledged to contribute $3 million to the project, while the FEC plans to kick in $2 million, including cargo-handling equipment and other assets.
There has been some pushback from residents who feel they will be negatively impacted by the facility and the port authority is trying to resolve their concerns, Walsh said.
The estimated completion date for the rail-barge project is March 2016. Flagler’s real estate development arm has already built one speculative warehouse and the port authority has leased a piece of the building, Walsh said. The facility can be served by dray trucks until the barge service is set up.
Auto Terminal. Another new market in which Port Canaveral plans to compete is autos. The port authority has a joint venture agreement with an auto-processing firm to bid for business from an automobile manufacturer that is seeking a new Southeast port of entry for imported vehicles, Walsh said at the Board of Commissioners meeting on Aug. 28.
The auto maker is expected to make a decision in November or December, and wants to have a working facility in place by May 1, 2015.
The port director said about 120,000 vehicles a year would be unloaded, prepared and delivered to auto dealers and rental companies. Auto makers typically sign five- to seven-year contracts, with options carrying the lease to 10 years.
Many of the same factors that make Canaveral a good location for handling containers also apply to the auto trade, Walsh said.
Canaveral, he claimed, can offer lower stevedoring costs, a short passage from the sea, lower pilot fees and quick access to the huge Central Florida market, as well as South Florida. Orlando is the No. 1 rental car market in the world, he noted.
“So if you can be 45 minutes in and out, unload and cut somebody’s trucking cost in half, that’s a compelling logistics model for an auto company,” the port director said.
The port authority’s conceptual plan is for an 8,000-car multi-deck garage on land adjacent to the cruise terminal. A garage is a more expensive storage method than simply parking cars on 40 acres or more of paved lots, as is the practice at most ports.
The garage will cut labor costs because longshoremen won’t have to go far to park or retrieve cars, Walsh said.
The port authority will have to build the garage on a speculative basis to meet the timetable of the auto manufacturer. That means a request for quotation for a design/build contract must be quickly completed and construction started by December. Port officials plan at the next board meeting to provide details about the expected amount of financing required for the project.
Walsh said that if the bid failed, the auto terminal could be marketed to other auto makers. The fallback option is to turn it into a cruise parking facility with some additional investment.
Port Canaveral is also in discussions with another auto processor for a facility to handle used rental cars for export or shipment to other parts of the country.
Although the port has limited space for expansion, it has offered auto processors horizontal land. One possible location is on unused property currently owned by the Air Force.
The Air Force property is being eyed as a possible site for a second auto facility, as well as expansion areas for another deep-water container terminal once the port secures rail connectivity. It could also provide alternative berthing to support oil tankers and bulk ships, Walsh said.
Canaveral’s challenge, says South Carolina-based auto logistics consultant William Kerrigan, is that multiple ports in Florida are competing for the same roll-on/roll-off business from auto makers, including short-sea routes from Mexico. Car carriers might be unlikely to add an extra port of call unless multiple companies collaborate to book vessel space with an ocean carrier, but the auto industry has yet to embrace a shared shipping model, he said.
Canaveral’s ability to attract an auto maker will depend on how it structures any offer and if it will ship cars further north. A lot of cars are trucked into Florida and there is an opportunity to put cars on the empty trailers for the return trip north, Kerrigan said. Cabrera’s addition to the cargo staff gives Canaveral a decent chance of putting together a winning deal, he added.
Another factor in Canaveral’s favor, analysts say, is that a couple southeastern ports are facing capacity crunches at their auto terminals and may not have room to expand unless they have off-dock yards, which would be more inefficient. And if North American auto sales continue to grow above 16 million units a year there would be further demand for marine auto terminals.
Breakbulk. Port Canaveral is also boosting its tiny breakbulk volumes with a new tenant that specializes in the export of steel scrap.
The Central Florida port authority recently signed a one-year lease for a four-acre facility with Port Canaveral Scrap Terminal LLC to ship scrap metal to mills in Turkey, with a minimum guarantee of 100,000 tons of volume, according to the agenda for the Board of Commissioners’ monthly meeting on Aug. 28 and Walsh.
The company plans to export about 200,000 tons of scrap steel per year, said the director of operations, who declined to give his name when contacted by phone. Port officials anticipate about eight vessel calls per year with an average of 35,000 tons per call.
In fiscal year 2013, Canaveral moved 17,142 short tons of breakbulk cargo, less than 1 percent of its overall throughput. That compares to 2.5 million tons at the Georgia ports of Savannah and Brunswick or 942,000 tons at the Port of Jacksonville.
Port Canaveral Scrap Terminal is a new entity established by a large steel commodity trader in the United Kingdom and a Turkish partner for the purpose of shipping steel, the operations director said. According to publicly available records from the Florida Department of State Division of Corporations, the principles behind the company are Steel Trading LLC of Orlando and a man named Chad Ward at the same address.
The operations director and Canaveral’s CEO said the new company also plans to import steel coils and wire rods as Florida’s highway and building construction industries begin to grow again after a lengthy post-recession downturn.
The port authority’s 2015 budget conservatively estimates the deal will bring in $375,000 to $500,000. But Walsh said he anticipates revenue will bring in $1 million by the end of its first year, which would represent a 20 percent increase in cargo revenue.
The lease requires the port to make $50,000 in terminal improvements and should open for monthly vessel calls in a couple months, according to the agenda and the operations director.
Port Canaveral Scrap Terminal will charter vessels to move its steel instead of using third parties. Local stevedore ASI will handle the loading operations. The official said the temporary lease will give the company time to decide whether to enter a longer-term arrangement.
“There is a gap in the ferrous scrap market in Central Florida. This will bring Florida hundreds of millions of dollars in exports,” the operations director said.
Walsh said Port Canaveral is a more economical location for international shipping of metal to and from Central Florida than ports in South Carolina, Georgia or elsewhere on the East Coast that involve significant trucking costs.
In the spring, Morton Salt renewed its terminal operating lease at Port Canaveral for 10 years and plans to build a new distribution facility there.
The new agreement is estimated to generate $13 million in revenue for the port and allows the Chicago-based company to expand its footprint.
Morton annually imports 210,000 tons of solar salt—produced by capturing salt water in shallow ponds where the sun evaporates most of the water— from Great Inagua Island in the Bahamas. The salt is used for swimming pool treatment, de-icing pavements and water-softening systems. The expansion of its facility would allow Morton to also produce table salt, thereby eliminating the need to ship 10,000 tons of packaged table salt to the Orlando area by rail and truck it to a Canaveral-area warehouse for distribution.
The company has operated its sea-salt processing plant at the Florida port since 1990.
According to the Martin Associates study, on-port rail could allow Morton to ship 10,000 tons of table salt and up to 30,000 tons of pool salt to Ohio and other northern markets currently served by other Morton operations around the country.
This article was published in the October 2014 issue of American Shipper.
