U.S. logistics jobs could be outsourced to Caribbean, Central America as new shipping patterns evolve.
By Eric Kulisch
The expected rise of container terminals in, and around, the Caribbean associated with the expansion of the Panama Canal and the deployment of ultra-large vessels could lead to lost business for U.S. ports in the South Atlantic, but less recognized is the potential threat to logistics sector jobs from the outsourcing of distribution operations to the region, according to an industry analyst and a port director.
Ocean carriers only plan on making a few stops with the latest generation of vessels that can carry 10,000 to 13,000 standard shipping units. To maximize revenue and maintain schedule integrity, behemoth ships must spend as little time as possible in port. In the U.S. trade, container lines are eyeing terminals in the Caribbean, Central America and the north coast of South America as deep-water hubs where they can offload cargo from Asia transported via the Panama or Suez canals and serve U.S. ports with smaller feeder ships.
One of the main attractions of the Caribbean ports is access to deeper water because most U.S. East Coast ports lack the necessary infrastructure — including navigable channels dredged to 50 feet or more — able to receive giant container ships and efficiently handle higher cargo volumes.
New transshipment activity could change shipping patterns from the United States to the Caribbean, with negative consequences for ports in Florida, and create incentives for importers to resort to packaging goods offshore for store delivery instead of at U.S.-based distribution centers, John Martin, a well-known port economist and the head of Martin Associates, recently told a gathering of maritime industry stakeholders.
Terminal operators and governments, some with Chinese donations, are investing heavily to turn wharfs into major transshipment centers in Kingston, Jamaica; Freeport, Bahamas; Caucedo, Dominican Republic; Costa Rica and Panama. Speculation has also centered on Havana, Cuba, as an ideal location for relaying cargo. The development is a reaction to the widening of the Panama Canal for ships with 2.5 times more container capacity, but also to the growing desire of manufacturers and retailers to produce more goods in Latin America and shorten the distance to market.
Many global manufacturers, especially apparel companies, are setting up production facilities in Honduras, Guatemala and other parts of Central America.
Transshipment centers are also magnets for distribution and logistics activity, which could migrate offshore without deep harbors on the East Coast. They would not be suitable for time-sensitive cargo, which would move by alternative means, experts say.
Within the past 18 months, Chinese and other investors have also poured money into distribution centers in several of those locations, Martin said, without disclosing specifics because of confidentiality agreements. The business model involves transferring a box from the ship to a warehouse for added-value processing and storage of the goods, as is done at a U.S. import distribution center, pre-racking 40-foot international containers and even 53-foot domestic U.S. containers, taking them off the vessel at the U.S. destination port and directly transporting them to retail stores.
Transshipment typically is defined as a handoff of containers between vessels on head-haul routes and feeder vessels serving smaller ports in a region. Opening shipping boxes, sorting the contents into different containers for final delivery and manipulating the goods is an intermediate level of processing beyond transportation.
Martin said the lack of adequate infrastructure at most U.S. ports on the Atlantic or Gulf coasts will result in the export of logistics jobs, which most assumed were safe from outsourcing trends associated with manufacturing because they were in the service sector and involved domestic delivery of goods.
About 30,000 jobs are tied to each annual inbound, first port-of-call service at a U.S. port, the economic consultant said March 20 at the American Association of Port Authorities’ spring conference in Washington.
Locating logistics facilities over the horizon makes sense, Sean Strawbridge, managing director for trade relations and operations at the Port of Long Beach, said in an interview.
“For all the reasons that manufacturing was offshored, why wouldn’t that same model apply to logistics and distribution? If you’re labor costs are significantly reduced and you can achieve the same or better degree of efficiency, why not?” he said.
The shifting dynamics of world trade will put pressure on U.S. logistics companies to take costs out of their business through technology and other means, he added.
Caribbean officials view logistics parks as catalysts for economic development and are receiving substantial support from China and the Inter-American Development Bank (IDB), which is conducting a feasibility study on how to improve maritime transportation and logistics systems throughout Central and South America.
In Jamaica, a joint venture between Israeli container line Zim Integrated Shipping Services and Jamaica Fruit and Shipping Co. in 2006 formed the Kingston Logistics Center Ltd. adjacent to the port, which has free trade zone status giving transshipment cargo exemption from taxes and customs duties. The company can consolidate, deconsolidate, label, pack, palletize and shrink-wrap cargo and deliver it to shipping lines, as well as manage Jamaican imports and exports, according to its Website.
A manager reached by phone said the facility is relocating its warehouse to a larger site on the property, increasing storage capacity to almost 35,000 square feet from 14,000 square feet.
Panama has been developing logistics facilities for several years, including the fledgling Panama Pacifico park at the former Howard Air Force Base, to leverage ocean and air traffic moving through the country and its central location, and become a regional trade and logistics hub. The Colon Free Trade Zone offers an array of logistics services and light manufacturing. The logistics facilities are increasingly being sought by international companies such as Caterpillar as platforms for prepping and delivering products to the growing customer base in Central and South America, but also provide a natural relay station for goods bound for the U.S. market, experts say.
to logistics and distribution?”
for trade relations
Port of Long Beach
China has invested heavily the past decade around the world to gain access to raw materials and in infrastructure — highways, railroads, and ports — to vertically control its supply sources and get commodities to the homeland. Now it is investing in logistics infrastructure to support its export economy.
A portion of trade processed by Florida ports involves imports to the United States that are consolidated by buyers and shipped out to the Caribbean by regional carriers to serve cruise ships, tourists and local residents. The shift of direct Asian and European services to the Caribbean hubs could reduce the need for cargo to be routed through Florida, potentially jeopardizing business for freight forwarders and regional carriers that have capitalized on the consolidation trade, and fees for ports, Martin said.
Instead, cargo could be consolidated out of the Caribbean ports and delivered on an island-hopping service, saving shippers on U.S. import charges, extra transportation and other costs.
The Port of Norfolk is the only port currently on the East and Gulf coasts with unrestricted access to 50-foot water. Baltimore is scheduled this year to open a 50-foot berth to go along with its deep channel. The Port of New York and New Jersey expects the Army Corps of Engineers to complete harbor deepening by 2014, but will still have the challenge of raising the Bayonne Bridge roadbed to increase the clearance for megaships. The Port of Miami is authorized and funded to dredge to 50-feet, but the project’s start has been held up by a lawsuit from local residents and environmentalists.
Paul Anderson, chief executive officer of the Jacksonville Port Authority, rose from the audience to complain that the United States is the largest contributor to the IDB and is indirectly subsidizing the transfer of jobs to Caribbean nations. He also said the inability of Congress to advance a comprehensive surface transportation bill and the federal government to address infrastructure needs writ large is enabling other countries to beat the United States to economic opportunities.
It can take up to 15 years to get federal approval for deepening projects and complete them, with the cost shared by the federal government and the state. The U.S. government also lacks a national port strategy and provides a token amount of money for port-related projects, although funding for some highway and rail upgrades helps ports getting cargo on and off the docks.
“The ultimate irony to me would be if we’re contributing to development projects that will directly enable Caribbean countries to transship to the United States, therefore taking jobs that we should be creating in the United States,” he said in a colloquy with Martin after the presentation.
The United States is the IDB’s largest shareholder. The bank is self-financed through bonds and doesn’t receive direct contributions from member countries, although it periodically replenishes its capital. The bank borrows against its capital to fund projects. It offers loans, makes equity investments, and provides guarantees, grant funding and technical assistance.
The IDB is able to provide long-term loans in underserved sectors where local banks are unwilling or unable to because its goals extend beyond financial performance to include social, economic and environmental benefits.
The multilateral agency has not directly funded any logistics parks in the Caribbean to date, but governments that receive loans for economic development may channel secondary loans to private banks that could lend money for logistics projects, according to Pedro Guerrero, an IDB transport specialist.
Edson Mori, a senior investment officer, said the IDB hopes to get involved with development of inland ports — intermodal logistics hubs — being planned in Latin America.
Martin said the IDB is only providing seed money to help developing nations and the United States could have forestalled some of the maritime competition if it invested to make its ports more attractive to carriers.
“We have failed to understand that we operate in a global economy and that we need to have investments in port infrastructure,” he said.
Anderson expressed frustration that the U.S. government spent $870 billion on a stimulus package in 2009 and has “nothing to show for it” in terms of gateway infrastructure, including highway and intermodal connections.
He suggested that the government could alleviate the infrastructure crunch by picking 10 major ports and providing each of them $400 million, not counting matching contributions by states and cities.
“For $4 billion we’d be set for generations to be competitive with our ports,” he said, noting that tiny Panama had the political will to pass a referendum allowing the government to borrow money for the $5 billion canal expansion.
“We’re spending $1.2 trillion in debt and we can’t find $4 billion?” he exclaimed.
In an interview on the event floor, Anderson said governors, mayors and some members of Congress are beginning to understand the importance of investing in port infrastructure, including maintenance dredging of existing waterways to keep them at their authorized depths.
“We’re falling so far behind. We can’t wait another five to 10 years for our country to realize that the rest of the world is leaving us in its wake,” he said. “We don’t want to be the recipient of transshipment cargo because we failed to invest a few billion dollars.”
The Jacksonville port director said he is considering notifying the Florida congressional delegation about U.S. funding for the IDB being used for facilities to compete against jobs at home, adding it “could be a potential lightning rod” in the current economic environment with 8.2 percent unemployment and a huge federal debt.
“I might let them know that we have concerns and that it might mean jobs to our state, our region and our nation,” he said.