Comparing the Panama Ports Company with the Port of New Orleans: Expansion Efforts and Relationships with Terminal Operators and Ocean Carriers

ABSTRACT:

In the wake of the recent Trade Promotion Agreement (TPA), the business and political relationships between Panama and the U.S. have recently undergone massive change for the better. Signed into effect on June 28, 2007, this agreement outlines the elimination of tariffs and other barriers to goods and services, promotes economic growth, and enhances trade between the United States and Panama. In observance of this growing opportunity for mutual international benefit, it is vital that a greater understanding be gained of key concepts of the methods employed by the ports in both nations with respect to the motivations and techniques behind recent expansionary efforts as well as the techniques involving the formation and continuation of transactional business relationships between terminal operators, ocean carriers, and the ports themselves. As the ports are the last to handle exports bound for international consumers and the first to touch imports on their way into their respective nations, a more intimate understanding by both parties of the basic operational functions of their international counterparts is vital to streamlining operations for both organizations. Considering the foregoing, this report will serve to demonstrate fundamental elements of such operations as they apply to the Panama Ports Company and the Port of New Orleans in terms of the recent expansion of both facilities and their respective normal operating procedures regarding dealing with private terminal operators and international ocean carriers.

INTRODUCTION:

As defined by the Bureau of Transportation Statistics, a marine terminal operator is a “person or entity that operates the various marine terminals at ports, [and]... provides receiving and delivery, and other terminal services for the cargos moving through these facilities.” (Bureau of Transportation Statistics, 2012). According to standard bill of lading terminology, an ocean carrier “performs sea carriage of Goods, and the vessel, her owner, and demise charterer, whether any of the preceding parties is acting as ocean carrier, non-vessel operating common carrier, or bailee.” (Bidux LLC, 2012).

The Port of New Orleans (PONO), at 25 hectares in size, moves about 500 million tons of cargo annually up the Mississippi River. An inland waterway system spanning 14,500 miles gives PONO unparalleled access to the American Midwest for the movement of cargoes. Also, PONO is the only deepwater port in the U.S. which enjoys service from six class-one railroads, giving its users direct rail service to or from any location nationwide. PONO represents the top national market share for imported natural rubber, steel, coffee, and plywood. Over a 10-year period, PONO has invested more than $400 million in modern facilities. Facilities at PONO include 22 million sq. ft. of cargo handling area and over 6 million sq. ft. of covered storage. The Port accommodates 2,000 vessel calls each year on average (Port of New Orleans, 2012).

PONO is governed by The Board of Commissioners, composed of seven unsalaried members, who serve five-year staggered terms. The governor of Louisiana appoints members from lists of three nominees selected by 19 local maritime, labor, business, education, and civic organizations. The membership of the board is indicative of its three-parish jurisdiction. Four members come from Orleans Parish, two from Jefferson Parish and one from St. Bernard Parish (Port of New Orleans, 2012).

Since 1997, the Panama Ports Company (PPC) has operated two ports, one on each side of the Panama Canal. The Port of Balboa is located in the city of Panama (Pacific Ocean) and the Port of Cristobal in Colon City. The company began operations in Panama with a 25 year renewable concession (Law 5 of January 16, 1997) that the State awarded for the administration of both ports. The company began as a result of a 25-year extendable concession for the administration of both facilities granted by the government in 1997 (Panama Ports Company, 2012).

The PPC, a subsidiary of the HPH Group, is currently working to turn both the ports into “mega-ports” to increase capacity. The PPC’s objective is to develop and modernize the ports’ infrastructures and services.

Since opening in 2000, the Port of Balboa container terminal has been recognized as one of the most important in Panama. Within six months of opening, the container terminalwas operating at its maximum capacity of 380,000 TEU. The 182 - hectare Port of Balboa houses four container berths and two multi-purpose berths. The combined total berth size is over 2,400 meters long, with an alongside depth of 15 meters. Currently, the Port of Balboa owns 18 super post-Panamax and Panamax quay cranes, as well as 44 gantry cranes. Also, the Port of Balboa is home to 2,100 m2 of warehouse space. The Port of Balboa is quickly becoming a major player in world commerce and transportation. Some of the largest shipping lines on earthhave become regular customers, making it possible for the Port of Balboa to handle a third of all Panamanian port cargo. In 2006, the Port of Balboa set a handling volume record of one million containerized TEU of throughput. (World Port Source1, 2012).

The Port of Cristobal spans 143 hectares. It is home to: seven multi-purpose berths,two container berths, and two additional berths. The Port of Cristobal’s 11 berths combine at 3,750 meters in length. Alongside depths there range from 12 to 14 meters. Container berths thereinhave six container quay cranes,a harbor crane, and ten rubber-tired gantry cranes. The container freight terminal includes 6,100 m2. The Port of Cristobal also boasts warehouse space of 11,800 m2 (World Port Source2, 2012).

The focus of this report is comparing the Panama Ports Company with the Port of New Orleans. More specifically, this report compares the ports’ respective expansion efforts designed to facilitate containerized shipping, as well as the nature of their relationships with terminal operators and ocean carriers.

Table 1

INFORMATION AND DATA COLLECTION APPROACHES:

Information and data collection techniques will include a combination of internet sources and highly specified interview questions for port officials in both locations to frame this comparison.

Internet Search Methods: A combined approach to retrieving data from the internet willbe utilized for purposes of this case study. First, a series of searches using a standard search engine will be conducted. This will be utilized to determine, if possible, general information about the ports themselves, the average current annual throughput volume, target annual throughput volume after the expansionary measures are complete, and methods for completing the expansions will be obtained in this way. Also, a thorough search of the Business Source complete database at USM Library will be used to provide this information. Any of the data pertinent to this case study which cannot be procured by these methods will be collected via interviews with port officials.

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Table 3

Interview Methods:

Issues that will be addressed through interviews for comparison of the expansionary efforts will include, but not be limited to:

The current capacity for TEU throughput volume (daily and annually) of container cargo v. target capacity for completion of the expansions

Ratio of private contractors to government labor in dollar amount

Estimated direct job creation resulting from the expansions

Which containerized products, specifically are being targeted by port marketers as candidates for utilizing the new space and why were they chosen

What types, specifically, of information technology are being employed to streamline logistics and integrate the supply chain for upstream / downstream businesses

Pertinent issues to be raised through interview questions, which will be used to assess the nature of the relationships of the ports in question with terminal operators and ocean carriers shall include, but not be limited to:

How does the port earn revenue; specifically, are charges levied to individual shippers, or are terminal operators / carriers assessed for utilizing the ports’ services.

How are the specific fees allocated; By volume, By time, By dollar amount, etc.

With which terminal operators / carriers does the port in question deal most frequently

What is the target weight for ocean going vessels leaving the port

CASE STUDY:

Expansion Efforts:

Panama Ports Company: The Panama Ports Company will receive more equipment during 2012 for the operation of its ports in Balboa and Cristobal, including 13 electric RTG gantry cranes for the Port of Balboa, manufactured by ZPMC, in addition to cranes manufactured by Noel. Later at the Port of Cristobal, and on pier 18 at the port of Balboa, 3 Super Post Panamax gantry cranes will be installed. Capacity will thus be expanded by for 61 tons, allowing for the capability to safely load and unload boats of up to 22 TEU containers in width (Central American Business Network, 2012).

Panama Ports Company is in the process of allocating investments in excess of US $1 billion to increase the capacity of both facilities to handle 6.5 million twenty-foot equivalent units (TEU). Currently in Phase IV of its expansion, with an additional investment of US$300 million, it will handle 4 million TEU and serve megaships from many of the most highly active global trade routes (Panama Ports Co, 2012). A map showing the locations of the Ports of Balboa and Cristobal is below.

Figure 1

Port of New Orleans: In 2011, containerized cargo throughput increased by 11.6%, setting a PONOvolume record for the second consecutive year. The rapid upswings in demand for such exports as chemical and agriculture products are attributed as a primary cause of this surge in business. Large import quantities of products including coffee and apparel alsofueled the climb to 476,413 20-foot equivalent units, putting container traffic in up 46 percent from 2009. Port President and CEO Gary LaGrangecommented: “Two back-to-back record-setting years is a testament to the hard work of our customers and terminal operators” (Leach, 2012).

$38 million was invested in 2011 to expand the container terminal at PONO, including the installation of two new container gantry cranes and the acquisition of just over four acres of property to be added to the marshalling yard. Additionally, the Department of Transportation awarded $16.7 million in federal grant funding to PONO in December. This funding is intended to be used to enhance the Mississippi River Intermodal Terminal, “a specialized, 12-acre freight railyard on the terminal that will provide rail access for the six Class 1 railroads that serve the port” (Leach, 2012). A map of the Port of New Orleans is below.

Figure 2

Relationships with Terminal Operators and Freight Forwarders:

Panama Ports Company:

All TO’s at the Panama Ports Company are private HPH employees. Shippers contract with whichever forwarders or carriers they choose. Charges are then assessed by the port based upon capacity, rather than actual tonnage being carried. In other words, any particular class of vessel will incur the same charges for mooring at any PPC owned port; whether it is at full load capacity or is only carrying its crew (Balboa, 2012).

Port of New Orleans: CMA CGM last year restarted service to the port by upgrading its Gulf Bridge Express service linking the Gulf of Mexico, Mexico and the Caribbean. The French carrier joins Mediterranean Shipping, Hapag-Lloyd, Maersk Line, Seaboard Marine and CSAV in serving the Napoleon Avenue Container Terminal, which is operated jointly by New Orleans Terminal and Ports America (Leach, 2012).

There are no formal charges issued by PONO to private shippers. Instead, privately held terminal operating firms are charged per ton to operate the facilities. These terminal operators (T0s) typically do business with PONO on the basis of annual volume guarantees. The T0s are paid by freight forwarders and ocean transit firms for services at the port. PONO receives a standard fee generally ranging from $2 to $3 per ton from the TOs for such usage. Therefore, a breakdown of potential income from handling cargo similar to the containerized cargo (the focus of the recent expansionary efforts) can be summarized as follows.

Figure 3

Assume a median average revenue to PONO of $2.50 per ton. While the TEU is not itself a measure of mass, some conclusions can be drawn about the maximum mass that a TEU can represent. The maximum gross mass for a 20-foot (6.1m) dry cargo container is estimated at around 24,000 kilograms or 53,000 lb (26.5 tons). Therefore, PONO revenue of approximately $66.25 per TEU container shipped can be estimated.

While these figures may seem unimpressive, an investigation of typical ocean carrier protocol reveals the contrary. The standard total cargo weight requirement for a typical international ocean carrier dealing with PONO to set sail is 300,000 tons per vessel. At rates of $2 to $3 per ton, this amounts to an estimate of approximately $600,000 to $900,000 in revenue for PONO every time an ocean carrier's ship lets loose its mooring lines.

At this point, the advantage for PONO of capturing a larger piece of the containerized cargo market is clear. When including additional cargo with stowed weights of up to 53,000 lbs for TEU containerized shipments, the TOs can reach target weights sought by ocean carriers much more quickly, and with less stoppage time. This means that ocean - going ships enter and leave the port at decreased intervals, reducing producing greater efficiency an increased profits for freight forwarders, TOs, carriers, and of course PONO(Landry, 2010).

Information Technology at the Ports:

Panama Ports Company:Through the extensive use of EDI (electronic data interchange) services, PPC is able to carry out most of its transactions electronically, and in real time. This allows for immediate information availability to all interested parties to a transaction.PPC’s EDI connections are available to users 24 hours per day. The following EDI services are offered by PPC.

BAPLIE (Bay Plan / Stowage Plan, Occupied and Empty)
Information about equipment and goods being transported, such as cargo location and current transportation method is instantly available to shippers, carriers, and port personnel (Balboa, 2012). Pertinent information can be readily exchanged between “agents, tonnage centers, stevedores and captains/operators” (Panama Ports Company, 2012).
CODECO (Container Gate-In / Gate-Out)
Allows confirmationat the terminal, depot, carrier, or shipper level that the specified containers have been delivered or picked up by the inland carrier (road, rail or barge). Also, CODECO reports internal terminal container movements (excluding loading and discharging of vessels); and is capable of trackingcontainer status changes without requiring physical checks.

COARRI (Container Discharge/ Loading)
This system allows the terminal to instantly report the discharge of specified containers from a sea going vessel (discharged as ordered, over-landed or shore-landed). Additionally, COARRI reports on the containers as they are loaded onto a seagoing vessel (Panama Ports Company, 2012).

Port of New Orleans: The Port of New Orleans uses RFID (Radio frequency identification) technologyknown as TransCore’s "GEMS" (gate entry management system) gate processing scheduling system. TransCore was chosenas the contractor for a wireless access and tracking system at PONO. “GEMS” automates thehandling of container trucks that use the terminal. Individual trucks are electronically identified as they approach the Napoleon AvenueContainer Terminal. Access is immediately granted or denied, directions are provided, andtheir locations and activitiesare tracked as they enter, conduct operations within, and leave the terminal. TransCore claims that productivity and security will enjoy projected increases from 40 to 60 transactions per hour to 240 per hour (TransCore, 2012).

According to Chris Bonura, communications manager for the Port of New Orleans, “We use RFID in our gate system…RFID ensures that empty and loaded trucks are monitored for efficiency.”

At the Napoleon Avenue Terminal, the following process is implemented:

A pick-up or drop-off appointment is scheduled by a truck driver or dispatcher. Then, the appointment details are logged into a computer. When the scheduled truck arrives at the gatehouse, terminal management is notified by the RFID tag in the cab. Next, the RFID tag triggers a sensor in the gatehouse. This instantly allows the gatehouse operator to see who has arrived, and the nature of their pick up or drop off. After that, each truck and container passes through a system of 19 overhead sensors that read the RFID and OCR (optical character reader) tags on the container. Here, the condition of the container is also documented using video cameras. The trucks and their new containers are also weighed while in motion. All of this is accomplished at a speed of around 15 mph.

“The new gatehouse system shaves about 20 minutes off of a single move (a drop off or a pick up) or 40 minutes off a double move (a drop off and pick up),” Bonura adds. Additionally,this RFID technology enhances terminal security, because no truck can enter or leave the terminal without it (Chartock, 2012).

In addition to RFID technology, PONO also utilizes EDI to streamline operations. PONO’s own system, called CRESCENT (Computerized Reporting and Expediting of Shipments to Control Essential New Orleans Trade), has been in use for a few years with great success. Also, PONO is a participant in the ACES (Advanced Cargo Expediting System) system used by the Ports of New York and New Jersey (Emerson Associates, 2012).

RESULTS / RESULTS IMPACT

Similarities:

Both PONO and PPC are expanding through the use of 100% private labor. Both have indicated that new gantry cranes and super post panama quay cranes are on the docket for expansion. Containerized cargo, specifically raw rubber, coffee, and fruits and vegetables will be of particular interest to both parties. Although both are privately owned entities, there are differences in the ways that they are funding their respective expansion efforts, which will be covered in the subsequent section along with several other key differences.