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Limit on big ships in Houston raises concerns

The Port of Houston says its decision to limit the calls of 9,000-TEU-plus ships to one a week won’t hamper the port’s volumes, but transportation providers and packagers supporting resin exporters, expecting a surge in shipments, aren’t convinced.

The rule limits containerized cargo vessels of greater than 1,100 feet from traversing the 52-mile trip from the entrance of the channel to the port’s two terminals. The impact is heightened by a decision by Houston ship pilots to prohibit two-way traffic in the channel in some circumstances when a mega-vessel is en route. Smaller ships going in opposite directions are able to swerve around each other in the channel. But the pilots say the channel is too narrow for nearly 1,100-foot-long ships to make that maneuver, and their safe passage requires that big ships can be the only ones in the 530-foot-wide channel as they pass through.

While port officials say they believe that the one-vessel-a-week rule won’t limit container movement through the port — and they are moving to speed up a dredging project to widen the channel — the rule has raised concerns that it could hamper port growth, prompting shippers and ocean carriers to take their business elsewhere.

Rising volumes bring bigger ships

Houston’s loaded cargo volume grew 9.5 percent year over year to 2.21 million TEU in 2018, with exports up nearly 9 percent and imports up 11.4 percent, according to PIERS, a sister product of within IHS Markit. Houston’s volume growth outpaced that on the Gulf Coast and the US as a whole, which grew 8.1 percent and 5.1 percent, respectively. The only major US ports that grew faster were Seattle and Wilmington, North Carolina. Houston’s port’s loaded cargo to and from Asia jumped 17.4 percent, with imports up 19.5 percent and exports up 11.34 percent, PIERS data show.

Resins are a crucial element of the export growth. The availability of cheap shale gas has triggered a surge in new and expanded petrochemical plants, pipelines, and liquefied natural gas (LNG) export facilities along the US Gulf Coast, and Houston is a key export port. Joel Morales, executive director, polyolefins, Americas, with IHS Markit, said he expects US net exports of polyethylene to increase from 6.3 million metric tons annually to 10.4 million metric tons annually from 2018 to 2023.

Marc Levine, president of Plantgistix, a Houston-based resin packaging company, said he only learned of the rule Thursday but already doesn’t like it. He fears the regulation could restrict the port’s expansion and send cargo to East Coast ports, such as Savannah and Charleston.

“We're shipping exports like gang busters,” said Levine. He said Plantgistix shipped 24,000 FEU in 2018, a 50 percent increase over 2017, and he expects that volume to grow another 35 percent in 2019. “It's going crazy. We love it. It's a huge boon to our industry,” he said. “We need these big ships. One per week sounds very restrictive.”

Roger Guenther, executive director of the Port of Houston Authority, said he “couldn’t speculate” on what impact the rise in cargo volume in the future might have on the port’s ability to handle it with a big-ship limitation in place. But he said shippers should feel secure.

“I don’t believe they should be worried at all,” he said. “It’s change management. Things are going to continue to change, and I am confident that we are going to continue to grow with the demand here.”

He cited the example of the pilots’ rule allowing one-way traffic only when a big ship goes down the channel. After reanalyzing their ability to maneuver ships in the channel, the pilots on Wednesday changed the rule so that ships up to 600 feet long are now allowed to be in the channel with a mega-ship, but larger ships are not.

At present, only one carrier, Mediterranean Shipping Co., sends large container ships into Houston, the latest of which, the 1,104-foot, 9,200-TEU MSC Joanna, will call at the port Sunday. Port officials say only 10 vessels of that size have called at the port since the first one arrived in August, and only four are scheduled in the next four months.

But that could change rapidly if, for example, growing regional demand pushed a carrier to place a 1,100-foot vessel on a weekly service to the port.

Ric Campo, chairman of the Port of Houston Authority, speaking at the April 8 meeting before the vote to limit mega-vessels, said he had spoken extensively to both MSC and Maersk Line, who together handle about one-third of the port’s cargo. MSC said one sailing a day would not “negatively impact” its business at present, he said.

Still, Campo acknowledged that the limitation is only an interim measure. One attendee, for example, asked him what would happen if a second carrier announced in six months that it wanted to bring a large vessel into the port to equalize the “competitive edge” that MSC gets from operating larger ships into the port.

“Ultimately, we have to be able to deal with the situation as it arises,” Campo said. “If we ended up at the beginning of next year with a bunch of these ships, then we'll have to get in a room with them and figure out how we're going to organize it.”

Long-term impact

MSC could not be reached for comment, but other ocean carriers are watching the situation closely. Johanna Stroex, a spokesperson for Hapag-Lloyd, said the carrier is aware of the decision, but “at this point in time the limitation has no impact on the business of Hapag-Lloyd.”

“Nonetheless, it needs to be considered for future planning,” such as if the carrier wants to use larger ships, she said.

Tom Boyd, a spokesperson for Maersk, said it is “satisfied with the deployment” of vessels it currently has through Houston, none of which exceed 9,000 TEU. He welcomed the port authority’s plan to widen the channel, saying that at the moment the channel is “a bit limiting ... We have to watch our vessel size.”

Shareen Larmond, president of the West Gulf Maritime Association, which represents terminal operators, ocean carriers, stevedores, and other port employers, said the channel-widening project could take at least four to five years. In the meantime, she said, the association would “continue to discuss and collaborate with the Port of Houston regarding this issue.” She said the port is “open and willing to accommodate and continue accommodating ship calls.”

The port authority on Wednesday said it is working with the US Army Corps of Engineers and other representatives of the federal government to obtain authorization and accelerated funding for the project. The project could cost $1 billion, and the authority is looking at all private and public options for funding to speed up the project, especially if they allow the port to avoid relying on money from congress, which will only increase the time to completion.

“We need to fix the channel now, and we are looking to make this project be the model of how to get channel improved quickly,” he said.

At the April 8 meeting, the authority also approved a fund of $500,000 to support a traffic efficiency group for the channel. The group will consist of port stakeholders, who will work with US Coast Guard, the pilots, and others to share data and insights to help optimize channel traffic flow.

M. Can Fidan, vice president of business development for MTS Logistics, a New York-based non-vessel-operating common carrier that specializes in shipping resins, said he doesn’t “see any problem as of yet.

“I don’t think this will have any immediate effect,” he said. “And I don’t think it is very different than what POHA [Port of Houston Authority] was advising in the past about the capacity of the vessel they can handle.”

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