It’s time to invest heavily in new ports and container terminals
by John D. McCown (OpEd) Sixty-six years ago, the post-war growth of the American economy saw increasing congestion on the highways. This problem became the catalyst for two events in 1956, resulting in capital investments whose returns over the following decades and to the present day are significant. One event was the Federal Aid Highway Act of 1956 which authorized the creation of the Interstate Highway System.
The construction of 41,000 miles of four-lane superhighways without intersections or traffic lights connecting all parts of the continent was the largest public works project in American history. The full returns of this wise investment are so high they are almost incalculable and the interstate system is certainly the epitome of federal government investment in infrastructure at its finest.
The other event was the invention of container shipping by Malcom McLean. His large trucking company transported a lot of goods between the New York area, Texas and Florida. The longer it took his trucks to make the long journey, the more he saw the benefits of a new process he wanted to develop, which he believed would be a more cost-effective way to move freight cargo. This is exactly what his new system did, first at the national level, then at the international level. Today, the economic benefits to the United States and global trade economies enabled by the profitability of containerization are also so high as to be almost incalculable.
Related book: Giants of the Sea by John D McCown
We are now seeing the impact of congestion on many of our ports and container terminals. The fact that there are currently container ships waiting to berth on all three coasts is a tangible reminder that many ports and terminals are operating near or at full capacity. For more than a year, we have experienced the biggest disruption ever to container shipping. Among its consequences, one of the main impacts has been the additional container shipping costs that have been absorbed by the US economy. By my calculations, the aggregate price of all inbound containers into the United States during the second quarter of 2022 was 3.218 times what it was two years ago before any price impact. This translates to the US economy absorbing $82 billion a year in additional container shipping costs. If you believe, as I do, that the price increases were primarily due to container system capacity contraction and that they were in turn primarily related to terminal-related issues, you would conclude that the root cause is the lack of land infrastructure.
In 2021, the total number of inbound containers in the United States was 24.6 million twenty-foot equivalent units. Although this was four times the number of containers entering the United States in 1995, it was handled with essentially the same ports and container terminals. Increased productivity, higher container stacking and previous excess capacity have all come together to manage this growth. It was yeoman’s job that this was accomplished with essentially the same landside infrastructure, but now there are several signals that the system is reaching its limits. The continued growth that we can foresee will put increasing pressure on this system. Although not at the annual growth rate of 5.6% from 1995 to 2021, half that rate or a rate of 2.8% is a reasonable estimate for the future. At that, containers entering the United States will be twice as many in 25 years and four times as many in 50 years.
The current port system in the United States is simply not able to accommodate the geometric growth in container volume on the horizon. Managing growth requires more than just marginal improvements in capacity. A bold new federal initiative adding capacity with new ports and container terminals is needed. It is expected to include new large interior terminals allowing full-wheeled operations that facilitate transfer between modes, a key contributor to the bottlenecks in current systems. Containers entering and exiting the United States each year represent $1.5 trillion of goods inextricably linked to the economy. The most direct route to returning to the normalcy of the past and ensuring we don’t repeat the recent stalemate comes through increasing the capacity of the container terminal. It is an expansionary investment in infrastructure that solves a problem and paves the way for future growth.
Just as the federal government sixty-six years ago responded to the need for a better highway system, today it should respond to the need for a more resilient container supply chain. This will require significant investment, but this requirement must be weighed against the tangible cost of recent disruptions. Unless meaningful action is taken, the disruption to the maritime supply chain that has recently been witnessed will be more consistent and pervasive in the future. With $82 billion a year the minimum cost of our current ground infrastructure inadequacy, this amount can certainly justify significant investment to fully address the problem while ensuring future growth. The returns from these investments may not match the interstate system, but they will be significant nonetheless.
John D. McCown is a globally recognized shipping expert with four decades of maritime experience, including 15 years as CEO of a US-flagged container shipping company he co-founded. He is an inventor with two patents, author of the book Sea Giantsand founder of Blue Alpha Capital.