Interview

An American View of US-China Ports and Shipping

Ronald D. Widdows

CEO Ronald D. Widdows of APL Co. Pte Ltd. talked with CBR Associate Editor Virginia A. Hulme about some of the issues the shipping industry currently faces. Widdows was in Washington, DC, to participate in meetings with US Department of Transportation officials and representatives from companies involved in the various industries that make up the freight transport sector. APL is a wholly owned subsidiary of Singapore-based Neptune Orient Lines.

CBR: Please tell me a little bit about the focus of the meetings you've been attending here in Washington.

Widdows: Most of what we've been focusing on is the [US] transportation infrastructure in general, and the difficulties that it causes our customers. We're engaging with people in Washington to help them understand the impact that these infrastructure problems have and will have. The focus has principally been with DOT [US Department of Transportation], and it's been quite interesting so far. There's an enthusiastic audience that already has a pretty good idea of the problems and needs of customers—mostly importers. Putting a face on these problems makes them more tangible to folks in government.

CBR: Can you explain in more detail what those problems and needs are?

Widdows: Because of the way that trade growth has really exploded, which has had a lot to do with the migration of manufacturing to China, trade growth has outstripped the pace of infrastructure development almost anywhere in the world—other than China. China has made sure that its port terminal development is sufficient to maintain its export economy, and they've done an excellent job. They'll have excess terminal capacity over the next 5-10 years. Most other places in the world are unable to create this extra capacity, for a variety of reasons—environmental restrictions, physical limitations, or limited financial resources.

The shift in manufacturing and the increase in transportation volume first appeared in the US, then Europe, and now the Mediterranean. If you look at volume from China to Europe as a whole, it's been growing about 20 percent year on year, but if you isolate the Mediterranean over the last six months or so, it's been growing by almost 30 percent year on year.... Sixty percent of what is handled in the transpacific trade, and about the same amount from Asia to Europe, is from China. And growth in China-manufactured consumer items is driving growth in Middle Eastern markets.... A lot of people focus on the US and trade volume growth in the US as being the drivers of the global economy, but China is basically servicing the world, and the trade volume growth in other regions is even more dramatic than the trade volume growth into the US.

No one in our industry—railroads, ports, etc., around the world—forecast such a significant kick-up in transportation volumes. Generally forecasters look at economic conditions. Look at GDP growth in Europe—it's been flat to negative for the last few years, but trade growth from Asia to Europe has been 20 percent year on year over the last two-and-a-half years—how could you project that by looking at the economic conditions? It's the same in the US. When you look at US GDP growth, it's OK, but ...it isn't the kind of thing that would lead you to believe you'd have double-digit transportation growth year after year for nearly three years. So that surprised everyone, and as a result, in the US, we're behind in the development of sufficient rail capability, in some places the development of terminal capacity, and in the availability of trucking power. All of those things started to creak a little bit in 2003, and moving into 2004 it became a significant problem. In the second half of 2004, there was some pretty severe congestion. And this has affected customers.

Most importers and companies in the US have, in the last 10-15 years, developed supply chains that rely on delivery of goods in a given period of time. Some companies have really refined that and gone to just-in-time manufacturing.... Some companies have developed sophisticated distribution capabilities, and now, nearly overnight, they don't work any more. You start adding four, five, six days to that chain, and not only is it more days, it's not reliable because it's not consistent. That really disrupts business. Again, that's a global problem, but it's more significant here [in the US] because of the impact it has, particularly on inland transportation. Rail has not coped well.

CBR: What are some of the solutions industry is proposing?

Widdows: Well, as with most things it's easy to describe the problems; it's not so easy to find solutions. In other countries, such as China and even Singapore, where we're headquartered, government is heavily involved in ensuring the development of infrastructure. But in the US, infrastructure lies largely in the hands of the private sector. Railroads are in the business of building rail; the US government is not. Port authorities (semi-public-private type entities), port terminal operators, and other private companies are the ones that have to make the investments in the US today. In the US, the government can provide investment incentives, investment tax credits, funding from within transportation legislation, and so on. These incentives would help direct funding to develop intermodal infrastructure more rapidly and allow the private sector to make those investments at a more rapid pace.

CBR: Are these incentives being set up now, or are they already in place?

Widdows: I think it's a combination. Undersecretary [of Transportation Jeffrey N.] Shane gave a speech yesterday and went through a list of incentives already available to the private sector [see www.dot.gov/affairs/NITL.htm]. Other incentives are being contemplated, and some of the funding is contained in the highway bill.

CBR: It sounds as though improvements to US infrastructure really lie in the hands of private companies. Are these companies communicating and coming up with an overall plan?

Widdows: That's what we're involved in—getting our industry, the shipping community, to understand the nature of the problems and getting customers engaged in the process. The railroads are spending an enormous amount of money already—on infrastructure development, double-tracking where there's currently single tracking, building sidings, building locomotives and cars, and adding people—to be able to carry the additional volume. I think the four Class I railroads in the US between them are probably spending something in excess of $5 billion a year in investment, and even that is not enough. So could they spend more with investment tax credits made available to them that would hasten the process? The answer seems to be "yes."

There are other solutions within our own—the shipping companies'—control. Changing our network, changing our deployments to open up alternate gateways to relieve some of the pressure on LA/Long Beach. That was done in 2004. We have a large terminal in Seattle, so we moved some volume north by putting new services into Seattle. But most of the changes that our industry can make have been done. We've moved ships around, we've opened up alternate gateways, we've increased capacity to the US east coast. All of those are helpful in the short term, but volumes continue to build, and where there was some slack capacity, that's going to be eaten up pretty quickly. So expanding some of the ports and terminals in a more rapid fashion, getting a quicker pace of investment in rail, these are all things that need to happen, but unfortunately these are all things that take years.

Some time constraints stem from environmental regulations. If you want to build a new marine terminal in the US, the environmental permitting process is very long. So the timeframe for expansion is three, four, five, six years, depending on where you are. A place like New York/New Jersey is fairly well jammed today. When will the next terminal of any size be built in New York? Maybe 2010? A long time. There's some planning, but because of the environmental permitting, the places that aren't developed are development challenges. You have environmental remediation—these aren't very pleasant places, right? During the next five or six years, even at a moderated level, the volume will double. So [timing] is a concern, and in some places it's a significant problem. How do you accelerate that process? Environmental laws are what they are. If you want to build terminal capacity in two years instead of six years, how do you make that happen? I don't know. All this means that capacity won't open up in some places for a very long time. And it's not a function of unwillingness to spend the money, it's just difficult to do.

CBR: How has the US container security initiative (CSI) affected your business, particularly with respect to China?

Widdows: There's nothing specific to China—the issues are not significantly different there than anywhere else. People said Hong Kong shippers could not possibly comply with the 24-hour manifest and the requirements. They did. They did very quickly. [CSI] was put in place very smoothly; actually it has helped people like us to get information sooner. We can plan terminals better, we can preplan stowage on the ships with greater certainty because we know what's coming. We have less opportunity for last minute fall-down, because information is required further upstream. So it's actually been helpful purely from an operating standpoint, and shippers have been able to comply without much difficulty.

Other initiatives by [US] Customs and [the US Department of] Homeland Security here have not had an impact of any consequence. Only a relatively small number of boxes are physically inspected. The US government has been very good about taking information from the industry about what is and isn't practical. So as regulations have been developed, our industry has worked with the US government through the World Shipping Council, which has a lot of credibility with the various agencies in Washington. The effort has been more collaborative than a lot of people expected. So as the regulations develop there's a lot of exchange of information, and modifications have been made. You know, the industry wants to comply, wants to create a more secure environment, and that process of information exchange and education has been very helpful.

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	Interview An American View of US-China Ports and Shipping Ronald D. Widdows CEO Ronald D. Widdows of APL Co. Pte Ltd. talked with CBR Associate Editor Virginia A. Hulme about some of the issues the shipping industry currently faces. Widdows was in Washington, DC, to participate in meetings with US Department of Transportation officials and representatives from companies involved in the various industries that make up the freight transport sector. APL is a wholly owned subsidiary of Singapore-based Neptune Orient Lines. CBR: Please tell me a little bit about the focus of the meetings you've been attending here in Washington. Widdows: Most of what we've been focusing on is the [US] transportation infrastructure in general, and the difficulties that it causes our customers. We're engaging with people in Washington to help them understand the impact that these infrastructure problems have and will have. The focus has principally been with DOT [US Department of Transportation], and it's been quite interesting so far. There's an enthusiastic audience that already has a pretty good idea of the problems and needs of customers—mostly importers. Putting a face on these problems makes them more tangible to folks in government. CBR: Can you explain in more detail what those problems and needs are? Widdows: Because of the way that trade growth has really exploded, which has had a lot to do with the migration of manufacturing to China, trade growth has outstripped the pace of infrastructure development almost anywhere in the world—other than China. China has made sure that its port terminal development is sufficient to maintain its export economy, and they've done an excellent job. They'll have excess terminal capacity over the next 5-10 years. Most other places in the world are unable to create this extra capacity, for a variety of reasons—environmental restrictions, physical limitations, or limited financial resources. The shift in manufacturing and the increase in transportation volume first appeared in the US, then Europe, and now the Mediterranean. If you look at volume from China to Europe as a whole, it's been growing about 20 percent year on year, but if you isolate the Mediterranean over the last six months or so, it's been growing by almost 30 percent year on year.... Sixty percent of what is handled in the transpacific trade, and about the same amount from Asia to Europe, is from China. And growth in China-manufactured consumer items is driving growth in Middle Eastern markets.... A lot of people focus on the US and trade volume growth in the US as being the drivers of the global economy, but China is basically servicing the world, and the trade volume growth in other regions is even more dramatic than the trade volume growth into the US. No one in our industry—railroads, ports, etc., around the world—forecast such a significant kick-up in transportation volumes. Generally forecasters look at economic conditions. Look at GDP growth in Europe—it's been flat to negative for the last few years, but trade growth from Asia to Europe has been 20 percent year on year over the last two-and-a-half years—how could you project that by looking at the economic conditions? It's the same in the US. When you look at US GDP growth, it's OK, but ...it isn't the kind of thing that would lead you to believe you'd have double-digit transportation growth year after year for nearly three years. So that surprised everyone, and as a result, in the US, we're behind in the development of sufficient rail capability, in some places the development of terminal capacity, and in the availability of trucking power. All of those things started to creak a little bit in 2003, and moving into 2004 it became a significant problem. In the second half of 2004, there was some pretty severe congestion. And this has affected customers. Most importers and companies in the US have, in the last 10-15 years, developed supply chains that rely on delivery of goods in a given period of time. Some companies have really refined that and gone to just-in-time manufacturing.... Some companies have developed sophisticated distribution capabilities, and now, nearly overnight, they don't work any more. You start adding four, five, six days to that chain, and not only is it more days, it's not reliable because it's not consistent. That really disrupts business. Again, that's a global problem, but it's more significant here [in the US] because of the impact it has, particularly on inland transportation. Rail has not coped well. CBR: What are some of the solutions industry is proposing? Widdows: Well, as with most things it's easy to describe the problems; it's not so easy to find solutions. In other countries, such as China and even Singapore, where we're headquartered, government is heavily involved in ensuring the development of infrastructure. But in the US, infrastructure lies largely in the hands of the private sector. Railroads are in the business of building rail; the US government is not. Port authorities (semi-public-private type entities), port terminal operators, and other private companies are the ones that have to make the investments in the US today. In the US, the government can provide investment incentives, investment tax credits, funding from within transportation legislation, and so on. These incentives would help direct funding to develop intermodal infrastructure more rapidly and allow the private sector to make those investments at a more rapid pace. CBR: Are these incentives being set up now, or are they already in place? Widdows: I think it's a combination. Undersecretary [of Transportation Jeffrey N.] Shane gave a speech yesterday and went through a list of incentives already available to the private sector [see www.dot.gov/affairs/NITL.htm]. Other incentives are being contemplated, and some of the funding is contained in the highway bill. CBR: It sounds as though improvements to US infrastructure really lie in the hands of private companies. Are these companies communicating and coming up with an overall plan? Widdows: That's what we're involved in—getting our industry, the shipping community, to understand the nature of the problems and getting customers engaged in the process. The railroads are spending an enormous amount of money already—on infrastructure development, double-tracking where there's currently single tracking, building sidings, building locomotives and cars, and adding people—to be able to carry the additional volume. I think the four Class I railroads in the US between them are probably spending something in excess of $5 billion a year in investment, and even that is not enough. So could they spend more with investment tax credits made available to them that would hasten the process? The answer seems to be "yes." There are other solutions within our own—the shipping companies'—control. Changing our network, changing our deployments to open up alternate gateways to relieve some of the pressure on LA/Long Beach. That was done in 2004. We have a large terminal in Seattle, so we moved some volume north by putting new services into Seattle. But most of the changes that our industry can make have been done. We've moved ships around, we've opened up alternate gateways, we've increased capacity to the US east coast. All of those are helpful in the short term, but volumes continue to build, and where there was some slack capacity, that's going to be eaten up pretty quickly. So expanding some of the ports and terminals in a more rapid fashion, getting a quicker pace of investment in rail, these are all things that need to happen, but unfortunately these are all things that take years. Some time constraints stem from environmental regulations. If you want to build a new marine terminal in the US, the environmental permitting process is very long. So the timeframe for expansion is three, four, five, six years, depending on where you are. A place like New York/New Jersey is fairly well jammed today. When will the next terminal of any size be built in New York? Maybe 2010? A long time. There's some planning, but because of the environmental permitting, the places that aren't developed are development challenges. You have environmental remediation—these aren't very pleasant places, right? During the next five or six years, even at a moderated level, the volume will double. So [timing] is a concern, and in some places it's a significant problem. How do you accelerate that process? Environmental laws are what they are. If you want to build terminal capacity in two years instead of six years, how do you make that happen? I don't know. All this means that capacity won't open up in some places for a very long time. And it's not a function of unwillingness to spend the money, it's just difficult to do. CBR: How has the US container security initiative (CSI) affected your business, particularly with respect to China? Widdows: There's nothing specific to China—the issues are not significantly different there than anywhere else. People said Hong Kong shippers could not possibly comply with the 24-hour manifest and the requirements. They did. They did very quickly. [CSI] was put in place very smoothly; actually it has helped people like us to get information sooner. We can plan terminals better, we can preplan stowage on the ships with greater certainty because we know what's coming. We have less opportunity for last minute fall-down, because information is required further upstream. So it's actually been helpful purely from an operating standpoint, and shippers have been able to comply without much difficulty. Other initiatives by [US] Customs and [the US Department of] Homeland Security here have not had an impact of any consequence. Only a relatively small number of boxes are physically inspected. The US government has been very good about taking information from the industry about what is and isn't practical. So as regulations have been developed, our industry has worked with the US government through the World Shipping Council, which has a lot of credibility with the various agencies in Washington. The effort has been more collaborative than a lot of people expected. So as the regulations develop there's a lot of exchange of information, and modifications have been made. You know, the industry wants to comply, wants to create a more secure environment, and that process of information exchange and education has been very helpful. Further Reading A Sea Change Top of Page Table of Contents
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