Institutional Archive of the Naval Postgraduate School

Calhoun: The NPS Institutional Archive DSpace Repository

Theses and Dissertations 1. Thesis and Dissertation Collection, all items


Challenges and issues for U.S. Ports : impact of the next generation containerships and carrier alliances on commercial ports and military operations

Wilborn, Clifford M.

Monterey, California. Naval Postgraduate School

Downloaded from NPS Archive: Calhoun

ma KNOX appointed and published scholarly author.

411 Dyer Road / 1 University Circle Monterey, California USA 93943

Calhoun is the Naval Postgraduate School's public access digital repository for (8 D U DLEY research materials and institutional publications created by the NPS community. «ist Calhoun is named for Professor of Mathematics Guy K. Calhoun, NPS's first

LIBRARY Dudley Knox Library / Naval Postgraduate School






Clifford M. Wilborn.

December 1997


W585035 | Principal Advisor: David G. Brown Associate Advisor: Donald R. Eaton

Approved for public release; distribution is unlimited.


a fia O = Y > a a : oO :

Form Approved


| Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instruction, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188) Washington DC 2U503.

1. AGENCY USE ONLY (Leave blank) 2. REPORT DATE 3. REPORT TYPE AND DATES COVERED December 1997 Master’s Thesis

4. TITLE AND SUBTITLE Challenges and Issues for U.S. Ports: Impact of the Next Generation 5. FUNDING NUMBERS Containerships and Carrier Alliances on Commercial Ports and Military Operations

6. AUTHOR(S) Wilborn, Clifford M.

7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) Naval Postgraduate School Monterey, CA 93943-5000




11. SUPPLEMENTARY NOTES The views expressed in this thesis are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. Government.

12a. DISTRIBUTION / AVAILABILITY STATEMENT 12b. DISTRIBUTION CODE Approved for public release; distribution unlimited. ABSTRACT (maximum 200 words)

The emergence of the next generation containerships (mega ships) and global shipping line alliances will bring about

fundamental changes in the operational framework and infrastructure of many U.S. ports. By all indications the end result will be : | more a streamlined and competitive container industry where ocean carriers will operate with load center and feeder port configurations. For many ports, this new environment will dictate addressing the problems of inefficiencies in productivity, landside access congestion, and dredging in order to remain competitive. From the military perspective, the changing environment and problems facing the ports may limit accessibility and availability at the nation’s strategic seaports. This thesis examines the issues of the changing port environment and impact on military throughput. It also explores the

automation and technological concepts available or being developed which can improve military efficiency.

14. SUBJECT TERMS Defense Transportation System, Deployment, Logistics, Mobilization


132 16. PRICE CODE









NSN 7540-01-280-5500 Standard Form 298 (Rev. 2-89) Prescribed by ANSI Std. 239-18

Approved for public release; distribution is unlimited.


Clifford M. Wilborn Lieutenant Commander, United States Navy

B.S., Savannah State University, 1987

Submitted in partial fulfillment of the requirements for the degree of





The emergence of the next generation containerships (mega ships) and global shipping line alliances will bring about fundamental changes in the operational framework and infrastructure of many U.S. ports. By all indications the end result will be more a streamlined and competitive container industry where ocean carriers will operate with load center and feeder port configurations. For many ports, this new environment will dictate addressing the problems of inefficiencies in productivity, landside access congestion, and dredging in order to remain competitive. From the military perspective, the changing environment and problems facing the ports may limit accessibility and availability at the nation’s strategic seaports.

This thesis examines the issues of the changing port environment and impact on military throughput. It also explores the automation and technological

concepts available or being developed which can improve military efficiency.



Whe. LUST 8G) DIVE TE © J a2 ] fat bY MCN GIRO) DIN Bie eae ane I See a 0 Ae ] Bis) KINI KIC SOE 15) Bre) 2/3) 6! a en 3 C. RESEARCH SCOPE ANIME THOD OLOGY wee ...i.secesercssssecdsonscteress ~ DERE SEAR CER et CLC A GIN es: ie- Gi... OO. MME ncs00s5e.ssoeseestencnsioes 5 EF ORGANIZATIONIOR THESIS cree. :.......sseeeetiee revs) MAMMMEND ts << st5Avsouounoecccct 6 Il; PRESENT SMRUCTURE OF UlS 2 RO amps pera ta iscaausseaesls st es eset esse wi: 7 A. PINAIVIE WORK OF ORTIVA TION ooo occ apes eo esce nn ccecesasecesess 8 1. Port Developme mentite Wie same. <5. Sy is .Ssucte es 8 2. Ports'as TUDliC-EMtehphisce:......-.-- een Rohs .02...020cees cess 10 3. US. Port Manace ments Simreuelic stro: uN sc-.2.-0..-2cciedeoasssessteee 12 4. Port Development Finances and Revenues .................cccccccceesseeeeeceeees 15 a. Methods of Obtaining Funds and Financing ..........0000 00000 18 b Self-sufficiency and PrOfiGvu ly necosiecs,...60.2222...2ndeeed Se 20 B. PHYSICAL DESIR IB Wi IN are OES ae... ses ccussnceccaseaves 20 C. WATERBORINE RG © ily MeO eee a teececssteessostenescceseereasems yp D. ECONOMIC IMPORTANCE OF U.S. PORTS .....sssssssssssssssessessteeesntesesnees Pe E. US. 2R@ Rea TINT IS Bier ONG RIN So one. s5 ee cheececevececnescenccesteneeessee 26 Fo CONC IISSIOINS rere cc crs terete reso ee coarse can 455 Paeeen oe <2 oee 27 Ite DEVELOPMENTS IMPACTING WU: Sa POR AIS sassian ns se ccos eons ee 29 A INTRODUCTION on coh it sii cee ees pe, cee a, B. COMPETITION IN OCEAN TRANSPORTATION ...0.... eee eeeeseeeeeeeee 30 I Shifting Roles of Conferences:-......2..-. eee ee 30 2. New Entrants antontihe Migr ete sore cee ee 32 3. Miscellaneous Factors. .;.2.2.11. 122 eee eee oe eee 33 C. NEXT-GENERATION CONTAINER: SHUR Se... 0003s. 33 | EvolitienrorG@ontainenships ....eeesrsee...... aaeeeneneeeee aeeteae eet rea 34 2. Rational for Next-Generation Container Ships ...................ccccceeeeeeeees 37 3. Future Trends of Container Sipser ---122- eee 39



1. Rationale"Behind AllWances.....:...<.. tet eee eee eee 4]

A. FINANCIAL ASSUCS iccsacccerscstse es eee RR ee 42

b. Competitive Response to Financial Situation ...............0000c008 42

2. Changes in Carrier Organization Siructume......................--ce.0---seseseee 43

3. Proyeeted’ Trends for Alltan@es ests ...-- eee heck 45

E. CONCEUSTON So vs. cc<cs.ccacaciasageege te eee eet een ee es 46

IV. IMPLICATIONS FOR U.S. PORTS wiieriits..scrcntstcs esse ener ren enema, 5 et 47

A. INTRODUCTTON ccciaiine. fo oecccentcccncnnnecesdece steer teint tr cates 2 tetas ote 47 B. IMPEDIMENTS TO (ORGANIZATIONAL)

EFFECTIVENESS c::cscclestiie.. satecacaqaattarvores san e0ee tee meme oa te 48

| >OperationalConstraints .,...... 2020020 .siscssisas000eeeseesemeeeeaas-e eee ee 49

2. StakeCNGldePr PICSSUTES........0ccccscccscecccssessceeeeceneeels sehsesneoys.deee eee 50

3. Landside Access tO U.S. POTES, 2-............cecseeessncceeasgenee 202 ss eee 53

4. Waterside Access to U.S. Ports - Dred ging............ eee eeeeeeeeeeeeeeeee 55

C. OPPORTUNITIES FOR IMPROVEMENTS 2222s eccccners.-+---2--cceece-=-- ee oy

1. Efficiencies in Productivity... .css..0.040tesese seesaw eee 58

O. TQD OP |... .csusc tee seeped ev vnasc saGek eee a wea seo TOTR bes cron EE ee 58

b. Material Handling Equipment and Operating

PY OCCURS 20.55, casa PO RS cscs oor oes =o ss 60

CGI PYOCESSING vice ieee oe ones nakos Susans sceeee eee. tee 62

2. Landside Access to U.S) Potts .. co: eege rere ee eee es oc scone eee 64

3. Dredgme and Environmental ISsues .-.-......-...22..2.s:0c0e-ese+-2-2 see ece-sv ene 65

D. CONCLUSION atkccseccueeetcteccrciesccccacdsccatserttres tttcutte tt tmenee nant sted satin aaeeenaa 66

V. MILITARY OPERATIONS At US) POR Wooo ose se sc eso eeen tooo ee 69 A. INTRODUCTION 6occ cece cac cape tee eee ea noe ee ccs a ee 69 -

B. MILITARY MOBILIZATION REQUIREMENTS 222---......:....c.122s0+-ssssseemee 70

1. Overview of Military Operations at U.S. Ports.................cceeecceeeee enone 70

2. Authorization Framework for Port Usage ...................ssccceseeseceeensees 73


a. Federamror! CON Mer PLrORTAM ..ccc2es0s050.0000.000-.ccsseeserees000s- 73

DMC OISIAUIVE AULHOTILY ......0.00cveccnscccesesncoascasesesanntsveeevestibedivoceess 74 3. Memorandum of Understanding on Port Readiness..................00000008 qd C. POTENTIAL IMPLICATIONS FOR MILITARY PORT case ss sane nesnvennnetcnecbansecee 78 ATG tA CESS UNNI Yo co xscio5 ca da:ccs5 ss ee inna ccc cccncancanccvessesecoeeses 79 aaa Taleg NAN PE Ms ascicas < css ssn cca «0 mamas «6. ck 5a aseesvdveveooressonsse sekos 80 3. Disruption of Commercial Activities ................cececcccceesscessseseecoeceeeeees 8] Dr Orr @rRrUNTIES FOR IMPROVEMENTS tissicccccscccesccec00s00000s.00cdiuberes see 83 Ii. JLEMTORG ye OCU Seen Raman PRM eonrnnna deer irr ney -rar rr ery 84 PeUser-imendly Marine PSrminials......................00s-sesessssovescoosesereavsevsees 84 See PILEMRGIMM CONCEP. -......2.caecseens ses ce cscs MPR arose os eosancoseses Reson 86 EC NIC) ADRS) SIS ie gycseces ccc ce eee a: Sn ee ern ener or eee 89 VI. ANALYSIS OF MILITARY MOBILIZATION OPERATIONS .................cceeeeee ZI Pe MUIR OM CODICIIN, .....c..cceettterete tenses ensserects cc rrtrteettente ttre Tanne diet ote emia stoi: a BSG Orava INU DV iii e sc crtertitesccccccccccccccccccerecconcccensssdse cosseneuaegtamee Wt ee oe le Operationaldeimloso phy wns... ...c0cs.ts---00soccdeeete ase scaskcaeesemeoee eee eee = a2 2. Automation“and Technology .:....,..........:scemerrr emt meee scot 93 3. Analysis of Current [SSueS..../c..s..ceeecoe tee ceeete otter ee eee ne 94 G. PORMETOCES SION LIV’. 5.50 ccssccscescs cavsvusesssavesssatsdicnestiiccle teens 95 De OMPAN OD AQTHV © « .<<3ccc5e.0ncdesus.tedsecaeasdanotssceestets eee eee 95 c. Disruption of Commercial Port ACtivity ........cccccceeeeeeeeeeeeee sees 96 C. ANALYSIS OF ALTERNATIVE PRACTICES AND MEE THOM coiccice co acccetcn caso coc ee cae cates ba tees eee ee 2) 1, Just=in-=T ime Concept oc. sccesssccn eee eee 97 2. Agile Port Concent ......s2scandini eects ee ee 98 3. User-Friendly Terminall:..2:..522)..00 99 4. Off terminal: Facilities:...32..6-....--2<re2 ee 100


VII. CONCLUSIONS AND RECOMMENDATIONS ...0.... occ ccc ccccccccceceeeesssseeeeceeeees 10]

A. CONCLUSIONS ees. cet errr ee dec eee 101

1. Need for National Awareness of U.S. Port Issues.......................00000 101

2. Influential and Uninformed Stakeholder Base .......................ceeeeeee ee 102

3. Opportunities for Improving Port Efficiency and Productivity .......... 103

4. Changing Port Environment Implications for DoD ......................... .103

B. RECOMMENDATIONS eirccrctcccclccccaeteetttt tt een) coassce ec oan ee enemies, me 105

1. Establishment of a National Agency or Committee......................000008 105

2. Fedéral Government Involwemicrate see... costaerss...+-,..-00-c0 eee 105

3. Regional Planning for Port Needs o-.....-2---22see- ese cseee-<- cc 106

4. Edueatumesstaken@lder .............-<.s:22:2anesossee eee a ee 106

5. Use of Automation and Technology ..............2s-.:<..-1.-...eseeeree eee 107

6. Reduction of Port Congestion... <<secersowsndspscamencngye. aan--cee 107

7. Changes in Deployment P Varga Gees ase ee 108

APPENDIX or: cssisawiies'caecis « clinaateceeteas 10 ee eee eee eee 109 LIST OF REFERENCES. ...csc5:55....9 5 gainer pea eerie nee eee lie INITIAL DISTRIBUTION LIST .........cgayeeeepeeree 115







Mogeslelerical Beg uo ie eae) 24 (SONG VOMITIES cl Sea see ee Onn e 10 00) EOS Oe tree? 24 Total Impact, Direct Impact, Induced and Indirect Impact ................. D5 ContammensmipuerOmmnmomaNLeENgth .........0.....escccsvesevccseccusdses ves cess 35 Contametsamee volition Capacity aciccccissaeyscsendeees......000.cce0eeecee 36 SOOO WE WAU SINE MOM? .......0ccs ss. ceseudnddeccccdledsnseseascsces ess 38 Staxcholdem Man tor UsS2Port Industry soos csssceiisecssc ss... 0.<<000- 00: 51

Merry-go-round crane uninterrupted handling of containers. ............... 60 Stale-Ol-ine-aremmtenmodal rail facility gateu.......sddeos..cosecceeceeeeee ses 63 ithe antemmocalsimtemacessthe Way db 1S... ..2..22..2.t. eens eee eons 66 ihe amtcimodamimiemace, athe way atcOUldsbe. ...cc05... 6525s ene eae 67

Organization of and traffic flow through a fixed-port container

items teh LW ACIINGY, sas. cc'so5 54 oad Gad a eiecaw wastes sauacra cocenaovaces + ae eeeeeeee 72 Comumicneralestgatecic SeApOntse.....222..22. 22-2 2c eeacbe ces aesess cnemmenead 76 Transportation Automated Measurement System (ITrAMS) ................ 88



Table 1 %Nenearco Activities in 18 Ports ...............ccccccceeececssaseccens 1]

Table 2. Alternative Port Jurisdiction Arrangements ....................000008 14 Table 3. U.S. Port Capital Expenditures for 1996-2000 ......... 0.2... ee. 16 Table 4. Methods of Financing Summary ................. 00.0. cece cece cece eeees 17

Table 5. Comparison of Financing Methods for 1973-1995 .................. 19 Table 6. Comparison of Current and Projected Funding Sources ............ Ie Table 7. Summary of U.S. Seaport Terminals and Berths by

(COSSIE| Keay) ga aie ga einnee SPnnnMMMRRIT ero an sai 21

Table 8. Summary of the Port’s Economic Impact for 1994 .................. 26 Table 9. Comparing Containership Dimensions ..................0.eeeeeeeeeee 40 Table 10. Total system cost while one ship is ina U.S. port. ...............64. 58



The author wishes to express his gratitude to those individuals who contributed to the success completion of this thesis. To the author’s family, especially Mother and Father and Sisters, for their continual support through thought, word, and deed in all endeavors. To the author’s peers at the Naval Postgraduate School for their support and encouragement.

The author would also like to acknowledge the support of the following individuals who assisted in providing guidance and research information for this thesis: Major LaDonna Idell, Military Traffic Management Command (MTMC) Headquarters; Rexford B. Sherman, American Association of Port Authorities (AAPA); Bill Aird, Maritime Administration, Office of Ports and Intermodal Development; MTMC Western Area; and the 1302nd Major Port Command. Lastly, the author would like to thank his thesis advisors, Dr. David G. Brown and Donald R. Eaton, RADM (Ret.), Logistics Chairman, for their work and

assistance 1n preparing this thesis.




The emergence of next-generation container ships (mega ships) and global shipping alliances has the potential to bring about fundamental changes in the traditional operational framework and infrastructure of U.S. ports in upcoming years. By all accounts, the result--more streamlined and competitive carrier alliances calling on fewer ports - will maximize efficiency and reduce costs. Carriers, driven by the prospect of increased revenues from growing international trade markets, will pressure ports to either improve facilities and productivity or run the risk of losing business. For an industry currently experiencing financial strains from competition, whether or not to invest additional dollars into infrastructure improvements with no guaranteed return on investment is a tough decision to make.

From the military perspective, the restructuring of U.S. ports can potentially limit port accessibility, aggravate loading and unloading delays, and raise dependence on containerized shipping peomons This thesis will examine the changes in US. port operating practices, shortcomings in infrastructure support, and the implications for military unit deployments.

This chapter provides a brief history of the issues and establishes the significance of studying the issues from the viewpoints of both civilian port managers and government transportation officials who plan port activities. Also, this chapter discusses the scope,

methodology, and application of the research conducted in this thesis.


Today, the nation’s ports are going through an unprecedented restructuring period due to the increasing demands of carrier alliances and the introduction of larger container ships. During this transition period, hundreds of jobs and billions of dollars in cargo will shift from one local economy to another. [Ref. 29] In some cases, ports will lose

significant portions of their clientele to more attractive ports with greater capital

resources and more appealing geographical locations. Ultimately, restructuring will probably lead to many ports being relegated to secondary roles as regional feeder ports, supporting larger ports referred to as “load alliance centers” or “principal ports.”

Over the past forty years, U.S. ports have invested more than ten billion local, state and federal dollars [Ref. 3:p.46] in developing facilities and purchasing equipment. These actions were necessary to keep pace with emerging technological trends and carrier requests within the shipping industry. Unfortunately, many sites will continue to be pressured into investing millions as shipping lines transition into new 6,000 TEU container ships. These gigantic ships operated by strong shipping alliances will undoubtedly eliminate unnecessary port calls, generate enormous port competition, and further strain some of the operational weaknesses (e.g., bottlenecks and low productivity) of many U.S. ports.

Furthermore, the material-handling facilities and terminal infrastructures at many ports are presently inadequate to meet the unusually high peak demands of discharging and on-loading these ships. Ports will have to balance the value of implementing more efficient operations within their existing structure with the potential cost of expensive expansion projects. Given the capital expense of renovation, port authorities and local governments are facing some tough managerial:decisions. Should they invest in major port expansion projects in an industry already experiencing excess capacity, knowing that that their investment might not yield increased profits? Or would the more prudent choice be to solicit smaller carriers and develop niche markets?

The military is concerned that the current restructuring might eliminate Strategically located ports, and they wonder if those that do remain will be accessible during contingencies. Some ports, instead of closing down, will transition into regional feeder ports or load alliance centers; however, there is still the question of whether they will continue to provide the level of productivity that both the military and commercial

customers have come to expect. Military planners and other government agencies are

studying these issues quite intensely because they have the potential to affect mobilization efforts at many ports throughout the country.

The primary issue for the military 1s whether the realignment of certain ports will impede the accessibility and throughput at these selected sites. Considering the current issues surrounding port congestion and shortfalls in landside access improvement initiatives, unless these issues receive the necessary attention, they will only grow in

magnitude in the coming years. B. SIGNIFICANCE OF RESEARCH

A thorough study of the changes in existing U.S. port structure is important because port facilities play a vital dual role in our national strategy objectives by providing: (1) the medium to facilitate international trade and (2) direct mobility support of our armed forces. Any changes to the existing framework, no matter how subtle, will influence these two areas significantly. Therefore, it 1s important that the strategic planners associated with the ports and with military mobility fully understand the implications of larger container ships and the emergence of carrier alliances into U.S. ports. The information in this thesis is intended to help increase this crucial understanding.

This thesis will also document and analyze the extent to which military emergency mobilizations disrupt domestic container ports’ throughput and productivity. . Although several agencies have initiated limited studies in this area, there is still an overwhelming level of uncertainty about these issues. This debate has led to a division in opinion among professionals in the port industry. Given the importance of the viability of this nation’s ports, a study regarding to these issues and perspectives is justified.

The primary research questions this thesis addresses are as follows:

1. What are the dominant influences and issues initiating the restructuring of the

container shipping industry?

2. How will containership size, the fleet as a whole, and carrier alliances most

likely evolve over the next five years?

3. Taking into account the challenges of larger containerships and carrier alliances, what actions must port authorities take to retain their competitive advantage over ports operating within the same geographical market?

4. Given the shifting trends of regional feeder ports and load centers, as well as larger ships, what effects will this restructuring have on military unit

deployment planning and operations? C. RESEARCH SCOPE AND METHODOLOGY

This study is intended to provide an impartial analysis of the effects next- generation container ships and carrier alliances will have on existing port infrastructure and operations. The thesis places particular emphasis on the potential problems of port accessibility and congestion for military units during contingency deployments. Specifically, the study clarifies the various opinions and initiatives being implemented by both the military and commercial sectors to adjust to the changing port environment. This thesis does not provide a comprehensive quantitative analysis of the situation, but will contribute to the professional body of knowledge by presenting a clearer understanding of the relationships and issues involved. Additionally, the thesis will provide a general overview of the existing U.S. port support structure and examine the roles and responsibilities port administrators have in addressing prevalent industry- wide concerns. Research information was obtained through the following sources: 1. Published documents and reports from various military and civilian transportation agencies, including the American Association of Port Authorities (AAPA), Military Traffic Management Command (MTMC), Military Sealift Command (MSC), and the Maritime Administration (MARAD) of the Department of Transportation (DOT).

2. On-site visits to the Port of Oakland and the 1032d Major Port Command.

2. On-site visits to the Port of Oakland and the 1032d Major Port Command. 3. Interviews with knowledgeable personnel in the port and shipping industry. 4. Participation in the North California Port Readiness Committee Port Readiness Exercise (PRX) 97 hosted by the Military Traffic Management Command (MTMC) Western Area and the Marine Safety Office San Francisco Bay. Additional information was obtained through a review of current professional journals, periodicals, and news briefs from various industry public affairs offices. A comprehensive compilation of this data provided the information needed to answer the

research questions. D. RESEARCH APPLICATION

The civilian port authorities and military and governmental transportation planners are the intended beneficiaries of this thesis. Planners may apply the findings and recommendations of the thesis in order to better understand the interrelationships and requirements between military and civilian port operations. Specifically, the study is

beneficial because it:

1. presents to those directly responsible for port planning and policy initiatives the positive and negative impacts of next-generation container ships and carrier alliances on commercial and military activities.

2. examines how restructuring of certain commercial ports identified as strategic ports of embarkation may affect military accessibility and throughput at these facilities.

3. and discusses what actions must be undertaken by port authorities and their supporting sectors in the “intermodal pipeline” to maintain the economic

viability of militarily important commercial ports.


The first chapter of this thesis provides an introduction and general overview of issues pertaining to the U.S. port industry. It also addresses the research and methodology used to analyze the principal research questions of this thesis.

Chapter II focuses on the present structure of U.S. ports, explaining the role and responsibilities of port authorities. The economic impact of ports on national, state, and local economies is evaluated.

Chapter III discusses the three major developments currently impacting changes in U.S. port infrastructure: competition in ocean transportation, introduction of the next- generation containerships and the emergence of carrier alliances.

Chapter IV elaborates on the implications for U.S. ports as a result of these developments. This chapter also provides an in-depth probe into the areas of operation that are likely impacted by larger container vessels and alliances. Chapter IV concludes by identifying current initiatives underway by public- and arivenoseeiar agencies to mitigate or counter the negative aspect of these influences.

Chapter V examines the implications for military throughput and accessibility given the external pressures being placed on U.S. public ports. Specifically, laws that give military priority in the usage commercial berths and staging areas are reviewed. The chapter also compares and contrasts the port environment before and after Desert Shield/Desert Storm to determine whether or not the productivity and accessibility of ports have diminished for military usage.

Finally, Chapter VI contains the summary, conclusion, and recommendations for

further research.


Activities at U.S. ports involve the coordination and integration of a multitude of public and private-sector interests. “The modern port in the United States can be described as a community of independent enterprises tied together by a common interest in the affairs of maritime management.” [Ref. 23:p.29] Central to this community is an entity known as the port authority or agency, which has served increasingly over the past few decades as landowner, operator, developer and public relations agent for the port. [Ref. 23:p.29] Its scope of responsibilities resembles that of any public enterprise with a goal of achieving profit and economic self-sufficiency. Despite growing public scrutiny and environmental awareness, as well as ever-increasing industry-wide competition, most ports have maintained a vigilant focus on their bottom line by: (1) offering state-of-the-art terminals and facilities to carriers, (2) adapting to other industry changes and innovations, (3) identifying alternative sources for financing costly expansion projects, and (4) remaining competitive against regional ports.

Recently, however, new challenges and pressures to improve customer service have forced many ports into expensive technological upgrades and expansion of facilities. These projects are moving forward despite shortfalls in revenue and dwindling subsidies brought on by increased competition. In most cases, the catalyst for change within the public port industry has been the continued growth in vessel size and the rationing of port calls by influential ocean carrier alliances. Even though the intermodal industry as a whole is enjoying new-found economic success in the area of transportation, the port industry, a key in the network, is struggling to find its identity and purpose. Complicating matters is the industry’s excess capacity, which jeopardizes the existence of some ports and also serves as a basis for criticism of costly new projects.

Ircha [Ref. 26:p.28] refers to the current time as a period of economic turbulence

impacting the port industry. This turbulence is characterized by the existence of: more

complicated markets and competitive situations (exemplified by growth of container load centers and inland intermodal systems); changing technology; shifting customer preferences (shipping lines moving to competing ports); extensive capital requirements (mechanization for productivity gains); and reduced time for decision making. Rapid advances in telecommunications technology tying together computerized logistics systems, such as in the development of electronic data interchange (EDI), add to the turbulence of the ports’ economic environment. [Ref. 26:p.28]

Adding to the volatility of these issues is the growing public awareness of the environmental and economic actions of local port authorities. Ports need deeper channels and more acreage to remain competitive. Dredging and the disposal of sediments disrupt the chemical balance and marine life of channel floors, much of which has been contaminated through many years of industrial pollution. Furthermore, because of intensified competition, many ports are more conscious of issues that might impact or disrupt their commercial activity. Customer (carrier and shipper) satisfaction is the number one priority, given the fear of potential losses. With the military competing against commercial customers for the same berths and terminal spaces, port authorities are more skeptical about giving over free reign of the port during military deployments. Balancing military requirements with the sensitivity of highly profitable commercial customers is a growing concern in the industry and within the Department of Transportation (DOT) and Department of Defense (DoD).

This chapter will provide an overview of the present structure of U.S. public ports, including a discussion of the operational framework, the physical distribution of ports,

the economic impact, and various issues currently facing the port industry.


l. Port Development in the U.S.

In earlier days, port caretaking was a collective effort of local business interests,

such as farmers, manufacturers, and retailers, working with commercial carriers and

shippers, such as steamship lines and railroad companies. [Ref. 44:p11] During these formative years, the railroad was the dominant influence in the port industry, amassing economic and territorial power. Initially, ports prospered only when railroads served their respective waterfronts by providing dedicated access to the hinterland. (Ref. 42:p.283] As the only true mode of transportation to move goods throughout the country, the sAulmoads were able to monopolize the market by developing networks between ports and choosing which ports were most advantageous to serve.

Local businessmen viewed the operating practices of the railroads as monopolistic, and a growing atmosphere of resentment began to emerge. Gradually, the loss of control by local businesses led to civic dissatisfaction: concerns about the railroads’ monopolistic position; the need to promote new trade; the divided interests of the railroad serving competing ports; and the lack of orderly port development due to fiercely competing interests within some ports (between competing railroads and their piers). [Ref. 26:p. 283] By the start of the twentieth century, a trend toward public ownership and operation of port land and facilities began.

Involvement in port affairs did not evolve entirely out of resentment toward the railroads. Instead, many people, both then and today, view the port and surrounding infrastructure as public property - lands that should be managed by public officials in the best interest of the taxpayers who helped finance the construction of the facilities. This concept maintains that the port serves as the “public highway,” assuring free and equitable access to all legitimate users of the waterfront. [Ref. 26:p.284] In short, the establishment of port authorities conveys the perception that the public should have an audible voice in the management of its municipality’s port affairs.

Today, well over 150 ports operate in the U.S.; approximately 65 to 75 percent (reference dependent) are commonly referred to as public ports operated by self- governing port authorities in various communities. The emergence of port authorities has increased considerably from the turn of the century, when there were only four port

authorities in the U.S. - San Francisco (established in 1863), New York (1871),

Philadelphia (1885), and New Orleans (1896). [Ref. 26:p.283] Although operational control has shifted away from local merchants and shippers, the industry is still held

accountable for acting in the public’s best interest.

2: Ports as Public Enterprise

Describing the supervisory structure of the typical U.S. public port management organization is a unique challenge, considering the varying degrees of complexity from coast to coast and within certain states. By all definitions, public ports are public enterprises, a particular form of government that has flourished in this country since the late 1940s. [Ref. 23:p.13] Fair suggests the term port authority is used to apply to “any quasi-autonomous or quasi-independent agency which has the adequate authority and freedom of action to provide a strong and independent effective management of a port.” [Ref. 17:p.43] In real-world application, port authorities can be best categorized as a mixture of both private and government enterprise - a hybrid reflecting certain characteristics of each.

Port authorities are viewed as “public domain" because local governments claim the rights of ownership, statutes establish them and dictate objectives, and, often, public | subsidies supplement day-to-day operating budgets. Since the majority of supervisory officials serving at U.S. ports (such as boards of directors) are elected officials or political appointees, they are committed to serving their respective constituents with respect to achieving certain economic goals. Balancing the business and public aspects of the position is difficult because of conflicting demands, concerns and interests. Port authorities are very much like commercial business enterprises with similar missions and objectives; indeed, their highest priorities are to effectively manage existing resources and to ensure economic self-sufficiency. However, port authorities do not

answer to stockholders, but, instead, to parent governments.


Status as a public enterprise does carry certain advantages - most especially, the ability to act independently outside of the normal government bureaucracy channels with a degree of flexibility not afforded to other governmental agencies. The freedom to make independent management decisions is a private-sector trait exploited by public port authorities to their advantage. As a public enterprise, a port authority also has the ability to branch out into other revenue-making functions. Table 1 is a listing of non-marine cargo related activities some ports participate in. Another advantage or source of power is the ability to raise funds and build facilities. [Ref. 26:p.14] Other powers assigned to ports typically fall into three categories: real estate, land use/environmental, and fiscal.

[Ref. 26:p.14]

Table 1 Non-Marine Cargo Activities in 18 Ports Noncargo Activity Number of Ports Airport 05 Fishport 08 Marina 08 Cruise ship services 09 Waterfront development 07 Parks and viewpoints 10 Mitigation 10 Marine resource development 06 Nonmarine resource development 02 Civic functions 05 Foreign trade zones 13 Sister city (foreign relations) 03 Land cargo transportation (trucking, rail) 06 Computer services 09 Economic development 1]



With respect to real estate, ports are given the right to acquire, lease, and mortgage land as they deem necessary. Ports also possess the power of eminent domain to use land in the best interest of the public. Subsequently, port authorities are able to own or influence an enormous amount of the waterfront, and this is a considerable source of inherent power. [Ref. 26:p.13] Land use/environmental powers by some standards have been dramatically curtailed in recent years because of growing public environmental awareness and commercial developers’ interest in prime waterfront real estate property.

The public’s concerns about the environment, noise and traffic congestion in particular, have caused considerable delays in expansion projects in Oakland, Los Angeles/Long Beach, and Charleston. As recently as two decades ago, the public had no involvement in these sorts of issues. And, with regard to fiscal powers, ports are capable of generating their own revenues and investing in opportunities to increase profits. These fiscal powers will be elaborated on in subsequent chapters.

On the one hand, these inherent powers enable port authorities to function with greater freedom and to act more effectively in the increasingly competitive environment of the port industry. On the other hand, our Constitution calls for a system of checks and balances to ensure that public interest is foremost and that individuals can not exert too great an influence in promoting their own desires in a public enterprise. Thus, the ports are burdened with constraints that separate them distinctly from private businesses. For example, “Sunshine Laws” require open public hearings on expansion projects or improvements to landside accesses to improve throughput. Any business conducted by the port, with few exceptions, must be open for discussion and debate by all interested parties.

5 U.S. Port Management Structure

Considering the wide spectrum of issues ports must manage, the industry is surprisingly uniform in its management configuration and organizational structure. There

are some isolated, unimportant exceptions to the public enterprise model, such as New


Haven, Connecticut and other private ports serving bulk commodity terminals. [Ref.6:p.285] However, across the industry, there are typically two distinct groups of managers in today’s port. The first group are personnel within the numerous departments or divisions of the port authority who implement policy, perform administrative functions, and supervise daily operations. Engineering, marketing, public affairs, and strategic planning are common departments set up to support and promote the port’s activities.

Supervisory-level personnel are the second group of individuals serving on port authorities as commissioners or board members. Most ports add an additional step by appointing an executive director to oversee port management functions. Traditionally, the main responsibility of port authority members (board members or commissioners) had been oversight and strategic planning for future developments of the port. Their position in the hybrid mixture of public and private enterprise often generates conflicting goals and objectives because they attempt to satisfy a number of competing interests. [Ref. 26:p.24] Despite the outside distractions, the primary focus of port officials is the maximization of waterborne commerce for their individual port. [Ref. 26:p.24]

Accountability for their actions is the responsibility of the parent government’s established administrative framework. Table 2 depicts ten typical jurisdictional levels in the U.S. port system, ranging from the most decentralized to the most centralized form of administrative authority. The table shows that administrative authorities within the state of California are more “liberal” compared to their other west coast counterparts. The diversities in the alternative port jurisdictional arrangements by no means indicate that port authorities prefer one arrangement over another.

Given the range of alternative jurisdictional systems in the U.S., it is not surprising that the method by which members are appointed or elected to serve on the boards of port authorities varies widely. The selection process 1s but one of many

differences among ports. Other variations can found in employee hiring practices,


opened versus closed meetings requirements, audit reports, financial report relations and

restrictions, borrowing authority limits, and taxing authorities. [Ref. 26:p.288]

Table 2 Alternative Port Jurisdiction Arrangements Most Forms Decentralized Examples Private New Haven, CT; Alameda County, CA Local city department Los Angeles, CA; Long Beach, CA; Oakland, CA; San Francisco, CA; Milwaukee, WI; Chicago (Navy Pier) Alaskan City Ports Extension of city council Richmond, CA; Seward, AK Local special districts Seattle, WA; Tacoma, WA; Chicago (Regional Port District), IL; Coos Bay, OR; Humboldt Bay, CA; Oxnard, CA County Agency Cleveland, OH Multi-county agency Portland, OR Unified area wide special San Diego, CA District ' State agencies Maryland, Hawaii, Maine, N. Carolina State authorities Massport; Burns Harbor, IN Bi-state authorities New York/New Jersey; Delaware River Port Authority, PA/NJ; St. Louis, MO/KS National boards Absent in the United States Most Centralized


4. Port Development Finances and Revenues

Financing capital development projects and generating self-sustaining revenue streams remain two of the prominent financial concerns for public ports. With container tonnage expected to double by the year 2010, ports need to quickly expand existing infrastructures and terminal facilities to accommodate projected growth. [Ref. 46:p.41] The continued upswing in growth, which is expected to continue into the 21° century, signals the need for ports to invest in costly expansion projects and equipment procurement. Therefore, feasible alternative funding sources for these projects must be identified. In an industry that has invested more than $15.5 billion in capital improvements to its facilities between 1946 and 1995 [Ref. 47:p.3], many are questioning if these practices can continue.

Ports and terminals now spend, on average, $lbillion annually on capital expenditures, but such expenditures may no longer be prudent, given increased competition and the scarcity of public funds. Table 3 summarizes the proposed expenditures for U.S. ports through the year 2000. As Table 3 indicates, future capital expenditures will increase to approximately $1.2 billion annually (over a five-year period), a $200 million increase over the current national average of $1 billion.

Not only is expansion costly, but daily operating costs also are expensive because budgets must cover equipment maintenance and procurement, dredging and disposal of sediment, as well as other general and administrative costs. Ports typically receive their operating capital from operating revenues, financing, or some means of appropriations. Additionally, all U.S. ports receive some sort of subsidies to support operations from the federal, state or parent government. Table 4 summarizes the various short-term and long- term sources available to ports to secure the capital for day-to-day operations and port projects.

Over the past decade, the allocation of public funds, in particular subsidies

supplementing operating budgets of government agencies, has been evaporating. Taking


into account budgetary shortfalls and the growing demand for public funds, ports will continue to face stiff competition for scarce public funds. Parent governments are, therefore, calling on port authorities to become more self-sufficient and financially independent to offset the loss of subsidies. Achieving self-sufficiency is difficult considering the many expenses that must be covered to operate a port effectively. Ports are self-sufficient only if they generate enough operating income, interest income, and other earnings to pay their operators, maintenance, security, sales, administrative, and depreciation expenses without reliance on tax receipts or outside contributions.

[Ref. 48:p.xvui]

Table 3 U.S. Port Capital Expenditures for 1996 - 2000 (Thousands of Dollars)

Gulf 16.0% Ct a a

Guam, Saipan

$6,036,051 100.0%

[Ref. 47]


Table 4 Methods of Financing Summary

Method Long Term Source Short Term Source General Obligation Bonds Port Earnings Revenue Bonds (i.e., IDBs, Governmental! Assistance Consol idated) Bank Loans Traditional

Governmental Assistance (i.e., Federal, State, Local) Port Earnings

Leasing Arrangements Zero Coupon Bonds Innovative Variable Rate Bonds

Tax-Exempt Commercial Paper Warrants

Bond or Tax Anticipation Notes Variable Rates Demand Securities

Option Tender or ‘Put’ Bonds Letter/Line of Credit

ee a

This category includes various combinations of long-and short-term Combination sources, subject to the specific port’s needs and access to financing options,

Source: (1) AAPA Port Expenditure Survey (2) John E, Petersen and Wesley C, Hough, Creative Capital Financing: For State and Local Governments, Chicago: Municipal Finance Officers Association, Government Finance Research Center, 1983.


a. Methods of Obtaining Funds and Financing

Capital expenditure surveys conducted by MARAD identified six classifications of financing sources available to ports: port revenues, general obligation bonds (GO bonds), revenue bonds, loans, grants, and others. The “other” funding category includes all funding sources not included in the broad classifications, such as state transportation trust