Smooth sailing ahead?
Port has become economic engine but road congestion could hamper its growth

by Bill Geroux
Virginia Business
September 2005

They converge at the Port of Virginia every day, 5,000 metal shipping containers bearing goods from afar. There’s Heineken Beer from Holland, leather bags from Italy, and enough toys, clothes and furniture from China and India to stock the shelves of Wal-Mart and Target stores. In fact, a surge of imports from those two countries is helping the port enjoy the busiest year in its long history. Cargo tonnage is up more than 11 percent compared to 2004 when 1.8 million shipping containers moved through by ship, rail and truck.

The quadrupling of Chinese imports since 2001, along with a $300 million investment in new cranes, berths and other equipment, has enabled Virginia to muscle past Charleston, S.C., to become the second busiest general cargo port on the East Coast. Today, it trails only the huge port of New York and New Jersey. During the next few years, the port plans to spend billions creating space for more business. Meanwhile, the flow of containers already is creating jobs inland for Virginia, with many companies building large distribution centers to house the imported goods.

With its growing prominence, the port is a driving engine for economic development in Virginia, providing a crucial link to global markets. Yet, it faces several daunting challenges, not the least of which is increasing congestion along Hampton Roads’ highways, where most of the port’s cargo is carried by trucks on tight schedules. “The road issue is a bomb,” says Gilbert Yochum, an economist at Old Dominion University in Norfolk. In July, a national highway study group rated Interstate 64 in Hampton Roads the second-worst vacation traffic bottleneck in America.

Besides traffic, the port’s expansion plan for developing a fourth terminal on Portsmouth’s Craney Island requires $2 billion and the blessing of the federal government. Plus, there’s a change of command coming with the approaching retirement of longtime Executive Director J. Robert Bray, who has helped run the port for 38 years. “Bobby Bray has a sixth sense about trade and international commerce,” says former Gov. Gerald L. Baliles, who during his term from 1986-90 focused on making Virginia more competitive in the global marketplace. Baliles says Bray combines vision, planning and powers of persuasion. “He’s more than a manager, he’s a leader.”

The Port of Virginia consists of marine cargo terminals in Norfolk, Portsmouth and Newport News and a rail link to landlocked Front Royal. Through these marine terminals on the Elizabeth and James rivers flow most of the seagoing commerce of Hampton Roads. The port shares the harbor with the U.S. Navy, and a fence, literally, with the world’s largest naval base, Naval Station Norfolk, home of the Atlantic Fleet. The U.S. military sends supplies and vehicles almost daily through the state’s terminals to troops overseas. Security is a concern, and the port is spending heavily to improve its defenses. (See story on page 18).

The largest and busiest cargo terminal, Norfolk International Terminals, or NIT, receives 3,000 containers a day and sends most of them on within 48 hours. The pace is quick. Trucks rumble through the security gates in a steady line. Nimble orange vehicles called straddle-carriers — essentially hoists on wheels — emit weird chirps as they dart through the terminal delivering containers to prearranged staging points. From an air-conditioned tower overlooking the terminal, the port’s traffic controllers direct the movement of containers by computer.

From their high perch, they watch as cargo ships as long as football fields tie up at the NIT piers, stacked high with multicolored containers. NIT’s eight blue, Suez-class cranes are among the world’s largest, so tall at 271 feet that they cannot be fully extended without permission from the Navy, into whose airspace they would intrude. The port bought the cranes in Shanghai and had them shipped to Norfolk fully assembled, to prepare Hampton Roads for a new generation of giant cargo ships that are only now starting to ply the oceans.

The port has cemented its place as a distribution hub for the Southeast and the Midwest, says Bray. Looking out from his sixth-floor office at a panoramic view of the Elizabeth River, he adds that the biggest problem this year is finding space for all the incoming containers. Then, he smiles. “It’s a much better problem than not knowing where the next container is coming from.”

The volume of cargo flowing through Hampton Roads is likely to double to more than 4 million containers within 15 years, say port officials, and they expect to be ready. Near the state’s Portsmouth Marine Terminal on the Elizabeth River, Danish conglomerate A.P. Moller Group is constructing a $450 million marine terminal for its sister company, Maersk Sealand, one of the world’s largest shipping lines. When the Maersk terminal opens in 2007, it will nearly double the cargo capacity of Hampton Roads, ensuring that the port has enough room to keep growing for at least another decade.

The Maersk terminal will compete for business with the three state terminals nearby, and may even slow their growth for a few years by taking cargo from them. The Moller Group, for instance, recently bought the P&O Nedloyd shipping line, which is currently the Port’s largest customer. But the explosive growth of world trade should guarantee enough containers for all, says Joe Dorto, general manager of Virginia International Terminals Inc., which runs the terminals.

By 2017, the port hopes to open an even larger state terminal on Craney Island, a low-lying, 600-acre mass of sandy material dredged from the harbor channels over the course of decades and deposited in the Elizabeth River off Portsmouth. The Craney Island project, though, is not definite. The U.S. Army Corps of Engineers, which now controls the “island,” is still deciding whether to turn it over to the state. One issue is how to replace the wetlands that would be consumed. Even if the Corps agrees to transfer the property, the port authority almost certainly will need a private partner to share the estimated $2 billion cost of transforming the island into a modern marine terminal.

Global ambition and its problems are not new for the Port of Virginia, the economic heart of the wider port of Hampton Roads. The port, which first opened for business in the 17th century, lagged behind its East Coast competitors by the middle of the 20th. However, Hampton Roads has great competitive advantages: deep 50- and 55-foot channels close to the ocean and good rail connections. Until the 1970s, Norfolk, Portsmouth and Newport News owned the port terminals separately and fought over business instead of working together to attract it. “We were about as ineffective as we could be,” recalls Bray, who joined the port authority as its general counsel in 1967.

After a bruising political battle, the terminals were merged in 1983 under the control of the Virginia Port Authority. The state agency falls under the umbrella of Virginia’s Department of Transporta-tion and is funded by port revenues and state taxes on sales, gasoline and motor vehicles. The Port Authority’s 2006 operating budget is $81.8 million, including nearly $40 million from state taxes, with the remainder coming from port operating revenues.

To handle day-to-day operations of the terminals, the Port Authority created a nonprofit, non-stock company, Virginia International Terminals. Unlike the state, VIT has the power to negotiate and sign contracts with the International Longshoremen’s Association, whose members handle containerized cargo in the state. VIT is fully self-supported by port revenues, and has a budget of $216.7 million for fiscal 2006.

VIT uses its private status to keep secret many details of how it operates the state ports, citing a need to protect trade secrets from competitors. But this year Hampton Roads newspapers pointed out that those secrets included the salaries of top VIT executives, which not even the Port Authority had been reviewing. The authority responded by convening a panel to study, among other issues, how much information the authority needs in order to fulfill its responsibility of overseeing the port. It voted publicly on a proposed compensation package for Bray — $287,1930, including incentives and an executive allowance. That would represent a 4 percent increase for Bray over the past fiscal year. However, VIT salaries remain secret. The authority is the body that will hire Bray’s successor.

Few would disagree that the Port Authority and VIT have helped the port to grow, capitalizing on its strengths and taking advantage of the weaknesses and missteps of rival ports. “We got our ass kicked in the ’60s and ’70s, and we kicked ass in the ’80s and ’90s,” Dorto once told The Virginian-Pilot newspaper. The Port of Baltimore, for example, used to handle twice as much cargo as the Virginia port, even though Baltimore is 12 hours by ship farther up the Chesapeake Bay. Virginia upgraded its terminal equipment and offered a more stable labor climate. Business slowly gravitated to Hampton Roads, and today the Port of Virginia handles three times as much cargo as Baltimore, which is becoming a niche port for automobiles.

The Virginia port’s ratio of imports to exports is roughly 55/45. The port imports mostly finished goods and exports mostly raw materials. The port has always handled commodities such as coal from Appalachia and tobacco from Southside Virginia and North Carolina, but lately it handles mostly containers — metal boxes commonly 20 feet or 40 feet long and designed for easy transfer among ships, trains and trucks. Moving containers among those different modes of travel is called “intermodal” transportation. A container can be stuffed with virtually anything.

China’s admission to the World Trade Organization in 2001 unlocked a vast source of trade. Ports on the West Coast stood to benefit most because they are closer to China. But just as China was cranking up its exports in 2003, a 10-day dockworkers’ strike paralyzed West Coast ports, and many shipping companies quickly diverted their Asian cargo to the East Coast. Instead of sending their container ships across the Pacific to the West Coast and then sending the cargo from there by train to East Coast population centers, they sent the ships through the Panama Canal to East Coast ports such as Hampton Roads.

The new route proved so cheap and stable that, even after the West Coast strike ended, most shippers who diverted cargo to Hampton Roads decided to keep sending it there, says Yochum, the ODU economist. The combined effect of China’s rise and the shift of Asian cargo to the East Coast, he says, “is difficult to overstate” and has unquestionably fueled the port’s growth.

The flood of containers through the port has created jobs throughout Tidewater and for hundreds of miles inland, along a fast-growing network of warehouses and distribution centers. At these centers, cargo from the port is quickly sorted and sent on to the shelves of hundreds of Wal-Marts, Targets and Dollar Trees. Suffolk alone is home to six large distribution centers, including Target’s, which opened in 2003 with 1.5 million square feet and is adding another 300,000 square feet. “About half the calls I get are related to the port,” says Tom O’Grady, Suffolk’s economic development director. Wal-Mart plans a large expansion of its facility in James City County next year.

The port is laying miles of new track to help Norfolk Southern Corp. and CSX Corp. move cargo to and from the terminals. Last year the two railroads combined to haul a record 200,000 containers through the port. The port supports the use of federal Heartland Corridor funds to raise or open the tops of railroad tunnels between Hampton Roads and Chicago to allow trains to carry containers stacked two high.

While the rail improvements are welcome, truckers have more than two-thirds of the cargo at the port, says Bill Jackson, a trucking executive and past president of the Tidewater Motor Truckers Association. And the port has taken steps to keep the trucks moving. Officials cleared precious space on the terminals by moving all empty containers to out-of-the-way lots. They created a pool of interchangeable chassis that all trucking companies have to use and help maintain. Those and other changes streamlined the terminals to the point where a trucker can usually get in and out in less than an hour, rather than three or four hours, Jackson says.

Other signs that the port’s star is rising: In July, the global shipping line APL launched a 965-foot container ship named the APL Virginia, designed for fast runs between China, Hampton Roads and New York. Another large shipping line, the CMA-CGM Group of Marseilles, France, moved its North American headquarters from New Jersey to a $11.5 million building in Norfolk. The Maersk project is expected to have ripple effects throughout Hampton Roads. It’s expected to generate more than $3 million a year in tax revenue for Portsmouth. C. Jones Hooks, president of the Hampton Roads Economic Development Alliance, a regional development group, says the network of distribution centers and shipping offices probably will continue to grow, and that his office is courting industries that import and export heavily from the port.

Fortune could always turn against the Port of Virginia as it did against the rival ports whose losses are Hampton Roads’ gains. A shortage of truckers nationwide is starting to slow cargo. A political hiccup in China could shut off the trade flow. A terrorist smuggling incident could be disastrous. Additionally, the Virginia ports face tough competitors north and south: The Port of New York and New Jersey is undertaking a costly deepening of its harbor. Savannah, Ga., is cultivating its own fast-growing network of distribution centers and warehouses. It views Hampton Roads not as a competitor but as an ally in a larger struggle to wrest Asian trade from the West Coast, says Robert Morris, a spokesman for the Georgia Ports Authority. But Virginia port officials say Savannah could be Virginia’s primary rival in the next decade.

Business that’s here today and gone tomorrow makes the port enterprise “one of the most insecure in the world,” says Bray. The 66-year-old port executive plans to retire “before too long” and has been grooming his deputy, J.J. Keever, for the top job. What worries him most, he says, is the worsening traffic congestion in Hampton Roads, along the primary truck routes of Interstate 64 and U.S. Route 460.

The Virginia Port Authority has been lobbying for a so-called “third crossing,” a proposed $4 billion bridge that would link Norfolk to the middle of the existing Monitor-Merrimack Bridge-Tunnel between Suffolk and Newport News. The Monitor-Merrimack would be widened, and the third crossing would have links to Norfolk International Terminals and the proposed Craney Island terminal. Regional planners say a third crossing is the single most important way to relieve traffic snarls in Hampton Roads, a region of 1.5 million people linked across waterways by bridges and tunnels. Critics, though, have questioned the project’s design and cost, and the region’s voters gave it a thumbs down during a regional referendum in 2002. They refused to raise their own taxes to finance the third crossing, the widening of Route 460 and several other projects. Planners say the port would account for roughly 10 percent of the traffic on a third crossing.

In July, a regional planning group again recommended the building of the third crossing and $39 million for the project was included in the recently signed federal transportation bill. Art Collins, director of the Hampton Roads Planning District Commission, says the state would have to commit $275 million per year for 25 years, plus the proceeds from new tolls on the Hampton Roads and Monitor Merrimack bridge-tunnels and the James River Bridge.

Meanwhile, it has been a long, hot summer for traffic. On Friday, June 17, the Hampton Roads Bridge-Tunnel set an all-time record with more than 108,000 vehicles. Even if work on the third crossing began immediately, it wouldn’t open for 10 to 13 years. It’s no wonder then that Hampton officials recently argued for widening the long-overburdened Hampton Roads Bridge-Tunnel instead. Still, some people consider the crossing crucial. “We have got to have that third crossing,” says Jackson, the trucking executive. If I-64 and Route 460 become gridlocked, he adds, it will not much matter how many container ships from China are tied up at the giant piers.