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Home , Container port, ExpressRail, New York Harbor

History in the Making: The of and ’s Past, Present and Future By Ryan Ramos

The Port of New York and New Jersey has six container terminals covering 1,340 acres, two airport freight operations and a rail and inland distribution network reaching the largest consumer base in the . It is one of the busiest in the world and is constantly adapting to new circumstances. While many take the scale of activity for granted, the numbers are staggering; each day, $557 million of goods move through the port, and 8,800 containers – by and large carrying imported goods from top trading partners such as China, India, Germany and Italy – are unloaded.1 In many ways, the port is the physical manifestation of the U.S. trade deficit – totaling $36.44 billion in 2016 – and its shift to a $13 trillion consumer economy that has only accelerated since World War II, barring the Great Recession in the late 2000s.2 We have long had many clients who use the port to import and export various physical commodities, and in many ways, the port and Brown Brothers Harriman have a shared history with common roots in the early stages of this country’s .

1 Brown Brothers Harriman | COMMODITY MARKETS UPDATE Before delving into the past and prologue of the Port of New forward-looking approach have remained consistent. To under- York and New Jersey, we begin with the story of a bridge con- stand the port’s continued success and growth, it’s helpful necting , New York, and Bayonne, New Jersey. The to look back at its history and how it overcame various chal- , currently the fourth-longest steel arch bridge lenges over the years. worldwide, was the largest of its kind for 45 years after construc- tion finished in 1931. Built for the tallest at the time, the The Port’s History bridge’s clearance of 151 feet above water was fully functional At the turn of the 19th century, the Port of New York had the for the Port of New York and New Jersey’s maritime activity same trading volume as the other main , such as New over the course of 80 years. Today, the most pressing initiative Orleans, Baltimore, Philadelphia and Boston. Boston was the facing the port is “Raise the Roadway,” a project dedicated to United States’ busiest port due to its established marine history, bringing the clearance to 215 feet in order to accommodate while New York was still adjusting to trading goods originating neo-Panamax vessels. These vessels are at the forefront of from the colonies after being the only major city controlled by modern shipping after the Panama Canal expansion completed the British throughout the Revolutionary War. In 1820, Boston this past June, allowing ships 366 meters long and 49 meters and New York each exported around $12 million of goods, but wide that carry 13,000 twenty-foot equivalent units (TEUs) to by 1840, the Port of New York handled more passengers and pass through, compared with ships of 294 meters long and 32 cargo than all other ports in the country combined.4 The reason meters wide that carried 5,000 TEUs previously.3 This project for New York’s arrival was the “cotton triangle,” a newly formed is the last upgrade needed to allow these larger ships to call trade between the Southern states, New York and Europe that on the Port of New York and New Jersey and add to the cargo made New York’s port the consolidation and distribution center volume of the East Coast’s largest port and North America’s for the entire country. Cotton and tobacco from Southern farmers third-busiest , after the Port of Los Angeles and were shipped by the Ports of Baltimore or New Orleans to New the . More than $200 billion of total cargo York, and ships returned to the Southeast carrying manufactured moved through the port in 2015, and container volumes have goods from Northern states. U.S.-grown commodities traveled been on the rise since 2009, according to the Port Authority of across the ocean from New York to Europe, and imported goods New York and New Jersey. returned to the port for ultimate delivery throughout the country.

Port of New York and New Jersey's There were two interrelated reasons why New York became Oceanborne Cargo Tonnage and Containers the hub for the cotton triangle: developments in marine technol-

100,000,000 4,000,000 ogy and the city’s geographic advantages over other ports. The

90,000,000 3,500,000 first steamship, built in 1808, allowed goods to travel quicker 80,000,000 and cheaper on Western rivers to the interior U.S. markets than 3,000,000 70,000,000 by wagons carrying goods over land. With the ’s 1825 2,500,000 No. of Containers 60,000,000 completion, the Port of New York benefited from the new steam- 50,000,000 2,000,000 transportation method by giving Western farmers and traders Metric Tons 40,000,000 1,500,000 access to New York markets, which served as a consolidation 30,000,000 1,000,000 20,000,000 point for other East Coast and European markets. For example, 500,000 10,000,000 wheat grown in Indiana could travel by steamship across the

0 0 Great Lakes, through the Erie Canal and down the 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

General Cargo (left-hand side) Bulk Cargo (left-hand side) No. of Containers (right-hand side) to New York, where it could be exported to England.

Source: he Port Authority of e ork and e ersey.

1 Source: The Port Authority of New York and New Jersey, “2015 Trade Statistics,” January 2016. The Port of New York and New Jersey has weathered changes 2 Source: Trading Economics, “United States Balance of Trade,” November 2016. 3 For more information on the recently expanded Panama Canal, see the September 2016 Commodity in maritime trade patterns, shipping technology and con- Markets Update article, “Panama Canal Update: Too Narrow for ‘Neos’?” 4 Source: Glaeser, Edward I. “Urban Colossus: Why Is New York America’s Largest City?,” FRB New York sumer demands throughout its history, but its adaptability and - Economic Policy Review, 2005, v11(2,Dec), 7-24.

Issue 3 2016 2 Following the advent of steamship transportation, the next impor- tant development of the 19th century was larger ships built with greater cargo capacity and stability for transatlantic voyages. This led to the smaller ships, previously used for these trips to Europe, pivoting toward the transport of goods along the Eastern sea- board. The industry was seeking economies of scale to be gained from having a single consolidating location where smaller vessels could load cargo onto bigger ships making the intercontinental trip, and the Port of New York’s geological advantages made it the obvious choice.

While New York continued to gain steam, it was not without competitors. However, it had some clear geological advan- tages relative to its competition. For example, the Port of Philadelphia lacked direct access to the ocean, making it a more expensive option compared with New York because of addi- tional inland shipping costs. The Port of Boston connects to the Atlantic Ocean, but its harbor freezes in the winter, and the increased trade volumes throughout the century required the trading volume. By 1870, the Port of New York grew to be a fully functioning port year-round. Yet New York’s biggest the busiest in the Western Hemisphere, and this was just the geological advantage was simply its central location between beginning of its leadership in the maritime community. New England’s textile manufacturers, anthracite coal miners of Philadelphia and Southern cotton and tobacco growers.5 New Until the early 1900s, the main berths for shipping goods were York was an easy compromise for all markets when looking for mostly in or , while the freight lines with a major port between two key output areas that could handle access to the rest of the country were in New Jersey. Barges made many trips every day to bring cargo between the two North American Free Trade Agreement states for switching between ship and transport, and this Region Container Traffi c created many disagreements around the states’ jurisdictions Port Country 2015 Traffi c in TEUs Change from 2014 and boundaries. On April 30, 1921, in a compromise with far- Los Angeles (CA) United States 8,160,458 -2.2% reaching historic consequences for the U.S. maritime industry, the Port Authority of New York (renamed the Port Authority of Long Beach (CA) United States 7,192,066 5.4% New York and New Jersey in 1972) was created to set aside the New York/New Jersey United States 6,371,720 10.4% two states’ own interests and do what was best for the public.

Savannah (GA) United States 3,737,402 11.7% This was the first agency to be formed under an interstate com-

Seattle/Tacoma pact, and as the demands on the Port of New York and New United States 3,529,446 4.0% Alliance (WA) Jersey progressed, this unity proved to be the sine qua non of Vancouver (BC) Canada 3,054,468 4.9% the port’s modern growth.

Hampton Roads (VA) United States 2,549,271 6.5% One of the biggest technological advancements in the history of Manzanillo (COL) Mexico 2,458,135 4.4% maritime trade is the transition from break bulk to containerized

Oakland (CA) United States 2,277,521 -4.9% shipping. Until the mid-20th century, all cargo was break bulk, mean- ing it had to be individually loaded. Today, meanwhile, the majority Houston (TX) United States 2,130,544 9.2%

Source: American Association of Port Authorities. 5 Ibid.

3 Brown Brothers Harriman | COMMODITY MARKETS UPDATE 100 miles. With many companies employing lean inventory meth- ods through just-in-time delivery, this meant the port’s intermodal transportation infrastructure must support moving large volumes off vessels and onto other forms of transportation under strict time constraints. To address this, the Port Authority began build- ing a rail network called ExpressRail in the early 2000s, starting with the Elizabeth Marine Terminal. Today, freight infrastructure has been built for three terminals, with rail lines for a fourth ter- minal undergoing construction. The port’s partnership with three Class I railroads (the largest operating systems, in terms of rev- enues, throughout North America), when supplemented by the largest trucking fleet on the East Coast, allows the Port of New York and New Jersey to bring imported cargo to 100 million con- sumers within 36 hours, according to the Port Authority of New York and New Jersey. This ability to quickly provide a large scale of goods to a big consumer market is the port’s competitive advan- tage, but as maritime trade evolves, this is being challenged. of cargo is shipped in intermodal containers. Again, the Port of The Port’s Future New York adapted to this seismic shift in transportation by mak- The most anticipated project for the Port of New York and New ing smart investments in anticipation of future change. The , which has been years in the making, is preparation for of New York and New Jersey played a historical role on April 26, neo-Panamax vessels. The largest vessels currently calling on 1956, when the world’s first , the SS Ideal X, set sail the port have a capacity of 10,000 TEUs, but neo-Panamax ves- from Port Newark toward Houston. The vessel had been installed sels allow up to 13,000 TEUs. To remain competitive, the Port of with slots on the main deck for 58 containers, and the containers New York and New Jersey will have to ensue that its waterway were then loaded onto trucks upon arrival in Texas one week later. infrastructure can meet the demands of these gargantuan ships.

The Port Authority’s foresight into how containerized and intermo- The Port of New York and New Jersey handled 6,371,720 TEUs dal shipping would change maritime trade led the agency to build in 2015, but year-to-date statistics for total TEUs handled as the first specialized container terminal in Elizabeth, New Jersey, of September 2016 are behind last year’s by 3.5%.6 On the in 1962. After dredging the shipping channel between Newark, other hand, Baltimore, Norfolk and Miami have increased their New Jersey, and Elizabeth at significant outlay, the terminal was total TEUs handled by an average of 3.3% year to date com- constructed south of the new Elizabeth channel. It was called the pared with last year’s activity.7 These are the only three ports Sea-Land Container Terminal and drastically reduced trade traf- on the East Coast ready to accept the bigger vessels, and their fic coming to New York because of the economies of scale and improved waterway infrastructures have allowed them to take lower handling costs afforded by containerized shipping. This ter- advantage of the additional TEUs on neo-Panamax ships. It minal was truly pioneering, with its design influencing almost all is concerning that the Port of New York and New Jersey is container terminals built since. As of 1985, the Port of New York losing container traffic and market share, especially on the and New Jersey was the world’s busiest container port and still East Coast, where it has long been the dominant port. When maintains a large role in international trade as the third-busiest con- tainer terminal in North America and the 26th-busiest in the world. 6 Source: The Port Authority of New York and New Jersey, “Loaded Containers in TEUs and Total ExpressRail Lifts by Month,” October 2016. According to Forbes, almost 80% of all cargo imported into the 7 Source: Maryland Department of Transportation Port Administration, “Maryland Port Administration General Cargo,” October 2016; , “Port Stats,” October 2016; Port Miami, Port of New York and New Jersey is used by customers within “Cargo,” October 2016.

Issue 3 2016 4 Containerized Shipping and North America Port of New York and New Jersey – Top 10 Market Share of Loaded TEUs Trading Partners (Imports and Exports) by TEUs

4,000,000 70% Share of New York and Share of New York and Country 3,500,000 60% M a New Jersey Trade in 2015 New Jersey Trade in 2014 r k e t

3,000,000 S h China 29.3% 29.7% 50% a r e

o f r s 2,500,000

N e

n India 6.6% 6.1% o i 40% r t a t h n

A m o 2,000,000 C

l Germany 5.3% 5.3% e a r i t 30% o c a T 1,500,000

L o

a Italy 4.4% 4.3%

20% d e

1,000,000 d

T E

U Hong Kong 3.0% 3.5% 500,000 10% s 2.7% 2.9% 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Vietnam 2.6% 2.1% Source: he Port Authority of e ork and e ersey. United Kingdom 2.5% 2.6%

South Korea 2.2% 1.9% year-end trade statistics are published, it will only put more France 2.2% 2.3% pressure on the port to become neo-Panamax vessel-ready. Source: Datamyne and PIERS.

The first part of the Port of New York and New Jersey’s prep- becoming an important country in international trade for the port, aration was the dredging from 45 feet to 50 feet, which was a with imports and exports showing 28.2% and 46.9% year-over- $2.1 billion project completed in late August 2016. The dredging year growth in 2015, respectively.10 The most common goods of the was actually authorized and started in exchanged were furniture and apparel arriving from Vietnam and 2004 at an original total cost estimate of more than $2.9 billion. soybeans and wastepaper shipped to the East Asian country. This phase of the project involved 20 dredging contracts on 52 Besides Vietnam, the port is expected to increase trade with million cubic yards of material at the bottom of the channel, and other Asian markets, and this trend applies to all ports on the East this dredged material was used in marsh, fishing reef and landfill Coast ready to receive neo-Panamax vessels. restoration projects.8 The dredging’s completion has cleared the waterways for neo-Panamax vessels from the Atlantic Ocean The East Coast as a whole is predicted to attract imports of Asian through the and to the port’s biggest container cargo that formerly would have been destined for the West Coast, terminals in New Jersey. because the new Panama Canal width makes East Coast ports more favorable for distribution to United States’ Eastern and The second part of the port’s preparation is the main roadblock, Midwestern markets.11 In order to reach these interior U.S. mar- and its delay is becoming more impactful each day. The Bayonne kets, Asian cargo still has to be transported by truck or rail from Bridge’s clearance must be increased by an additional 60 feet in coastal ports, but the upgraded Panama Canal now provides order to let neo-Panamax ships pass through. The $1.3 billion either lower or similar delivery times and transportation costs to project was estimated to be finished this year, but engineering Midwest markets from the East Coast compared with the West miscalculations and construction work slowed by rough weather Coast. In terms of trade flow back to Asian markets, exports from during winter 2014 have pushed back the estimated comple- the U.S., in the form of liquefied natural gas and grains, are antic- tion date to late 2017.9 As it is now, neo-Panamax vessels can ipated to increase, as demand for these goods is rising in many only dock at the Global Terminal, since it is located before the growing Asian countries. As the East Coast port with the largest Bayonne Bridge. The port’s four main container terminals lie past consumer base and a history of exporting goods like natural gas the bridge, and this makes the project’s completion critical to the and grains from the interior United States, it’s logical to assume port’s continued growth and battle for market share. 8 Source: The Port Authority of New York and New Jersey, “New York and New Jersey Harbor Deepening Navigation Program,” September 2016. Changes in the commodities coming through the Port of New 9 Source: The Port Authority of New York and New Jersey, “Bayonne Bridge: ‘Raise the Roadway,’ June 2016.” York and New Jersey and the emergence of high-growth trad- 10 Source: The Port Authority of New York and New Jersey, “2015 Trade Statistics,” January 2016. 11 For more information on changes to East Asia-U.S. trade routes, see the December 2015 Commodity ing partners also play a large role in the port’s future. Vietnam is Markets Update article, “Redrawing Global Shipping Routes: The Panama Canal Gets an Upgrade.”

5 Brown Brothers Harriman | COMMODITY MARKETS UPDATE

As the East Coast port with the largest consumer base that the Port of New York and New Jersey will benefit significantly and a history of exporting from this increased trading volume with Asian countries; however, this will only be possible when the Bayonne Bridge is raised and goods like natural gas and the port deemed ready for neo-Panamax vessels. grains from the interior Conclusion United States, it’s logical The Port of New York and New Jersey has helped build the sur- rounding area into the maritime, financial and cultural center of the to assume that the Port of world that it is today due to the global recognition New York gained from the amount of people and goods that passed through the city New York and New Jersey starting in the 1800s. With initiatives and investments in expanding will benefit significantly the port’s capacity, reach and services, the Port Authority appears poised for new trade flows and shipping patterns. from this increased trading volume with Asian countries; however, this will only be possible when the Bayonne Bridge is raised and the port deemed ready for neo-Panamax vessels.”

Issue 3 2016 6 Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2019. All rights reserved..

PB_03203_2019_11_27 Exp. 11/30/2021