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New York City

The Port of New York/New Jersey includes, but is not limited to, the Ambrose and Anchorage Channels; New York and New Jersey Channels; Newark Bay Channel; Hudson River Channel; Bay Ridge and Red Hook Channel; Buttermilk Channel; Port Jersey Channel; Claremont Channel; and the Raritan Bay and Sandy Hook Channels. The Port is the largest port on the east coast, providing more than 166,000 port related jobs, $20 billion in economic activity, and serving more than 17 million consumers in the States of New York and New Jersey. Through its intermodal links, the Port provides second day access to another 80 million consumers in the northeast and mid-west. In 1996, the Port received and shipped more than 116.7 million metric tons of water-borne general cargo to all parts of the United States and throughout the world and received petroleum and related products from ports on the Atlantic and Gulf Coasts, the Caribbean, Africa, and the Persian Gulf (71.1 million metric tons came from domestic ports and 45.6 million metric tons came from foreign ports).

The Port is among the largest in the United States in terms of volume of commerce. The 30 million gallons of petroleum (crude petroleum and refined products) delivered to or originating from the Port each year make it the largest petroleum port in the country. The next largest petroleum port handles only about 10 million gallons per year. The Port is also the third largest container port in the United States (after the Ports of Los Angeles and Long Beach) and largest on the east coast of North America. According to American Association of Port Authorities (AAPA) figures, container traffic through the Port in 1996 totaled 12.6 million metric tons of cargo in 1.3 million containers, equaling 2.3 million twenty foot equivalent units (TEU). The Port handles this large volume of commerce in spite of the fact that it lacks sufficient depth to serve fully loaded ships of the latest designs to enter service.

Of all the container cargo handled by the Port at present, 70-75% originates in or is destined for the New York metropolitan area. There is no reason that those containers must begin or end the ocean voyage part of their transportation via the Port. If the container handling facilities of the Port are accessible only by relatively inefficiently sized vessels, the profit motive will guide shipping lines to seek out alternative loading and routing practices. Specifically, they will seek to use more efficient ships to route the cargo to a deeper port, combined with transshipment via road or rail to or from the New York metropolitan area. The extent to which this practice will be employed depends on the difference between the privately borne expense per TEU to bring cargo into the Port of New York/New Jersey with its depth limitations and the privately borne expense per TEU to bring cargo aboard economically more efficient ships into a deeper alternative port. Whenever that difference exceeds the privately borne expense of transshipment, diversion of container cargo that originates in or is destined for the New York metropolitan area will occur.

The privately borne expense of this diversion and transshipment would be substantial, but still less than its economic cost. The economic cost to the nation would include not only the opportunity cost of the extra resources used to produce the extra transportation, but also the costs imposed by the extra pollution, the productivity of people's time lost to the extra traffic delays and the extra accidents that inevitably come with larger volumes of road traffic, and the extra wear and tear of the land transportation network produced as a by-product of the extra transportation. The decision as to whether or not an investment should be made to improve a given navigation channel depends on a comparison of the economic cost of the channel improvements with the economic cost of not improving the channel. In this case, an important part of the economic cost of not improving the channel would come in the form of the economic cost of cargo diversion and transshipment.

If the volume of cargo grows at an average annual rate of 3% (a 3% annual rate would match the average annual rate of growth of the U.S. gross domestic product (GDP) in this century), by 2050, container traffic through the Port will be 61.9 million metric tons of cargo in 6.5 million containers (11.1 million TEU). Since the end of World War II, the dollar volume of world trade has grown at a little over twice the rate of U.S. GDP growth. Therefore, the 3% annual growth assumption for the volume of commerce probably errs on the low side.

If this projected volume of cargo had to be carried into the Port through the channels in their current condition, in a container fleet similar to the fleet as it is today, it would require 6 times the number of trips that were made in 1996. Some of the containerships that utilize Port Jersey Channel, the Kill Van Kull and the Arthur Kill can do so now only under favorable tide conditions. To increase the number of vessel passages during the periods of favorable tide by a factor of 6 or more may not be physically possible and certainly would pose a grave increase in the probability of accidents.

As the volume of water-borne commerce has grown, it has become possible for shipping lines to realize the economies of scale offered by ships with larger carrying capacity. In order for vessels to possess and utilize larger carrying capacity, they must be built larger in their length, beam, and draft. The composition of the world's fleet of containerships is undergoing rapid change. Given known orders for containerships as of the end of March of 1997, there will be 302 vessels of 4,000 TEU capacity or more with a design draft in excess of 40 feet. By the end of 1999, when all of these vessels will have entered service, they will account for 34% of the world fleet's containership capacity, but only 18% of the hulls. Therefore, the world's containership fleet is moving to a new composition with a high proportion of larger vessels. At their design drafts, these ships cannot reach the majority of the container handling facilities in the Port. To reach those facilities, these ships must be light loaded, anchor in deeper water awaiting favorable tide conditions, call on a deeper port and trans-ship all or part of their cargo on smaller ships of shallower draft or by road or rail, or use some combination of those techniques, all of which require the operator to surrender some or all of the potential economies of scale relative to smaller ships. The same considerations apply to tankers and bulkers. Therefore, the problem is that in the near future, ships using the Port must either be ones whose design is relatively economically inefficient or be economically efficient ships operated in an economically inefficient manner.

Any transportation-producing capital good (ships, trucks, rail cars, etc.) can only earn revenue while it is moving. The point of building and operating larger ships is to realize the economies of scale (i.e., lower unit operating costs) they offer. The source of profit that accrues to owning a unit of transportation-producing capital is the spread between the flow of revenue and the flow of operating cost. The biggest spread will be achieved by keeping the transportation-producing capital moving as much as possible. That is why ships with the lowest unit operating costs will initially be put on the longest routes. For these larger container ships, that means trans-Pacific and Far East to Europe routes. As soon as a given carrier has a sufficient number of such vessels to carry their trans-Pacific trade, they will seek to realize the smaller but still positive economies of scale offered by their second longest route, and then their third longest route, etc., until they get to routes too short or with too little traffic for there to be any further economies of scale. That is why the first three units of the Maersk "K Class" ships were all put on long Far East to Europe runs. As delivery of the remainder of 14 planned units occurs, their use will spread to the North Atlantic. Other carriers have ordered or taken delivery of similarly sized ships. The day will come when carriers will have to decide where on the East Coast of North America to put the physical and human capital necessary to unload and load these ships and whether the place to put the physical and human capital is in the United States. If the Port is not ready to receive efficiently sized ships loaded in an economically efficient manner at any of its terminals, the physical and human capital will be placed elsewhere. Moreover, once that decision is made, it will be extremely difficult to change the location of those physical and human capital assets until a new phase of deepening is required to accommodate the next generation of ships.



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