Williamson, George T.

English

Research Papers in Economics

Serving Current and Emerging Business  Strategies: Port of
Houston
George T. Williamson
Thank you  for  the  opportunity  to  be  here  integrated  transport  systems.  They  own  inland
today. I'm a Tulane  grad  and it's always  great to  elevators  used for storage,  ship out to port in rail
be back in New Orleans.  to  meet  the  vessels  they  have  chartered,  which
Houston  is the 2nd largest port in the U.S.  in  dock  at  their  export  elevator  and  various  ports
terms of tonnage. Last year we  handled  over  144  throughout the U.S.  They are  in complete control
million tons of cargo. That makes us the  8th larg-  of this transport  chain.  They use  a public  house
est  port in the world.  We had  125  shipping lines  when their export houses are  full due to delays  in
making  about  6,000  sailings  from  Houston  last  ship  schedules,  or  when  interior  houses  can't
year -- about  16  sailings a day to various ports of  handle a bumper crop being harvested.
the world. There  are over 50,000  barge calls each  In  the  meantime,  ports  have  to  maintain  a
year,  200,000  people  working  along  the  year round staff and  an operational  facility  in the
"Fabulous  50,"  as  we  call  the  Houston  Ship  hopes of capturing a very small part of the traders
Channel, the  largest petrochemical  complex.  The  market share. In the very best of times, it  is diffi-
Port generates  almost  $6  billion dollars  a year to  cult  for  a port to produce  a return  on  its  invest-
the  local  economy.  There  are  250  truck  lines  ment. This cargo turns  not on a  dime but a frac-
calling at the Port and  major trunk  line railroads  tion of a cent.  Grain  from  the Midwest  to Asia,
run  double-stacked  unit  trains  in  and  out  of  which traditionally  flowed  through  the  Gulf can
Houston  daily.  We  handle  as  much  container  be rerouted  via the  PNW if Panama  Canal  tolls
traffic as all of the Gulf ports combined.  are  increased,  or if backhaul  charter rates off the
In  addition,  Houston  is  in  the  middle  of a  west coast become more competitive.
major consumer market. Houston itself is the 4th  In the worst of times, these  are very expen-
largest  city in  the  U.S.  with  4  million people.  A  sive  operations  to  maintain.  This  last  year  has
total of 15  million  live  within  a  300 mile  radius  been a very difficult time in Texas.  A horrendous
and  60  million  live  within  a one  day  truck drive  drought, an infestation problem  and finally karal
from the  Port. Clearly,  Houston  is  a world class  bunt  disease has  practically  decimated the export
port.  market  overall,  not  to  mention  the  "overflow"
I  mentioned  that  Houston  handled  almost  market  the  Port  plays  in.  A  number  of  public
144  million  tons  last  year  --  of  that  total,  7%  houses have  closed  in the west Gulf,  a number  of
(about  9  million  tons)  was  food  products.  And  others  are  considering closure.  Because of its  fi-
here  I'd  like  to  delineate  our  market.  Of the  9  nancial  strength,  the Port will probably  be  in the
million,  7.6  million  are  bulk  cereals  and  grains,  bulk  grain  basis  for  years  to  come.  But  clearly,
The Port operates two grain elevators.  One  is old,  not being in the loop of overall  distribution chain
built in the 1920's, which today for all intents and  is an unenviable position to be in.
purposes  is  moth-balled.  The  other  is  a  new,  Moving along to another market segment, I'd
modern,  high  speed  elevator  the Port  purchased  like to spend  a few minutes talking  about general
three  years  ago  for around  $15  million.  Both  of  refrigerated  cargo.  Houston  has  a  plethora  of re-
these facilities  are "overflow"  elevators  --  public  frigerated  warehouse  in the around  the port area.
houses  that  are  offered  to the  public  in  need  of  They  include  Harborside,  Associated  Freezers,
grain  storage,  elevating  and  load-outs.  Neither of  New Orleans Cold  Storage,  Distribution  Special-
them are  profitable.  Today,  the  major grain trad-  ists and  Storage Warehouse.  Together,  they  have
ers  -- Cargill,  ADM,  Conagra,  et.al.,  have  totally  over  I million square  feet of reefer  space. In'ad-
dition,  there  are  another million  sq.  ft.  used  for
George  T.  Williamson  is  Managing  Director,  Port  of  domestic activity along Houston's "produce row."
Houston Authority.Williamson, George T.  Port of  Houston Authority  11
Compared  to some ports, Houston may be consid-  Another unfortunate  aspect of the food  busi-
ered  a relative  newcomer to the  business  of han-  ness  is  politics.  The  industry  is  at the  mercy  of
dling temperature-controlled  cargo.  Still, shippers  oft-times  whimsical  decisions  by  governmental
of  frozen  and  refrigerated  cargo  are  often  sur-  entities who  use food to make  a point. Examples
prised  when  they  discover  how  many  choices  abound.  The  banana  industry  was  hammered
Houston  offers  them.  Although  several  of these  overnight  by  European  quotas.  Just  before  the
facilities  lease  land  from the  PHA,  none of them  recent  Russian  elections,  U.S.  chicken  exports
are owned  by us.  They are  private  sector compa-  were  claimed  to  be  unsanitary,  and  for  several
nies involved  in the business of transporting  food  months  the flow  was  curtailed.  Chicken  feet  are
to  and  from the greater  Houston  area.  The Port's  accumulating  in cold  storage  at  broiler  slaughter
role is thus relegated to marketing these  facilities,  houses  in  Texas  since  China  banned  imports  of
We  do  that  to  gain  ship  calls,  waterfront  man-  poultry from ten states last week.  Called "chicken
hours and  dockage  and wharfage  fees.  For years,  paws,"  the  feet  are  delicacies  in China,  which  is
our  marketing  efforts  focused  on  Chilean  fruit.  the  world's  biggest  purchaser.  Texas  ports  ship
That was,  and  perhaps  to  some,  still  is,  the  high  about 600 tons  a day to China  via Hong  Kong  in
profile  cargo.  The  Gulf  as  a  whole  has  been  refrigerated  containers.  This  particular  ban  was
thwarted  by the Chileans'  intransigence  to move  called  a  "misunderstanding."  China  apparently
from their traditional  stronghold  in  Philadelphia.  thinks  the  chicken  feet  harbor  a  disease  called
We  used  to  tell  them  "Chile  to  Philly  is  silly!"  highly  pathogenic  avian  influenza.  U.S.  officials
Lately the Chileans  have  diversified to Wilming-  advise this flu hasn't been found in the U.S. since
ton and  San Diego, but the distribution network of  1984.  This  is  the  equivalent  of  Custer
brokers  and  buyers continue  to keep the Chilean  "misunderstanding"  how  many  Indians  were  in
fruit out of the Gulf in a large measure.  the Little  Big Horn  Valley. "Misunderstandings"
It took  a number  of years,  but  the Gulf  fi-  like this  in the  food  chain  cost  ships  to  lay  idle
nally  got over their "Chilean  fixation."  We have  instead  of  unloading,  rail  cars  to  stop,  and
moved  on  to  new  markets.  For  Texas,  Latin  slaughterhouses  to lay  off workers  until  produc-
American  imports  have  boosted  tonnage  levels.  tion can be restarted. The British  "mad cow"  dis-
South  Africa  has  an  enormous  potential  for  di-  ease  was  largely  over-hyped  in  Europe  much  to
verse  seasonal  fruits.  Both  of these  areas  have  the glee of French and German cattle owners. The
been  targeted  by  the  Port  on  recent  marketing  Japanese  didn't buy U.S.  rice because  they were
visits and Houston has  enjoyed  considerable  suc-  told it "smelled funny."  The list is endless.
cess in both areas.  But it is  a reality you  have to be prepared  to
Perhaps  the most  celebrated  market  the  last  contend  with  if you're  in  this  business.  As  you
few years has been frozen  chicken legs to Russia.  can see ports are in favor of free and open trade.
There  has been an almost  continuous flow for the  This is probably the right time to say  a word
last several years and there seems to be no end to  about NAFTA. Houston was a major supporter of
it.  Last  year  the  Port  handled  200,000  tons  of  the  passage  of NAFTA  and  Texas  stands  to  be
chicken to Russia. Interestingly,  or perhaps sadly,  one of the  biggest  winners.  NAFTA  was  full  of
I  learned this  summer  when  I  was  in Russia that  political  considerations.  Just  ask  the  Florida  to-
only one out of every  three makes  it to a Russian  mato  growers  and  the  California  avocado  indus-
dinner  table.  The  rest  is  lost  in  the  distribution  try. From a port perspective, most of the Mexican
chain to lack of facilities, reefer truck transporta-  foodstuffs  imported  to  the  U.S.  are  moving  by
tion and pilferage. You will recall that Russia has  surface  transport.  As  the  economy  of  Mexico
the largest fishing fleet in the world yet the statis-  stabilizes,  however,  there  will  be  enough  to  ex-
tics are the same -- for every 3 tons of fish caught,  pand  water  transport  opportunities.  Remember,
only one ton makes it to dinner. That seems like a  Veracruz to Houston  is 36  hours by water and  72
terrible waste  of the world's  resources.  Yet  it  is  hours by truck. But ships are big -- they need vol-
true -- and it's largely because  of a lack of trans-  ume  if they are to carry  fresh or frozen  food  at a
portation infrastructure.  profit.  That's  why  ports  have  to  develop  some
creative  marketing  schemes  to  attract  cargo.12  February  1997  Journal  of  Food Distribution  Research
Houston  has  had  to  develop  backhaul  cargo  for  into  Port  is  operated  with  non-affiliated  labor,
New Zealand  apple  and  pear ships  to  induce  the  giving  it additional cost advantages  over its com-
vessels  through  the  canal.  Houston  and  Tampa  petitors.  As  an  example,  the  Port  of Galveston
have  combined  cargo  to  induce  vessels  into  the  had  a  private  investor  construct  a  $32  million
Gulf.  And we  constantly  have  to analyze  vessel  gravity  feed  spiralveyor  terminal  called  ABT  or
movements  and  cargo flows to take  advantage  of  Automated  Bagging  Terminal.  After  our  experi-
opportunities  in the market place.  ence  in Houston,  we  looked  askance  at the entire
I'd like to conclude my remarks with a word  program.  Sure  enough,  in  two  months  it  was
about the facilities that exist in the Port of Hous-  bankrupt.  It too,  fell  victim to high  debt service,
ton.  Jacinto  Port  is  a terminal  that employs  spi-  high  operating  costs  and  lack  of  lead  expertise
ralveyor  technology  to  load  out  PL  480  title  II  when it came to operating the equipment.
bagged  cargo.  Manual  labor  loading  bags  can  Back at Jacinto Port, we  have loaded  several
achieve  anywhere  between  30/40  tons  per  hours  shipments  of refrigerated  cargo  through  the  spi-
per gang.  ralveyors  and we are today perfecting  methods  of
Spiralveyor  technology  improves  loading  handling  a wide  spectrum of frozen  boxed cargo
time to as much  as  120 tons per hour -- about tri-  directly  from  the reefer  warehouse  into  the  hold
pie. This facility cost $80 million to construct and  of a ship  by conveyor.  The point  I'm  making  is
was  built as a joint venture  between  Bechtel  and  that  the  distribution  chain  cannot  absorb  high
Ryan  Walsh  Stevedoring Company.  It soon  went  overheads  for  costly  facility  developments.  Like
bankrupt.  The debt service  was a burden  the  op-  water, the chain  will find  its own  lowest  level  of
erating  profits could  not overcome.  On the action  cost. And facilities alone won't attract food stuffs
block,  the  Port  purchased  it  for  $500,000.  It  is  to your port. You must also have competitive land
now the most successful  handler of bagged  cargo  side access  and regularity of service.  The Gulf as
in the U.S.  In fact,  it currently handles about 45%  a  whole  has  done  an  excellent job  in  supplying
of all  U.S.  government  bagged  cargo.  The  next  these  ingredients  to  the  trade  and  I suspect  will
nearest competitive handler  is Memphis,  Tennes-  continue to play a major role  in food distribution
see,  River  ports  handling  11.5%  followed  by  in years to come. Thank you.
NOLA  at  10.2%.  I  should  also mention  that Jac-

SERVING CURRENT AND EMERGING BUSINESS STRATEGIES: PORT OF HOUSTON

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