Posted on November 30, 2021
A DredgeWire Exclusive
by Peter Bowe, Publisher
Recently Port Houston Commission’s Chairman Ric Campo gave a major address about the Port in Houston to a group of 50 CEOs attending the annual board meeting of the Chief Executives Organization, an international organization with over 1700 members affiliated with the Young Presidents Organization (YPO.) Campo was the one of two keynote speakers, the other being the CEO of a major publicly traded energy company. The 50 attendees came over half a dozen countries and five continents.
DredgeWire publisher Peter Bowe attended the meeting as a CEO board member and issued this exclusive report.
In an hourlong conversation Campo outlined the challenges, opportunities, and accomplishments of the Port, especially relevant now when transport logistics seem so bogged down at every point in the supply chain.
Key Facts and Data
A few key data points help to provide perspective on the significance of Port Houston. It has an economic impact in Texas of almost $340 billion annually, and $800 billion to the overall US GDP. That activity accounts for over 1/5 of the entire Texas GDP, itself equivalent to the ninth largest country in the world (just ahead of Brazil!) and, incredibly, supports over 1.3 million Texan jobs.
Texas is number one in the country in aviation fuel traffic as well as other liquids and key commodities like resins. A storage capacity of over 500 million barrels for such liquids underpins Port Houston’s leading role in this sector. Houston has the largest energy pipeline and storage network in the USA as well as the largest petrochemical complex.
Port Houston includes 200 private terminals and eight terminals run by the Port itself. The Port both owns its own land and operates its own terminals, one of only four in the USA to do so according to Campo.
US Government policies have hurt our ability to ramp up with demand, with negative effects on the supply chain
Campo had several important insights about how prior Federal and State government decisions have hurt our maritime and logistics infrastructure.
First, he noted that the prior Federal Administration imposed duties not only on Chinese steel but importantly also on Chinese-made chassis which are used to transport containers. This has negatively impacted chassis supply, as American producers have not been able to ramp up fast enough to offset diminished normal import flows of chassis.
Secondly he noted that the Texas state legislature had banned ships over 1100 feet (355m) long and with more than 8500 TEU to manage channel traffic even though the expanded Panama Canal allows bigger ships. This action has artificially reduced port capacity. Campo expects that Project 11 with its dredging component will have a favorable impact on the second problem. (See DredgeWire’s story last week about the contract award to Great Lakes Dredge & Dock for the first phase of dredging: https://dredgewire.com/great-lakes-dredge-dock-announces-receipt-of-92-5-million-houston-ship-channel-widening-and-improvement-project-11-award/ )
Thirdly he noted that in California, contrasted with Texas, various state regulations diminish the flexibility of ports to operate more efficiently and also slow down new investments through protracted permitting procedures. As an example, he speculated that a building which could be built in three years in Texas could take seven years in California.
Campo predicted that a reduction in duties on Chinese chassis would have a noticeable and immediate positive impact on current port congestion.
Changing Trade Flow Routes
East Asian traffic has become more significant, now accounting for over 1/3 of Port Houston trade. This traffic has been growing 10% a year, especially since the widening of the Panama Canal. On the other hand Tesla cars are now their number one auto export with almost 100,000 TEUs per year going to Rotterdam for the European market.
2021 Supply Chain Challenges
Historically Port Houston has had a balanced trade flow between import and export container volumes. This trend continued through 2018 and 2019, but starting in 2020 imports grew faster due to rising domestic consumer demand. In 2021 Port Houston imports are up another 30% over 2020!
Campo noted that “bank cash balances for an average American are up 50% in 2021 versus 2019 so retail demand, largely from imported sources, has just exploded.”
He said “the supply chain never contemplated this level of consumer demand.”
One of the CEOs in the audience asked Campo how the port was able to maintain and grow its throughput at such a rapid pace, especially contrasted with California. Campo replied that “this is a business run like a business, not like a typical government agency.”
“Texas Chicken” and Port Channel Expansion via Dredging
The commissioner described how the current channel is only 535 ft wide (177m) even after 10 prior expansions projects.
Campo explained:
”Given ship widths, that means there is typically just a 75 foot (24m) clearance between passing vessels who avoid each other through a game of “Texas chicken“ by ‘amazing Texas pilots.’ And this happens 40 to 50 times a day!”
After Project 11 is completed the channel will be widened to 700 feet (225m) improving navigation safety. The entire channel extends 52 miles (84km) from the Port to the Gulf of Mexico.
Finances: Financing Expansion and Project 11
Campo justly bragged about the strong financial state of the Port. It has about half a $1 billion in cash reserves, and generates about $250 million in free cash flow annually.
When contemplating the vast scope of the Project 11 expansion, this financial strength explains Campo’s ability to say “we are more entrepreneurial than the Feds will ever be. When we realized that the ROI for the region after the first year of the expansion would be 40 to 50%, we spent $45 million of our own money in advance of approvals to get the project started.”
He claimed the new project will be “the fastest port expansion project in American history… And the cleanest.”
He noted that the port was able to raise $400 million in bonds on top of its cash reserves to get the project underway and committed even before federal reimbursements kick in. Campo mentioned to DredgeWire that the first phase of the dredging had just been awarded to Great Lakes Dredge & Dock for $92 million. (Described in DredgeWire breaking news article here: https://dredgewire.com/great-lakes-dredge-dock-announces-receipt-of-92-5-million-houston-ship-channel-widening-and-improvement-project-11-award/ )
Campo proudly noted that the initial dredging contract with GLDD “reduces NOX emissions by 66% beyond regulatory compliance requirements.”
There’s more to Project 11 than just dredging
Port Houston plans to invest an additional $1+ billion in:
additional yard space and equipment,
12 ship to shore cranes,
19 rubber tire gantry cranes,
building two new container berths,
adding two new container yards and,
adding additional wharfage among other sub projects.
People and Port Efficiency
Campo gave his talk wearing the regular port uniform of a longshoreman. (See pictures above.) He noted “you can’t improve people or the quality of their life, unless they have a job first.” The port has about 1000 employees, about 300 ILA members and about 700 support. He is proud of their stable labor relations contrasted with, for example, Long Beach. Long Beach’s labor contract is up in July 2022, along with 22,000 West Coast ILWU longshoremen, and many are predicting a strike. DredgeWire notes that the ILWU president Willie Adams last year advised his members to “Be prepared” because “There may be a battle in 2022.” Unsettling to be sure.
Port Houston has not had a strike in almost 40 years, going back to 1985.
Campo said that the average ship stay in port is just 30 hours, and service trucks are able to handle getting in and out of the terminal in just 40 minutes. They have a sophisticated container inventory system based on Navis to support this activity, and a system to expedite truck movement called “Express Pass.” Over 100 rubber-tire gantry cranes load containers onto trucks.
Environment
Campo noted that Port Houston was the “The first port in America to operate with 100% renewable electricity.” Their carbon footprint is down 55% since 2016. But he lamented a national policy misdirection in that “government subsidies for electric cars amount to $500-$600 per ton when carbon capture is available for just $50 per ton.”
DredgeWire asked Campo about the “Ike Dike,” the controversial proposal for a coastal storm barrier in response to massive damage from Hurricane Ike in 2008. Campo noted the need for storm protection but expressed some skepticism given a cost now estimated at almost $30 billion but more significantly concern about project timing. He noted the Corps of Engineers has spent almost 15 years alone just studying the project. The Biden Bipartisan Infrastructure Framework (BIF) will likely provide some funding to move the project forward.
Governance
The Port Houston Commission consists of seven commissioners representing various local constituencies. All of them, including the chairman, are unpaid. They include women and people of color, and Campo is proud of this diversity.
Campo himself has had a distinguished career in the private sector including being CEO of a Real Estate Investment Trust (REIT) called Camden Property Trust, a publicly traded entity which he helped found. Camden now has over $1Billion in annual revenue, $1Billion in assets, and a market cap of over $15Billion. Fortune has named Camden to its list of the “Best Companies To Work For” for over a dozen years straight, so Campo obviously knows what he is doing.
The CEO crowd was very impressed with what Campo had to say and the great success of Port Houston under his leadership. We
