December 20, 2014

The Shipping News

Andre Henderson | 6/1/1995
"Location, location, location" is a maxim of the real estate industry. Lately, however, it better explains Florida's new role in international trade. Last December's Summit of the Americas marked the formal coronation of the Sunshine State as the axis of commerce in the Western Hemisphere, a designation which had been a long time coming. Trade accords signed at the summit guarantee a continuous flow of goods between the U.S. and Latin America and the Caribbean, with the long-term goal of creating a free-trade zone the length of the hemisphere by 2005.

But don't look for trade to pick up sometime in the near future: it is booming now. Total U.S. trade with Latin America and the Caribbean hit $80 billion in 1993, and Florida scooped up much of it. Last year, the Sunshine State conducted a record $46 billion in international commerce, twice the rate of ten years ago and a 15% increase over 1993. Latin American economies are growing by an average of 3% annually, and their stability has helped beat back once-rampant inflation.

Although these numbers are impressive, there is one problem: Florida is not ready to take full advantage of the opportunity they present. Its infrastructure can't handle the trade coming through the southern pipeline. So now Florida must scramble to commit to memory the secret to success in international trade: "Transportation, transportation, transportation!"

It is a mantra worth learning. By any reckoning, the future of trade in Florida is bright. It may even be as blinding as the sun which lured tourists in such numbers in the 1970s and 1980s that they formed the base of the state's economy. Commercial activity benefits only those who can capture it, however, and at present, Florida cannot fulfill its economic potential. The state's seaports have been malnourished for years, and only now are they starting to receive from Tallahassee the attention they require. In addition, the intermodal connections which link the ports to rail and road arteries cannot compete with the better-funded networks in neighboring states.

At present, Florida allocates $10 million each year to finance its ports' capital improvements, through the Florida Seaport Transportation and Economic Development (FSTED) program. Ports must match every dollar contributed by the state with a dollar from their revenues. The Chiles administration merits recognition for upping FSTED funding from $8 million to its present $10 million, and many ports have upgraded their equipment with the increase. But compared to the amounts which neighboring states are investing in international trade, Florida's investment is paltry.

Back in January 1990, Louisiana, for example, initiated an aid program for its seaports known as the Port Construction and Development Priority Program. The program established a constitutionally protected source of $100 million on which the state's ports could draw for the purpose of financing capital improvement projects. Created with a portion of the proceeds from a 16-cent-on-the-gallon gasoline tax, the trust fund has so far distributed $82.5 million for 64 capital improvement projects.

This figure excludes projects undertaken at the Port of New Orleans, Louisiana's biggest port. That port receives a separate annual appropriation, of $20 million. All told, Louisiana's six deep water ports and 17 minor ports were budgeted $35 million a year for the last five years-exactly the amount Florida's 14 deep water ports are seeking today.

Georgia, too, is strongly supporting its ports. The state has supplied the ports with $285 million in loans since 1975, a key to the strength of Savannah, one of Florida's top seaboard competitors.

As Florida's Secretary of Commerce from 1991 to 1993, Greg Farmer is in a good position to appraise Florida's coastal infrastructure policies. "Historically, there's been a lack of awareness of the importance of investment in the ports," says Farmer, now U.S. Under Secretary of Commerce for Travel and Tourism. "There's a learning curve that others have been ahead of us on. As much as we've succeeded in getting it across to legislators and the business community, and as much progress as we've made in intermodal transportation, there's still work to be done."

Working around the deficiencies in state aid has been a task for the ports, which must often finance their own expansion. Revenue bonds are the most popular means, but for the smaller ports they can be problematic. As engines of economic development, seaports are comparable to the tugboats in their harbors: short on stature, yet able to pull a load many times their weight. As business operations, however, they barely stay afloat."Transportation has not been a lucrative business," says San Jose State University professor Herman L. Boschken, author of "Strategic Design and Organizational Change." To attract customers, ports often undercut the competition's handling rates or attempt to top their menu of services. Both approaches sacrifice profit for economic development, leaving limited funds available for capital improvement projects.

A handful of the state's deep water ports are invested with the authority to tax. Nine of Florida's 14 major seaports are part of another entity, typically a city or county government, to which they may turn for funding. The five other ports vary in autonomy. Altogether, three ports have the power to tax, as independent commerce districts, but rarely invoke it. Port-initiated levies are known to arouse the anger of local residents, and in some cases the option has been abandoned outright. When the port authority of Port Everglades dissolved last November and the operation became a department of Broward County government, it relinquished the power to tax. That prerogative was not missed, however, largely because it had not been exercised since the early 1980s. It seems most ports would rather avoid poisoning community relations than impose their will upon their communities.

Instead, ports must rely on the generosity of their localities. In many cases, at least part of their needs are met. But such needs are not always a priority, especially when competing against more visible social programs. "We don't do that well in situations where we're arguing that continuing investment should have greater importance than schools or roads," says Erik Stromberg, president of Alexandria, Virginia-based American Association of Port Authorities.

And the capricious nature of local government means that funding levels may change at a moment's notice. The Port of Jacksonville, whose capital improvement budget suffered in the 1980s, has since been rejuvenated by a $38 million telecommunications bond floated by the city. Secured by an increase in a tax on beeper services, the bond carried the port through the cutting and pasting of the city's budget process. Not long ago, the city redirected some of the infrastructure investment proposed under its "Renaissance Plan," an economic stimulus package. City officials decided the money could be better spent on the stadium which will soon house a new National Football League franchise.

Such vacillations do not make for good policy. And if the state's ports need anything right now, it is commitment. "They've gotten over year after year of competing against each other to come together," says Representative Ron Klein, who chairs the Florida House Commerce Subcommittee on International Trade and Economic Development. "Now we have a tremendous opportunity to develop the shipment of our goods. It's a matter of making sure that some ports are upgraded and that we remain competitive."

Perhaps even more crucial than the funding Florida's ports receive is how much the competition receives. In its most recent five-year outlook plan, the FSTED Council issued a caveat: "Without additional state assistance to complement their other sources of financing, Florida's seaports will be severely hampered in their efforts to match their out-of-state competitors and, consequently, to facilitate statewide economic development."

For this reason, the state is being asked to play a greater role than ever before. Building a competitive infrastructure to handle the new trade won't be cheap, but it can be done without breaking the bank. The ports have identified $1.2 billion in capital improvement needs over the next five years, most of it in infrastructure. According to FSTED, an annual award of $35 million a year for the next five years, matched in kind by the ports, should generate enough revenue to finance the ports' wish lists.

Most funding approved by the state will likely finance improvements in intermodal transportation infrastructure; poor land-side access to major transportation arteries is hampering the speedy movement of goods. The state's highway system is in only fair condition, but the routes linking highways and ports are much worse. To accommodate the new volume of traffic, overpasses and access ramps must be built and roads must be widened. The Port of Miami currently sends thousands of tons of cargo through its downtown area on 18-wheel trucks every day, for lack of adequate access. Now it is planning to build a tunnel under Miami harbor which would tie directly into I-95, at significant costs.

Railroads, too, are due for expansion. All Florida ports, except Jacksonville's and Pensacola's, currently rely upon one-railroad service. FSTED has identified $420 million in rail improvements statewide. "The logical way to move traffic in and out of state is by rail, because you're not going to see any more interstate highways being built," says James O'Brien, port director at Port Everglades. By whichever means cargo is transported, a matter of hours can mean the difference between gaining customers and losing them.

As a result, the proximity of Florida to new sources of trade does not guarantee that it will handle that trade. Cargo unloaded in Miami or Fort Lauderdale must still be transported north to regional distribution centers, and Florida's Atlantic coastline is 360 miles long. If shippers can save money by docking farther north, they will do just that. This reality is reflected in the concept of "just-in-time," a measurement employed by the shipping industry which refers to the marginal time within which a port can ship goods by land to a point which may be more accessible through another port by sea. Securing the infrastructure to permit shipment of goods within such a time frame would place Florida's ports in a position of strength vis-a-vis its competitors.

Not exploding cigars
"The state has not really come to grips with what the infrastructure needs are," says John LaCapra, president of the Florida Ports Council. "In order for things to be in place in 2005, you don't make investment in 2005. This is the first stage. If you can't begin to commit these dollars to seaports, you can't be a player. You can talk the big game, but you can't be in the game."

Florida's stake in the game is large. Currently, 300,000 jobs are tied to the operations of Florida's ports, which generate more than $600 million in state and local tax revenues each year. A $350 million expansion, as financed by the state and the ports, would yield 36,000 permanent new jobs, according to an economic impact study conducted by Boyd, Barrese & Associates of Greenwich, New York. Such an investment would also generate $90 million in annual tax revenues, $50 million of which would be claimed by the state. These figures are clearly a net positive for the people who must finance them. And these figures do not even take into account Cuba.

J. Antonio Villamil is hoping for a "big bang" in Cuba, and he's not talking about exploding cigars. According to Villamil, president and CEO of the Washington Economics Group, Inc., of Coral Gables, the opening of Cuba will take one of two directions: either economic and political reforms will slowly modernize its economy, or the Castro regime will suddenly collapse, leaving Cuba open to immediate foreign investment. Villamil clearly finds the latter more exciting. "There are 12 million people over there," he says. "The 'big bang' would be like opening up another state of Florida."

Should Cuba open, however, the ensuing economic activity will further strain an infrastructure already in need of overhaul. Of course, such economic activity is better than no business at all. But unless Florida's transportation infrastructure receives the funding it needs, it will not be able to take full advantage of the opportunity.

Tags: Florida Small Business, Politics & Law, Business Florida

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