The U.S. supply chain is at a crossroads on its journey to economic recovery. In one direction is a dirt road mined with the potholes of an outdated and under-funded national logistics infrastructure that could slow the path to economic growth according to some experts. In the other direction is the open highway to economic improvement, freshly paved with a faster, leaner more risk-averse U.S. supply chain infrastructure that allows imports and exports to accelerate into the markets at Autobahn speeds.

Which direction the supply chain goes may well depend on the state of the U.S. ports, which are seen by many as the onramp towards that smooth road to supply chain success.

By many counts, the U.S. logistics infrastructure—and specifically U.S. ports—is not prepared to handle the growth expected in global shipping. A recent report prepared for the National Chamber Foundation by Cambridge Systematics is particularly blunt when it states: "In the [U.S.] manufacturing sector, congestion, deteriorating travel time reliability, and escalating costs are draining away the benefits of global supply chains and JIT manufacturing, increasing costs for consumers and leaving supply chains less resilient when disrupted...Continued underinvestment and business-as-usual transportation policies and programs will have a detrimental impact on the ability of the U.S. to compete in the world economy."

According to a statement from the American Association of Port Authorities, "With the volume of containerized trade projected to increase an average 6–8% a year, capacity pressures placed on ports are huge. The biggest challenges for ports are terminal expansion (including environmental issues) and security (both for terminal facilities and cargo)."

So where should the ports focus? A recent Purchasing survey of supply chain professionals found that most (nearly 80%) cited equipment and physical infrastructure issues as the main challenge the ports face today, while labor concerns were a distant second. One survey respondent said the priority in improving the flow of imported and exported goods should be to "Build a new port in Southern California and another one on the East Coast with robust infrastructure to support increased volumes in the future from both the rail and road."

Somewhat ironically, the slowdown in the U.S. economy has helped U.S. ports play catch-up and implement improvement plans. "We haven't heard any new complaints of port congestion from carriers this year," says Brian Conrad, executive administrator of the Westbound Transpacific Stabilization Agreement in Oakland, Calif., which represents major shipping lines in the Pacific. "And that's because the import volume growth has not been as strong and at some ports, it has actually been negative compared to last year."

The recent plunge in the value of the U.S. dollar has made the U.S. a much more attractive exporter to many markets, which creates an interesting wrinkle in the logistics infrastructure debate. For most of the recent past, the discussion has considered if the lack of infrastructure investment would decrease the ability to import items from overseas markets, but recently there is talk of how it could slow U.S. exports.

One recent incident in Baltimore clearly exemplifies how the lack of investment in port infrastructure has limited the growth of the U.S. exports recently. With the value of the dollar low and demand for coal in other regions high, there has been increased export of U.S. coal to energy-hungry regions in Europe and Asia. To capitalize on that trend, energy firm Kinder Morgan reportedly planned to export coal from a former steel mill site near Baltimore. But according to a recent Reuters report, a wind storm destroyed one of the cranes the plan relied on and the project was shelved.

"Exports are booming," says Conrad, adding that such a trend creates new traffic patterns and new equipment challenges. According to a statement from the WTSA, a weak dollar and robust Asian demand for agricultural products, industrial raw materials, machinery, and other commodities, led to westbound cargo growth of nearly 17% in 2007, with a further 12–13% growth forecast over 2008–09. The WTSA says the sudden export uptick has created a container shortage because "transpacific carriers must continue to scale their fleets, routing and schedules for the higher-volume Asia-U.S. segment, and the current soft inbound market does not justify adding new capacity, particularly given record fuel costs."

A recent report from the Tioga Group in Philadelphia agrees that while containerized imports are flat to down, exports are booming. "But containers are not readily available; that has not happened before. Carriers are adjusting capacity and schedules at a rate and in a manner rarely encountered. Service providers operating in the import container activity chain are struggling with this uncertainty and with an unaccustomed need to shrink operations."

Despite the best efforts of programs such as PierPass (see chart), the largest U.S. ports of Long Beach and Los Angeles are still not a shipper's delight. Nearly 40% of all containerized imports enter the U.S. though LA and Long Beach, but capacity constraints and increasing costs are driving many importers to disperse shipments through multiple smaller ports on the West Coast, Mexico or the East Coat though the Panama Canal instead of moving all their shipments through one port.

And as they gain more interest, the secondary ports are fast-tracking expansion plans. The Port of Prince Rupert, British Columbia is one of those seeing major volume increases of late. According to port officials in Prince Rupert, the port is more than 68 hours closer to Shanghai than Los Angeles. Prince Rupert's container traffic increased 37% in 2008 and weekly container volumes through Prince Rupert have been steadily increasing since early April, from 1,232 TEUs to a record of 2,631 TEUs. Future expansion plans call for the container terminal to quadruple its capacity to 2 million TEUs by 2012.

While already in the top 10 ports in the U.S., the Port of Tacoma in Washington has also benefited from the congestion in Southern Californian ports. Its FAST program (Freight Action Strategy for the Everett-Seattle-Tacoma Corridor) is a "multi-year effort to ensure that transportation infrastructure remains viable for freight mobility throughout our state" according to officials. So far, total funding for FAST is above $260 million and the most recent project was an overpass that will allow the realignment of rail tracks to triple rail capacity while trucks will no longer have to wait for trains to pass.

Conrad of the WTSA says there is a continuing migration in Asian cargo volume from West Coast to East Coast ports, although the long-term outlook for that trend is limited by the capacity of the Panama Canal.

"It's not dramatic, but every year a little more cargo switches to the East Coast," Conrad says. That trend has been driven by several factors including West Coast port congestion, possible labor issues causing disruptions at West Coast ports and increasing rail and inland trucking costs making it more cost-effective to lengthen the sailing time to bypass the West Coast and higher inland freight rates to offload shipments closer to final Eastern destinations.

"But there are limits to that strategy because of longer routing and travel times as well as constraints on the size of ships that can be moved through the Panama Canal," the Chamber report says. (Note the Panama Canal is currently under an expansion project that will allow wider ships to pass through and likely increase traffic to East Coast ports from Asia)

"If you look at the long-term trend, the carriers tend to be putting in more services on the East Coast because that's where the demand is growing," Conrad says. "But as much as the carriers would like to re-route more cargo to the East Coast it will be limited by the canal."

Shippers looking to avoid West Coast ports in the U.S. are also taking a closer look at Mexico's work to develop ports, especially as Mexico expands its manufacturing operations. "There is port development going on along the Eastern edge of the Panama Canal," says WTSA spokesperson Niel Erich.

But Conrad points out that there is a limit to how much smaller and mid-sized ports can grow before they start running into the same congestion, environmental and infrastructure issues that large ports currently face. "I don't think long-term there will be a huge migration to some of the smaller ports," Conrad says.

Another major concern is that shipbuilders are building bigger container ships, but the current state of most North American ports would mean that these massive ships would not be able to enter U.S. ports. According to the AAPA, "America's deep-draft navigational system is in trouble. The ability of our waterways to support continuing trade growth and bigger ships hinges on funding critical channel maintenance and deep-draft construction projects."

Specifically, one of the East Coast ports which has limited its growth due lack of equipment is the Port of Baltimore. According to a recent story in the Baltimore Sun, the Seagirt Marine Terminal in Baltimore "lacks a 50-foot-deep berth and the cranes to accommodate the larger vessels coming from Asia, an asset its chief competitors in Norfolk, Va. and New York already have." The Sun story goes on to say that if Baltimore doesn't spend the estimated $130 million required to deepen its berth and get new cranes, its primary Asian shipping customer, Evergreen of Taiwan, could back of out of a contract in favor of another port.