Battle of the ports, Act 2

THE BALTIMORE SUN

It's a high-stakes, high-seas battle, a constant tug-of-war for ships and cargo.

Baltimore vs. Norfolk. The two cities have been at it for years -- fighting hard to keep each other from steaming too far ahead.

After whipping Baltimore for most of the last decade, Norfolk's lead has slipped considerably during the past couple of years. Determined not to repeat Baltimore's legendary plunge of the '80s, Norfolk is striking back.

In the ever-shrinking steamship industry, with major carriers calling on fewer and fewer ports, the bruising battle can only intensify between the mid-Atlantic ports, situated just 180 miles from each other at either end of the Chesapeake Bay.

"What we're seeing now is Act Two of a drama that started 10 years ago," said Richard A. Lidinsky, former official at the Maryland Port Administration (MPA) and now a Washington maritime lobbyist. "It's a continuing game now played under some different rules. It's going to be a tough slug ahead."

Last week, Baltimore suffered at least a temporary setback. The top Maryland Port Administration official, Michael P. Angelos, resigned in the midst of a federal investigation into his trading of stock in a Baltimore banking company. The administration's second-in-command, Deputy Director G. Gregory Russell, involved in the same probe, also stepped down.

So far, operation of the port's five public marine terminals and movement of cargo have remained unaffected by the internal agency upheaval. But the high-level turnover -- representing the sixth shift of power at the MPA in the past 10 years -- signals uncertainty to shipping world executives who rely heavily on personal relationships.

The flap also plays into the hands of Virginia port officials, who already had been revving up their the war of words.

"I'm not some cocky, little jackass down here on the East Coast who thinks he's got it made," J. Robert Bray, longtime executive director of the Virginia Port Authority, said in a recent interview in Norfolk.

"There's only one goal for us and that's getting cargo to Virginia," he said. "When we go out to compete, we die on the cross to get it here."

It was that kind of tenacity that characterized Mr. Bray and Joseph A. Dorto Jr., the head of Virginia International Terminals Inc., as they spearheaded Norfolk's dramatic growth from the seventh- to second-largest port along the East Coast.

During the 1980s and early '90s, with Baltimore beset by labor strikes and management problems, Norfolk lured nearly two dozen steamship lines to Norfolk. Between 1984 and 1994, cargo in Norfolk soared to almost 8 million tons a year from 3 million, while Baltimore's dropped from 6.7 million tons to 6.3 million.

Indeed, except for a one-year blip, Norfolk has been on a joy ride since 1982, when Virginia consolidated port facilities in Hampton Roads. At the time they were owned by different agencies, individual cities and private companies, and the merger placed them under a single state agency, the Virginia Port Authority, with the Virginia International Terminals Inc. as the operating arm.

At the same time, the port teamed up with Norfolk Southern Corp., which aggressively capitalized on rail deregulation by undercutting competitors in Baltimore. With full employment, the newly created Ports of Virginia also enjoyed labor-management harmony that was the envy of Baltimore and other northeastern ports.

Out of desperation, Baltimore learned a lesson.

"They got hungry and aggressive and the pendulum began to swing the other way," said one executive for a major steamship line that serves both ports.

In a flurry of steps aimed at stemming the loss of business, Baltimore opened glitzy new terminal facilities, stepped up marketing efforts, eased work rules for dockworkers and patched up a notoriously bad labor-management image.

Last year, the port of Baltimore handled 6.8 million tons of cargo while Norfolk and the other Hampton Roads port facilities moved nearly 8 million. Two years earlier, that difference had been twice as large.

"It's probably one of the more remarkable turnarounds that I've seen in the port industry in a long, long time," said Leo Donovan, senior partner with Booz, Allen consultants in McLean, Va. "Norfolk is still in the lead, but the gap has closed."

And now Norfolk is even showing the same signs of strain that affected Baltimore in the early 1980s, when it rode the crest of full employment.

Last fall, longshoremen there overwhelmingly rejected management's first-ever request to reduce labor rates on break bulk commodities, such as rubber and cocoa beans, to compete with nonunion ports to the south, such as Charleston and Savannah.

"They [the longshoremen] are too fat and happy," said Johnnie J. Johnson, chief negotiator for the Hampton Roads Shipping Association, which represents the port's major employers. "Baltimore's a good example of having to hit rock bottom before you start coming back up."

Given the stakes for luring cargo,the intensity of the battle between Norfolk and Baltimore is understandable.

The port of Baltimore, with its five state-owned terminals and dozens of private piers, directly employs 18,000 people, with more than 60,000 jobs indirectly related to its existence. Its $1.3 billion in annual revenue helps generate $141 million in state and local taxes.

Similarly, some 106,000 people depend directly or indirectly on the coming and going of ships at the three terminals in Portsmouth, Norfolk and Newport News. The shipping activity generates $2.6 billion in wages and some $304 million in annual tax revenues.

In both ports, the war is waged primarily for the sake of jobs -- for longshoremen, bay pilots, truckers, warehouse workers and others.

While Baltimore has a far bigger local market than Norfolk, most of what comes in or goes out of either port does not originate locally, nor is it destined locally. Most shippers could use Philadelphia or Wilmington as easily as Baltimore or Norfolk.

As a result, ports try to offer the best terminal facilities, the best labor conditions, the best transportation to inland markets -- all at the best prices.

Yet increasingly, as steamship lines consolidate and form alliances, and the industry becomes even more competitive, ports have less and less influence over which carriers will call.

"That's the heart of Baltimore's challenge in Act Two," said Mr. Lidinsky. "How do you devise a strategy to deal with what's happening on the ocean.?"

So far this year, Norfolk has been on a roll.

In January, Maersk Line Inc., one of the world's premier shipping lines, shifted its entire South American operation from Baltimore to Norfolk. The shift meant the loss of 52 ships a year for Baltimore. Further, a newly formed alliance of four major shipping lines recently picked Norfolk over Baltimore, meaning Norfolk gained 100 additional ships a year.

"There's a certain momentum working for us now," said George C. Garris Jr., president of the Hampton Roads Shipping Association. "It's going to be tougher and tougher for Baltimore."

To be sure, Norfolk, just 18 miles from the Atlantic Ocean, has a natural geographic advantage over its rival 180 miles up the bay. The port dominates the city of Norfolk; massive ships undergoing repairs and cranes are visible even from Norfolk's Waterside Marketplace, a Rouse-built, Inner Harbor look-alike pavilion along the Elizabeth River.

It is a port that bills itself as one of the world's greatest natural harbors. Steamships can travel the 18 miles to the ocean in less than three hours.

By contrast, the trip up the Chesapeake Bay to Baltimore takes 12 hours; it costs carriers $50,000 a day to keep a huge cargo ship in the water, a daunting proposition for highly competitive, cost-conscious shipping lines struggling to meet rigid schedules.

"The trip up the bay may be pretty, but is it worth a million bucks?" reads Norfolk's cryptic message in maritime trade journals. Although used for years, the pitch is increasingly effective given the concerns of the industry.

To save time, ships often use the C&D; Canal through Delaware. But already, many of the larger vessels are avoiding the channel because of clearance problems and the narrow twists and turns. The next generation of steamships is expected to carry 5,000 containers, twice as many as the biggest ship five years ago.

"The bigger the steamship, the more freight it hauls and the fewer stops it can make," said Tom Finkbiner, vice president of intermodal operations at the Norfolk Southern Corp. "You pretty much are going to choose three and no more than three ports."

Quite simply, there are today too many ports chasing too few ships. And every port has suffered.

Over the past decade, in the midst of mergers and consolidations, both Norfolk and Baltimore lost ships. Today, roughly 550 fewer ships call on each port than 10 years ago. If Congress eliminates the Federal Maritime Commission or further deregulates the shipping industry, that trend undoubtedly will continue.

It is a reality that has heightened the ports' need to sell themselves more and more aggressively.

These days, Baltimore port officials hold annual luncheons in New York for steamship officials, sail them on the Pride of Baltimore II and treat them to the Preakness.

On marketing trips, Norfolk and Baltimore sales representatives literally stumble over each other 10,000 miles from home. In the offices of Yang Ming Steamship Line in Taipei, Taiwan, one Baltimore official discovered a Norfolk salesman waiting in the lobby as he left.

"We're constantly hearing Norfolk was here or Norfolk is coming next week," said Morgan C. Bailey III, director of marketing for the Maryland Port Administration. "We never assume we have the upper edge because that keeps us sharp."

And often, the two sides simply resort to bottom-line incentives.

In a much-ballyhooed deal to attract the China Ocean Shipping Co.'s Far East service, port officials in Baltimore beat Norfolk by giving the company a free year's terminal fees at the state-owned Seagirt Marine Terminal.

In Norfolk, port and Norfolk Southern officials travel on marketing trips together, and they team up to offer a package of rail and terminal rates. "We're in a hardball business," said Mr. Dorto.

Ultimately, however, the price of luring steamship lines and cargo is likely to rise for both ports. Maryland taxpayers, for example, could be asked to pay for dredging channels, widening the C&D; canal or raising CSX Corp. railroad tunnels so that trains with large double-stacked containers can pass through, as they already can through Norfolk Southern tunnels.

Because much of the cargo must move inland from the piers, it also takes a wide range of transportation services for a port to be competitive.

Currently, Baltimore has substantially stronger trucking services, an advantage Norfolk failed to blunt with its $10-million, state-owned Inland Port truck and train terminal in Front Royal.

But Norfolk is perceived as having the upper hand in rail service.

Prior to deregulation in 1984, when rail rates were fixed by distance, Baltimore held the undisputed advantage by being closer to the Midwest, where much of the cargo is destined. But deregulation wiped out that critical edge; railroads were free to set rates regardless of distance.

"From the crucial first shots in the war, it was evident that Norfolk Southern would match and better the rates here even though we're farther down the road," Mr. Lidinsky said. "Whether or not the difference in rates exists today, that's a psychological scar that's remained all these years."

Because tariffs are not published, it is difficult to determine how competitive the rates are. But, whether perception or reality, it is widely believed -- both here and in Norfolk -- that CSX is far less aggressive than Norfolk Southern.

"Not true," says David Pope, director of intermodal services for CSX Intermodal in Hunt Valley. "We're a market-driven company. . . . The market dictates the rates and services we offer. . . . We're very competitive with Norfolk Southern."

Still, Baltimore port officials recently initiated a round of talks with CSX about being more competitive.

"We have to measure all costs on everything and see who's not ZTC doing their share," said former U.S. Rep. Helen Delich Bentley of Maryland, who was recently hired as a consultant to the port.

"We're going to have to work harder and harder," she said. "We can't afford any complacency at all."

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