Improved volume in key U.S. ports this year has been a welcome development. The context for these gains and what they portend for the industry in 2011 are important considerations. Although throughput into major markets has shown impressive increases in the 15 to 20 percent range in ports such as Los Angeles and Long Beach on the West Coast and Savannah and New York/New Jersey on the East Coast, total throughput still has not reached the levels seen in 2008. We do not expect to see a return to the pre-crisis level until at least 2012 or 2013.
During the crisis-induced port capacity supply/demand distortions, carriers successfully demanded marginal pricing and secured long-term contracts from terminal operators in exchange for volume. The resulting financial impact on the operators is unsustainable, and an early casualty has been the curtailment of terminal expansion and modernization projects in several areas. Seen from the perspective of organic growth only, the oversupply of port capacity would suggest a continuation of this dynamic in the near and medium term.
However that macro analysis misses what is actually happening on the ground. Beginning in the third quarter this year, there was significant tightening of capacity in key ports, mainly centered on favorable berthing windows. We expect this dynamic to persist in 2011 as the favorable berthing windows continue to be filled and the industry makes the structural changes to prepare for the opening of the widened Panama Canal in 2014. A return to more rational and sustainable market conditions should be expected during 2011.
This would allow for further port investments in modernization and the introduction of technology to sustain the port industry.