May 29, 2006

Maersk, Duke and US rails to bring China to Ohio

By Nick Carey

NORFOLK, Virginia (Reuters) - The hundreds of empty
containers stacked beside the rails near the Norfolk Southern
Corp. Portlock rail yard in Chesapeake, Virginia, look ready to
board ship here on the U.S. East Coast and head back to China,
but they are going nowhere.

China is shipping so many goods to the United States that
the Chinese often find it cheaper to build new containers with
low-cost labor and leave their empty ones in the United States
than send them home empty.

"These containers are here to stay," Portlock trainmaster
Brian Stanley said, pointing at the piles.

The empty containers reflect the changing shape of the U.S.
economy as manufacturing goes overseas. Shippers, railroads and
real estate companies are all scrambling to deal with the
fundamental question of how to deal with an ever-increasing
U.S.-bound flow of shipping containers.

Concerned about strained capacity at West Coast ports,
shipping companies are looking to East Coast ports for
additional routes into the U.S. market.

No port is likely to challenge the dominance of the vast
complex at Los Angeles-Long Beach, but as imports have seen
annual double-digit growth for three years, other U.S. ports
want to provide additional routes for the growth still to come.

Danish shipping and oil group A.P. Moeller-Maersk -- the
largest shipper of goods for U.S. retail giant Wal-Mart Stores
Inc. -- is sinking $450 million into expanding its Portsmouth
port terminal to do just that.

The project is expected to be a boon for Portsmouth, but
also for railroads like Norfolk Southern and real estate
companies such as Duke Realty Corp., which is developing a site
for distribution more than 1,000 miles (1,600 kilometers)
inland by train, outside Columbus, Ohio.

"We expect significant growth from this terminal," Norfolk
Southern Chief Executive Officer Wick Moorman said.

The Maersk Portsmouth project involves dredging the sea
bottom to increase the depth to 55 feet..


As of July 2007 this will enable large container ships --
carrying up to 6,000 20-foot equivalent containers (TEUs) -- to
berth at the terminal and raise annual capacity to 1 million
TEUs -- eventually 2 million in a second phase -- from 260,000.
The company declined to discuss possible Wal-Mart involvement.

"Maersk does not comment on customers," the company's U.S.
press office said in an e-mail.

Shipping volumes at U.S. East Coast ports have risen with
imports, with more expected to come through the Suez Canal or
the Panama Canal.

"We are moving an increasing number of containers through
the U.S. East Coast," said Kevin Kennedy, chief executive
officer of container ship operator Seaspan Corp.. Seaspan has
ordered 13 new large container ships that will raise its fleet
to 29 vessels, with an option for eight more.

Eighteen of those vessels will be leased to major Chinese
shipper China Shipping Container Lines Co.

Norfolk Southern is gearing up for the opening of Maersk's
Portsmouth facility. The railroad will spend $130 million --
plus $90 million in U.S. government funding -- either raising
the roof or lowering the floor of 29 tunnels along a track
called the Heartland Corridor, its most direct route from
Portsmouth to Columbus, Ohio.

This will enable Norfolk Southern to run double-stacked
trains -- double-stacked containers mean more goods on the
rails and higher profits for the railroads -- on this route,
instead of sending them on detours via Pennsylvania or

"This will save a day's travel and hundreds of miles,"
Norfolk Southern's Chief Marketing Officer Don Seale said.

The railroad will also build an intermodal facility at
Columbus. Intermodal transport refers to the containers, which
are standard-size and can be shifted easily between modes of
transport, from ship to train to truck.

In Columbus, Duke Realty has up to 20 million square feet
available for retailers and logistics companies looking to
distribute goods to consumers. Duke touts the fact that this
Ohio city is within 600 miles of 150 million Americans -- half
the U.S. population.

"We are getting a lot of interest in this project," said
Jim Clark, Duke's senior vice president in charge of the
company's Columbus development. "The agents coming to see us
know exactly what they're looking for."

Another major railroad, CSX Corp., also has lines from
Portsmouth up to Columbus and is likewise investing to prepare
for additional container volume from China.

Jim Hertwig, head of CSX's intermodal business, said the
company is preparing its lines into the southern United States
for double-stack trains and will expand its Parsons Yard
intermodal facility at Columbus.

CSX has announced plans to invest $800 million in capacity
expansion in 2006 and 2007. The company is also gearing up for
a $100 million project to expand a terminal in its hometown of
Jacksonville, Florida, by Japanese shipping company Mitsui
O.S.K. Lines Ltd..

"We're going to see more containers coming into the country
through the East Coast," Hertwig said. "Our job is to make sure
we have the capacity to handle those goods when they get here."