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June 2007

MAY REVENUE (IN MILLIONS):  SALES TAX: $1,794.3  OIL PRODUCTION: $71.0  NATURAL GAS: $158.3  MOTOR FUELS: $246.4
MOTOR VEHICLE SALES: $307.1  TOBACCO: $135.2

Texas Ports: Powerful Potential for Trade, Jobs

Texas Port

Port of Houston, La Quinta Trade Gateway Position State as New U.S. Delivery Door

By Bruce Wright and Karen Hudgins

Commanding a 25-mile-long complex of cargo and container facilities and hosting more than 7,000 vessels a year, the Port of Houston is not only a major player in the nation’s shipping trade, but also is uniquely positioned to become the new delivery door to the U.S. for importers. The world’s goods will flow even more easily in and out of the state if the La Quinta Trade Gateway project in Corpus Christi succeeds as well. Both also could generate thousands of Texas jobs, and provide significant boosts to the local and state economy.

Big Box Opportunities

Increased trade with China and strategically placed distribution centers for big-box retailers are fueling the Port of Houston’s growth, said Jim Edmonds, chairman of the Port of Houston Authority (PHA). The Port of Houston is made up of the PHAand more than 150 private industrial companies along the Houston Ship Channel.

“There are 60 million people within 700 miles of Houston,” Edmonds said. “Alot of these big-box retailers look at serving these markets and are building these big distribution centers near the port."

In 2005, Wal-Mart opened a massive 4 million-square-foot distribution center in the Houston Ship Channel area. The center will unload shipping containers and distribute merchandise via truck to regional Wal-Mart warehouses and stores. Home Depot also has a 750,000-square-foot distribution facility near Baytown.

“Houston is very well-positioned because of its location and rail services,” said John Martin, president of Martin Associates. “It’s one of the emerging ports, along with Jacksonville, Savannah, Norfolk and Charleston. They’re the ones we’re going to see the most growth in.”

In 2006, the Port of Houston generated $117.6 billion in total economic activity in the state, including $8.1 billion in direct business revenue, according to a 2007 economic impact study by Martin Associates, which provides economic analysis to seaports. Since 2000, the port has affected more than 785,000 jobs.

In 2006, more than 240.9 million tons of cargo moved through the port — a 26 percent increase from 2000.

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Trade Delivery Door

The Port of Houston is uniquely positioned, possibly replacing California’s Port of Long Beach, say analysts.

“(For) cargo that’s coming in from Asia through Long Beach and destined for areas east of the Mississippi, carriers are looking at using Houston to come up through the middle part of the country,” said Martin.

Retailers’ desire to diversify trade routes in recent years has also focused attention on Houston’s port. In 2002, a labor dispute shut down all U.S. container port operations on the West Coast. The dispute triggered a massive backup of ships unable to unload cargo. The shutdown delayed goods reaching shore, and stores, and the aftermath cost the U.S. economy $15.6 billion, according to Martin.

“After the West Coast shutdown of 2002 and 9-11, the steamship lines have placed importance on diversification and not putting all your eggs in one basket,” he said.
The Port of Houston currently handles 64 percent of the containerized cargo market along the U.S. Gulf and 94 percent of the waterborne containers moving through Texas. Container traffic at Houston’s port has risen at an average growth rate of more than 10 percent a year for the last 15 years.

Panama’s Canal

Along with the Suez Canal and the U.S. intermodal system, the Panama Canal is a third common route connecting Asian-based manufacturers and exporters with major consumer markets on the U.S. Gulf and East Coasts. Aplanned $5.3 billion expansion of the Panama Canal will widen and deepen the corridor — driving more business to the Port of Houston.

“About 12 percent of The Port of Houston’s cargo currently comes through the Panama Canal,” said Edmonds. “As they expand it, bigger ships can come in. We’ve been big supporters of that.”

A2006 study by Cambridge Systematics for the Texas Department of Transportation said the impact of the Panama Canal expansion “will be felt most heavily on and around the Port of Houston, the state’s largest container port and a key trading partner for goods shipped via the Panama Canal.”

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On the Horizon for Houston

To help accommodate future growth, in February 2007 PHAofficials opened the first dock of the $1.4 billion Bayport Container Terminal, a planned container and cruise terminal that will have a maximum capacity of about 2.3 million TEUs (one TEU is equal to 20 linear feet of a shipping container) — a 200 percent increase from PHA’s current container handling capacity. The terminal will be built out in phases over 15 to 20 years to meet market demand. After five years of operation, the terminal is projected to generate more than 9,800 jobs, $1.1 billion in business revenue and $35.6 million in state and local taxes, according to PHA.

“We think the growth rate in containers will grow at 11 or 12 percent annually,” said Edmonds. “Ithink it will force us to build Bayport as quickly as we can.”

Along with Bayport’s buildout, the PHA’s immediate projects include refurbishing existing facilities, including the Barbours Cut terminal, which was built in the 1970s and is operating above designed capacity, Edmonds said.

In May 2007, PHAsigned a joint agreement with the Port of Galveston to develop a container-handling facility on Pelican Island.

Development will begin after 2015, when PHA’s Bayport Container Terminal is fully built out.

“It will be a good project, very much like Bayport, and we’ll work together on master planning in a few years,” said Edmonds.

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La Quinta Trade Gateway

At present, Houston and New Orleans are the only U.S. ports on the Gulf of Mexico capable of serving large container ships. But, more goods will flow in and out of Texas if the La Quinta Trade Gateway project in Corpus Christi succeeds — and thousands of Texans will get jobs from it, too.

The La Quinta Trade Gateway would provide road and rail links at a docking facility designed for container ships. Most of the world’s manufactured goods are transported in containers, standardized 20- and 40-foot boxes that can be moved directly from tractor-trailer trucks to trains or ships.

High Tide for Trade

Planning for the Trade Gateway began about 10 years ago, according to Jake Jacobi, a former assistant director of the port and now a consultant to the La Quinta project. The La Quinta site occupies 1,100 acres on the northern side of Corpus Christi Bay, a few miles northeast of the existing port.

The project will address an increasingly serious need for additional container facilities in the United States, Jacobi said. Congestion problems prompted by burgeoning trade with East Asia have plagued ports and rail facilities in California, and “all-water” shipments through the Panama Canal to the Gulf and the East Coast have surged in response.

“The project will make Texas a lot more competitive in attracting companies that do business in international markets,” Jacobi said.

Planners expect development of the site to proceed in four phases, ultimately including a major marine terminal, 3,500 feet of wharf, nine cranes for moving containers and a 114-acre railroad terminal. At its peak, La Quinta should be able to handle about 700,000 containers at a time.

The port has entered into an agreement with a Madrid-based company, Dragados S.P.L., to build and operate the facility.

Shipping in Jobs

La Quinta would bring significant benefits to the state economy. AMartin Associates study commissioned by port planners estimated that the Trade Gateway would directly create 337 new jobs in its first year of operations, a number rising to 3,164 by the tenth year of operations and more than 8,200 jobs in the twentieth year. These jobs would include work with railroads and trucking companies as well as employment with marine terminals and jobs as freight forwarders, longshoremen and other specialized positions.

The project also would have broader indirect effects that would boost employment with everything from parts and equipment suppliers to food and clothing stores. In all, the study estimated that La Quinta would create 608 new Texas jobs in its first year; 5,753 jobs by the tenth year; and nearly 15,000 jobs by year 20.

The state would benefit as well, since the project would generate about $70.7 million in new state and local taxes annually by its 20th year of operation.

A Bridge to Cross

At present, the largest remaining hurdle to the project is the need for a 1.5 mile extension to connect the La Quinta site with the Corpus Christi Ship Channel, a project estimated to cost about $40 million. The 2006 reauthorization of the federal Water Resources Development Act (WRDA) would have allotted $30 million for this project, with the port picking up the remainder, but the bill died in committee in December 2006.

But port officials remain confident federal funding will come.

“If WRDAdoes not pass, the project will be delayed, not cancelled,” Jacobi said.

Visit www.laquintatradegateway.com for more information about the La Quinta Trade Gateway project. For more information about the Port of Houston, contact the Port of Houston Authority at (713) 670-2400 or visit www.portofhouston.com.

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