Delaware’s port expansion plan is back on track — and rekindling a regional rivalry with Philadelphia

The competition for cargo on the Delaware River is heating up again.

Not long ago, the company handpicked by Delaware in 2018 to run the Port of Wilmington and build a container terminal nearby was facing financial difficulties and forced by lenders to shake up its leadership team. But in the last year, the state hired a new port operator, secured some federal aid for its long-sought expansion, and just this month announced almost $200 million in state funding.

While Delaware hopes the “historic” $635 million project will create 6,000 new jobs, some Pennsylvania officials and businesses see a threat to Philadelphia’s ports 25 miles up the river.

Pennsylvania may not have much of a say over the matter anymore, however. A Delaware board this month rejected a legal challenge from the Philadelphia Regional Port Authority — a state agency known as PhilaPort that owns and leases terminals to private operators — to an environmental permit for the port expansion project. Another party in that case, Philadelphia and South Jersey port operator Holt Logistics Corp., said it will appeal the decision. Holt has also filed a lawsuit challenging federal approvals for the project.

Whether Delaware and its private partner, Boston-based Enstructure, are able to succeed in the state’s latest attempt at a megaproject will have big implications for a regional industry that generated an estimated $49 billion in economic activity in 2021, according to the most recent analysis performed for the Maritime Exchange for the Delaware River and Bay.

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About 2,400 commercial vessels carrying steel, cement, paper, fruit, cars, and other staples of international trade navigated the river’s main channel last year to dock at area ports.

The region will need additional capacity to maintain its status as a gateway for perishable cargo such as fruits and meats, especially as East Coast ports in the South such as Savannah have seen growth in that sector, experts said.

“This port complex — meaning New Jersey, Pennsylvania, and Delaware — has come under a lot of pressure from ports in the South Atlantic,” said Susan Howland, a maritime industry consultant who’s worked on projects in the region. “I look at this new capacity as actually strengthening the regional ability to continue to grow and compete for the perishable cargoes.”

Neither Philadelphia nor Wilmington is considered a major player in the container business, in large part because their inland location means ships have to travel up to 100 miles from the Atlantic Ocean to reach them, increasing costs.

While local officials can’t change the ports’ location, they have made headway against another historical obstacle to growth: the Delaware River’s naturally shallow channel, which has limited the size of ships that could traverse the waterway.

The U.S. Army Corps of Engineers in 2021 completed construction of the deepening of the river’s channel from 40 feet to 45 feet — a project 30 years in the making that cost Pennsylvania and federal taxpayers about $500 million. Delaware and New Jersey opposed the dredging and declined to help pay for it.

Philadelphia and many other East Coast ports have seen increased container traffic since the 2016 expansion of the Panama Canal in Central America, which has allowed bigger ships to navigate the trade route that connects the Pacific and Atlantic Oceans.

Philadelphia’s ports reported 743,000 container cargo units last year, up 80% over 2016 levels. Contributing to that growth was the state of Pennsylvania’s investment of more than $500 million in new cranes, warehouses, and other infrastructure upgrades for Philadelphia’s ports under Gov. Tom Wolf. Most of that was financed by the state’s issuance of general obligation bonds.

About 203,000 container units moved through Philadelphia through March this year, up 10% over the same period in 2023 — growth that was similar to competitor ports in New York, New Jersey, Georgia, and Virginia, according to data tracked by PhilaPort.

Delaware saw a need to step up the competition. In 2017 Delaware’s taxpayer-owned Diamond State Port Corp. bought a former DuPont chemical plant in Edgemoor, seeking to build a new container terminal.

In 2018, the state privatized its port after subsidizing operations at an annual loss of $10 million for years. Delaware leased its facilities to an affiliate of United Arab Emirates-based Gulftainer, which pledged to invest $584 million over 10 years to upgrade the Wilmington port and expand on the 115-acre site in Edgemoor.

But the affiliate, GT USA Wilmington, quickly fell behind on lease payments to the state and racked up debts to creditors, who forced the company to replace its board members.

While GT USA struggled, Pennsylvania officials tried to stop the Edgemoor project from getting off the ground. In 2021, the Philadelphia Regional Port Authority challenged an environmental permit, arguing that the expansion “interferes with PhilaPort’s navigation rights.”

The project includes a basin that will allow ships exiting the port to turn around to reach the Delaware Bay and Atlantic Ocean. Because the basin stretches across the entire width of the river’s main navigation channel, it will impede traffic to Philadelphia’s facilities, the authority’s lawyers wrote in an appeal. Delaware’s Environmental Appeals Board denied the appeal earlier this month, saying PhilaPort and other appellants had failed to meet their burden. A PhilaPort spokesperson declined to comment.

Meantime, last year Delaware terminated its deal with Gulftainer and solicited bids for a new operator — drawing interest from Holt Logistics Corp., the Philadelphia port operator that was among the parties that challenged the environmental permit for the Edgemoor project.

Around that time, PhilaPort officials also floated the idea of forming a regional alliance with Delaware’s port, according to the Delaware News Journal, and Delaware Gov. John Carney spoke with Wolf in late 2022 about seeking a more cooperative approach.

A spokesperson for Carney didn’t return a request for comment.

Delaware rejected Holt’s bid and selected Enstructure, a privately owned company founded in 2016 that has since acquired marine terminals across the country. It recently partnered with asset manager Blackstone Credit to continue that growth.

Carney’s office said it expects construction to take three years. Enstructure will spend $335 million to pay for construction and equipment — about half of that during the first phase of construction, which will include building a seawall and dredging, according to the governor’s office. The rest of the project will be built “when business justifies the additional capacity,” the governor’s office said in a news release. Enstructure didn’t respond to a request for comment.

One wrinkle: Enstructure’s strength is in handling unpackaged cargo that’s transported in bulk, like oil and grains, and goods that don’t fit in containers, like construction equipment. By contrast, Delaware wants Edgemoor to specialize in containers — the giant metal boxes that have driven growth in global maritime trade for decades.

“They’re not a container operating company,” said Bob Blackburn, a former top PhilaPort official who was also a vice president for Gulftainer’s Wilmington affiliate. “That’s not to say that with the resources they have they can’t acquire those skills, and they may try to do that.”

But Blackburn said Enstructure will likely try to partner with a major ocean carrier or a terminal operator that has experience in the container business. Port Wilmington currently sees about 200,000 container units a year — carrying Dole and Chiquita bananas — though the state says it has the capacity to handle 400,000. Under the expansion plan, capacity would quadruple to 1.6 million units.

Some analysts note that major ocean carriers are already investing in their own East Coast container facilities, raising the possibility that they could divert their Delaware River business to their own terminals. They say a new Delaware container port would exacerbate that threat. The Swiss shipping line Mediterranean Shipping Co. is developing a terminal in the Port of Baltimore, while French logistics company CMA CGM last year completed its acquisition of terminals in North Jersey and New York.

Leo Holt, president of Holt Logistics, questioned the feasibility of Delaware’s project. According to Holt, major industry players have found that Edgemoor could cost up to $1.2 billion — double Delaware’s estimate.

“If the state of Delaware is putting up the first $200 million, cobbling it together from lots of different pots and pans, where’s the next 400? And where’s the next billion coming from?” he said.

“We love competition,” he added, “just bring money.”

Blackburn said Enstructure will have a better chance of succeeding than Gulftainer did, thanks in part to Delaware’s investment. “At the end of the day it all comes down to money,” he said, adding that the partnership “sets a good precedent that this port area is worthy of investment.”

More broadly, the U.S. needs more container capacity, said John D. McCown, nonresident senior fellow at Virginia-based think tank Center for Maritime Strategy. Thirty-four U.S. ports handle containers, he said, and they’re moving four times as much cargo as they did 30 years ago. Container traffic has been shifting from West Coast to East Coast ports and will continue to do so “for nothing other than cost economics,” he said.

Holt says the Edgemoor project isn’t intended to attract new business to the river “but rather to siphon existing business from upriver ports in the Philadelphia area,” according to a lawsuit filed by the company’s affiliates against the U.S. Army Corps of Engineers.

The suit, which seeks to block approvals granted by the Army Corps, says the Edgemoor project would “significantly interfere with commercial shipping operations” to the north.

Edgemoor also will “increase the likelihood of a collision or blockage in” the channel, the suit says.

The Army Corps of Engineers denied those allegations in court papers. Diamond State Port Corp., the Delaware agency that owns the land, told Delaware Currents in January that it won’t be “intimidated” in its work to create jobs.

If Pennsylvania elected officials are concerned about Delaware’s project, they aren’t saying so publicly. Spokespeople for Gov. Josh Shapiro, a Democrat, and State Sen. Nikil Saval, a Democrat whose district includes a major port facility in South Philadelphia, declined to comment.

Daisy Confoy, a spokesperson for State Rep. Elizabeth Fiedler, a Democrat whose district overlaps with Saval’s, said the representative “is confident that the Port of Philadelphia will continue to be a vital link in America’s supply chain going forward.”

Howland, the consultant, said she understands Holt’s concerns. “You don’t want to have capital investment competing with capital investment — whether it’s public or private,” she said. “You need to find ways you can mitigate that.”

But private businesses are primarily concerned about capital they’ve already invested, Howland said, rather than “thinking long term, ‘what are we going to need 10 years from now?’”

It’s up to political leaders to figure that out, Howland said: “That would take a considerable amount of leadership from the governors to make that happen.”