March 8, 2011
transportation report | Maritime & Port Services

Savannah's inflection point

Without funds and approval for a critical harbor deepening project, the Georgia seaport faces an uncertain future. Right now, it has neither.

By Mark B. Solomon

There are moments of truth in the lives of every organization. Savannah, the nation's fourth-largest container port, is living through one of those moments.

The Georgia port is a heavyweight in domestic and international commerce. It handled a record 2.82 million twenty-foot equivalent unit (TEU) containers in its 2010 fiscal year (which ended on June 30, 2010). Bu way of comparison, the combined TEU throughput at the ports of Virginia and Charleston, S.C., both of which calculate traffic data on a calendar year basis, was about 3.2 million, with Virginia at slightly under 1.9 million TEUs and Charleston at 1.36 million TEUs.

In calendar year 2010, Savannah moved the equivalent of 8.6 percent of all U.S. containerized trade and 12.4 percent of all U.S. containerized exports. It is the only East Coast port to be served by both Class I Eastern railroads: CSX Corp. and Norfolk Southern Corp. In addition, Savannah traditionally handles more export cargoes than imports, a claim that none of the country's three biggest ports—Los Angeles, Long Beach, and New York/New Jersey—can make.

In fiscal year 2009, operations at Savannah and at the nearby Port of Brunswick, which mostly handles breakbulk, agri-bulk, and roll-on/roll-off traffic, directly and indirectly supported more than 286,000 Georgia jobs and contributed $6.3 billion in taxes to state and local coffers, according to the University of Georgia's Terry School of Business.

Savannah's industrial capacity continues to make it a magnet for developers and tenants. According to real estate and industrial services giant Jones Lang LaSalle (JLL), the "net absorption" of Savannah's warehouse and distribution center space stood at a positive 1.14 million square feet at the end of 2010, meaning more space was being occupied than was being returned to the market. Savannah's industrial vacancy rate stood at 16 percent in 2010, down from 18 percent in 2009.

Steve Grable, a JLL vice president, says Savannah continues to work off excess capacity created by overbuilding between 2005 and 2008. Grable adds that Savannah will become what JLL calls a "landlord-favorable" market by 2013 or 2014 due to the absence of so-called spec construction and as "impressive" port volumes attract more shippers.

Few would dispute Savannah's importance on the statewide, regional, or national stage. Yet if events unfolding over the next year or so don't break right for the port, it may find its relevance to shippers and consignees—and its edge over its rivals—begin to diminish.

In August 2014, Panama is scheduled to complete the much-publicized $5.2 billion expansion of the legendary canal that joins the Atlantic and Pacific oceans. The project will deepen the canal by as much as 10 feet, while new lock construction will enable it to accommodate ships built to carry a maximum of 12,600 TEUs, up from a current maximum of 5,100 TEUs.

The expansion promises compelling economies of scale for the seagoing supply chain because carriers can move more containers per vessel through the canal than ever before. It could also permanently reshape shipping patterns if importers that would normally bring Asian-originating ocean cargo in through West Coast ports for movement inland via surface transport instead opt for a less-costly all-water route for drop-off at East and Gulf Coast ports. Only 30 percent of all seagoing cargoes are discharged at points east of the Mississippi, although 70 percent of the U.S. population lives there.

Getting ready for "bigger boats"
Ship order books reflect what lies ahead. At present, about 80 percent of containerships on order are giant ships that are too big to move through the Panama Canal as it's currently configured. When fully loaded with anywhere from 8,000 to 12,000 TEUs, these so-called post-Panamax vessels will require channels deeper than most U.S. ports currently have. As a result, a number of ports have begun significant dredging programs to prepare for the bigger ships.

Georgia's port interests don't need to be reminded of what's at stake, especially since 57 percent of Savannah's throughput in 2010 transited the canal. Yet at a depth of only 42 feet at its channel, the port needs an additional six feet to accommodate the larger vessels carrying full container loads. At this time, there is no guarantee it will get the environmental approval, or the funding, to do the work.

If Savannah can't get the job done, then its loss could be Charleston's gain. Charleston, 108 driving miles to the north, boasts a 47-foot depth at its entrance channel and a 45-foot depth at its harbor. It already handles one 8,500-TEU ship per week routed through the Suez Canal. It is also building the last container terminal to be permitted in the United States, a 288-acre facility approved in 2007. The project's first phase is set for completion in 2018, according to Byron Miller, marketing director of the South Carolina State Ports Authority, which runs the port.

One Georgia port interest, speaking on condition of anonymity, says Savannah's TEU throughput is so much larger than Charleston's that even if Savannah lost one-quarter of its volume to its rival, the added traffic "would shut Charleston down." Miller disputes that notion, saying the 750,000 additional units—which would be roughly equal to one-quarter of Savannah's 2010 TEU volume—when added to Charleston's 2010 TEU total of 1.36 million units, would represent what the port handled at its peak five years ago.

"We'll take half of their business; we don't need just a quarter," he says.

"Just do it"
Savannah's shallow depths have long posed challenges for the vessels it serves, as well as for the port itself. The U.S. Army Corps of Engineers, which has spent 12 years studying the environmental impact of deepening Savannah's harbor, said in mid-November that more than 70 percent of vessels aren't operating at their maximum capacity or draft when they call at Savannah. "The 'light loading' of vessels increases costs to the shipper, which are eventually passed on to the consumer," the Corps of Engineers wrote in an environmental impact statement in support of the dredging plan. Each foot of draft allows vessels to carry an additional 100 loaded containers, according to industry estimates.

The comments submitted during a two-month period following the statement's release were mostly supportive of the project because of its economic and job-creation potential. Few echoed the worries of environmentalists that a deeper river could cause saltwater to infiltrate freshwater wetlands, killing off fish and wildlife, and requiring businesses and communities to pay for costly filtration equipment on water intakes.

Many commenters expressed concern that the approval process has already gone on too long, and in so doing threatens the port's competitiveness, Georgia's economy, and jobs. One remarked in handwritten scrawl, "Be like Nike, and just do it!"

Curtis J. Foltz, executive director of the Georgia Ports Authority, which runs the port, shares the frustration. In an interview, Foltz warned that harm will come to a wide range of stakeholders—including the U.S. economy—"the longer this project drags on without giving our customers deeper water." Further delays would "weaken the competitive position of our ports," he added.

The next major milestone is March 2012, when the departments of Commerce and Interior, the Environmental Protection Agency, and the U.S. Army, all of which have authority over the project, are scheduled to give it their blessing. Foltz is confident of approval, noting they all have supported the dredging. The earliest that work could begin is the spring of 2012, with completion scheduled for early to mid-2016. By then, the expanded canal will have been open for nearly two years.

Then there's the issue of money. Foltz estimates the project's total cost at $600 million, of which $200 million would be earmarked by the state to mitigate any environmental damage the dredging might cause. Of the $200 million, the state has already approved and set aside $103 million. At this writing, the Georgia Legislature was expected to approve Gov. Nathan Deal's request for an additional $32 million in his fiscal year 2012 budget.

The bigger problem may be at the federal level. President Obama's FY 2012 budget authorizes just $600,000 in "pre-construction" funding for the Corps of Engineers to finish their study. That's a far cry from the $105 million that state officials said they would need this year to move the project forward. Foltz says federal funds will come in four-year increments, adding that "we would hope there would be federal dollars available" to proceed.

If it's any consolation to Savannah, other ports didn't fare particularly well in the Obama budget. Charleston didn't receive $400,000 in funding for a Corps of Engineers study to determine the feasibility of deepening its harbor to 50 feet. Nor did Miami receive $75 million for its own dredging project to go to 50 feet.

The winner seemed to be the Port of New York/New Jersey, which was authorized to receive $65 million to complete a $1 billion span elevation project at the Bayonne (N.J.) Bridge that will allow its 50-foot channel to accommodate the larger vessels.

A waiting game
With the situation at Savannah in limbo, the supply chain waits. To be sure, no one expects vessels to stop calling on Savannah, or for shippers and importers to suddenly relocate their operations to other ports. But experts say Savannah's inability to dredge the harbor could change the complexion of things.

Ben Hackett, whose company, Hackett Associates, produces the widely followed monthly "Port Tracker" reports on import container volumes in conjunction with the National Retail Federation, says the "impact on the supply chain would be significant. The port is not only a large importer but also an exporter for the Southeast region."

Hackett adds that any meaningful shift of vessels to Charleston or Norfolk (Va.)—both of which have deeper channels than Savannah—would "lengthen inland haulage mileage and thereby increase costs. It would also increase truck emissions significantly."

Charles W. Clowdis Jr., managing director, transportation consulting and advisory services at consultancy IHS Global Insight, says a shift in vessel calls and supply chains would never occur "all at once." However, he says a diversion of calls to Charleston—about two hours to the north by road—would add time and cost for deliveries throughout the Southeast and, especially, into Florida.

Clowdis surmises that operators of the larger, post-Panamax vessels may call on ports in the Caribbean and even Cuba, and then trans-load their freight to smaller vessels to call on Savannah. That practice, he says, would also add time and cost to delivery schedules.

Clowdis says Savannah is a powerhouse port, whose dredging is a project of national importance. "It's just stupid," he replied when asked about the lengthy process of moving the project forward. "They need to find the money from somewhere."

More articles by Mark B. Solomon

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