October 7, 2013
transportation report | Maritime & Port Services

CHAR-VANNAH?

In theory, Charleston and Savannah could meld into a southeast Atlantic colossus rivaling the ports of Los Angeles and Long Beach. That, at least, is the theory.

By Mark B. Solomon

The ports of Charleston, S.C., and Savannah, Ga., are only 107 miles apart. But distance is about the only thing about the two that's close. In most other ways, they might as well be at opposite ends of the planet.

The neighboring states, with their ports as proxies, have battled each other over trade and maritime supremacy for decades. They have taken their fight to the legal system, the free market, and the court of public opinion. In the past, each has refused to attend maritime or trade events in the other's state. The contentiousness is as thick as the air on a humid Charleston summer night. "I've never seen anything like it in my 30 years in the business," said K.C. Conway, chief U.S. economist for Colliers International, a global real estate concern.

The ports seem to struggle even when they try to collaborate. In 2007, after years of the states fighting over control of property along the Savannah River in Jasper County, S.C., a bistate operating team spent $7.5 million, divided between the two, to buy 1,500 acres of land to build a container terminal approximately eight miles from the entrance to the river's shipping channel. The project would effectively create a third regional port and allow dredging to a 50-foot depth, deeper than either Charleston, at 45 feet, or Savannah, at 42 feet.

The deeper water would accommodate the large vessels many expect to be dominating global sea trade, notably through the expanded Panama Canal, over the decades. Today's canal configuration is capped at ships with 5,100 twenty-foot-equivalent (TEU) container units; when the widened and deepened canal opens in 2015, it will accommodate so-called post-Panamax ships with close to 13,000 TEUs. About 83 percent of containerships on order today are 8,000 TEUs or larger, according to U.K. consultancy Drewry.

Progress at Jasper has been agonizingly slow. Beyond the land purchase and several feasibility studies, little has happened. Fed-up county officials have demanded to take control of the project and pay for the terminal to be built. It is believed the work won't be done until 2025 or 2030.

NO ZERO SUM GAME
The irony is that Charleston and Savannah need not play a zero sum game. Each can succeed with its complementary strengths, and greater cooperation could create a monolith that dominates the fast-growing and increasingly export-oriented Southeast region, analysts said. Savannah has a superb logistics infrastructure, is close to the Atlanta and northern Florida markets, and has a strong agricultural commodity base. Charleston has the industry's most efficient loading and unloading operation, with 43 crane moves an hour, according to Colliers (Savannah is close behind at between 40 and 42 moves). Charleston, like Savannah, is tied into a vibrant regional manufacturing market—especially autos. It handles most of the sea commerce moving in and out of the Carolinas, and has a solid presence in Tennessee. Luxury automaker BMW North America, probably Charleston's highest-profile customer, transports 600 to 800 vehicles per day by rail from its factory in Spartanburg, S.C., to the port, some 200 miles away.

Conway of Colliers said that, with greater cooperation, the ports combined could handle 10 million TEUs per year by 2020. That would more than double the approximately 4.5 million combined TEUs handled in 2012. Savannah, at 2.9 million TEUs in 2012, is the nation's fourth-largest port, behind Los Angeles, Long Beach, and the Port of New York & New Jersey. Charleston, at 1.5 million TEUs, is the fifth. Los Angeles and Long Beach, adjacent to each other but also competitors, handled a combined 14 million TEUs last year.

The facilities could "complement each other to such a degree that they become the East Coast equivalent of Los Angeles and Long Beach," Conway said. However, they "keep tripping over each other for the same business," he said.

Ted Prince, who runs a Kansas City, Mo.-based consultancy bearing his name, said the ports' fierce rivalry will benefit liner companies, beneficial cargo owners (BCOs), and the ports themselves. "The competition between them will keep them focused, efficient, and customer-responsive," Prince said. The challenge will come if they abuse their dominant position and price like monopolies, Prince said. If that happens, liners and BCOs could, over time, migrate to smaller ports like Wilmington, N.C., and Jacksonville, Fla., he added.

In an early September interview at his Charleston office, James I. Newsome III, who left the top U.S. post at German liner giant Hapag-Lloyd in 2009 to run the South Carolina State Ports Authority, didn't say outright that the ports enjoy a duopoly in the region. But he could see where some could get that impression. "Both ports have things to offer, and they will be partners in the foreseeable future," he said.

The two ports, by virtue of their superior capabilities relative to other Southeast port locations, have a near lock on the region's commerce, Newsome said. They also have the traffic flows required to justify the billions of dollars in investments needed to stay competitive, he said. "Savannah and Charleston will be the winners," he said.

Curtis Foltz, executive director of the Georgia Ports Authority, said the states have moved away from the political strife that has hindered the Jasper project. Beyond that, however, Foltz sees little need or opportunity for Georgia to cozy up to its northern neighbor. Los Angeles and Long Beach, like Seattle and Tacoma in Washington state, work because they function within the boundaries of their respective states, he said. A model like the Port Authority of New York & New Jersey, which is run by a bistate agency, would be difficult to execute in the Southeast because of Georgia's diverse portfolio of port assets, which includes three ports and inland properties for development, he said.

The region and its shippers, BCOs, and liners are "best served by independent port authorities operating their respective assets as an economic development extension of their state" augmented by joint efforts to get Jasper up and running, Foltz said. He contended that there's little customer overlap between the ports.

HOW DEEP IS YOUR WATER?
One area where both ports are in the somewhat same figurative boat is water depth. Each has faced daunting political, environmental, and bureaucratic obstacles to deepening its channels and berths. Savannah hopes to get to 47 feet by 2016 or 2017. Charleston today can handle vessels with 48-foot drafts but only during periods of high tides that last roughly two hours. Liner companies spending fortunes to buy and maintain big ships don't want to wait for high tide or be forced to enter and exit a port at specific times, Newsome argues.

A 50-foot depth will allow for unrestricted access to Charleston. However, that's unlikely to happen before 2018, and if forecasts by the U.S. Army Corps of Engineers are accurate, closer to 2020. The Corps is halfway through a feasibility study to determine if the harbor should be deepened at all. Currently, New York, Baltimore, and Norfolk have 50-foot depths; a fourth port, Miami, is expected to reach that level by 2015.

South Carolina has taken what Newsome calls the unprecedented step of allocating $300 million in state money to fund the entire cost of the dredging. State taxpayers are already on the hook for $180 million; the balance would be spent only if federal funding to finance the remaining $120 million fails to come through. Newsome said the move underscores the state's commitment to deeper water, but he chafes at the idea of its citizens footing the additional tab for a project that has clearly shown regional and national economic benefits.

How important water depth becomes in a post-Panamax world remains to be seen. The rule of thumb is that each foot of vessel draft allows a ship to carry an additional 100 loaded containers. Newsome has said deep water is a port's new currency and is staking almost all of Charleston's future on it. Prince, by contrast, said water depth is not a major factor in a line's decision to call at a port, and that other elements like infrastructure capabilities and terminal throughput are more significant. J. Christopher Lytle, who was head of the Port of Long Beach before taking the top job at the Port of Oakland (Calif.) in May, said rail connections and an inland port network that radiates cargo hundreds of miles from a port are just as critical as water depth. Charleston's inland port, located in Greer, S.C., 212 miles from the port, opens for business on Oct. 14 on a limited scale. Savannah has an inland port operation at Cordele, Ga., about 190 miles west. Both Savannah and Charleston took their cues from the Virginia Port Authority, which in 1990 developed an inland port in Front Royal, about 220 miles from Norfolk.

Most important, each authority must have the portside network already in place, Lytle said. "They [the ports] have to show a developed infrastructure, not just an action plan," he said. Relationships with the eastern railroads that haul cargo from the water to inland ports for distribution by truck throughout the eastern half of the U.S. will be a key part of any port strategy, Lytle added. Transporting cargo to inland ports is not historically part of a railroad's business plan, he said.

What seems clear at this point is that vessel operators looking to maximize the value of expensive megaships are unlikely to make multiple calls along the East Coast. Some liners may choose just two ports, one in the North (either New York or Norfolk) and one in the south (Charleston, Savannah, or Miami). Foltz believes most liners will choose three ports: New York because of its enormous consumer base, Norfolk because it rules the geographic sweet spot midway between New York and the Southeast ports, and either Charleston or Savannah. Miami is considered the outsider because its location is too far removed from major population centers other than south and central Florida.

Conway of Colliers said a port doesn't have to throw in the towel if it never gets to 50 feet. The deep water only matters if a megaship is fully laden, he said. Besides, as Savannah has shown, the ability to carve out compelling service niches like logistics can overcome any depth deficiencies in a port's channel or berth, Conway said.

Newsome doesn't buy it. If the port's future lies with exports, then a 50-foot ship draft is essential for big vessels to load up with cargo that is heavier than the stuff coming into the U.S., he said. "After 2016, 13,000-TEU ships will become the norm. We have to be ready," he said.

More articles by Mark B. Solomon

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