U.S. Southeast Ports: The new South is rising promises big box totals

The ports and terminals in the Southeast US are expanding and expanding rapidly. How fast and how much could well be a function of demographics, dredging and the will to build. While ports and the press continue to focus on the impact the expanded Panama Canal will have on container capacity at US East Coast seaports and what ports will be ready, there’s another issue that is trending: increased imports and exports due to the rise of manufacturing and population centers in the Southeast. The implications could be big for Carolina’s Port of Charleston and especially Georgia’s Port of Savannah and South. Both ports have been undergoing massive improvements to attract the large post-Panamax steamships that will traverse the expanded Panama Canal after 2015. Combined, their cargo volumes could rival the Port of New York/New Jersey given road and rail connections to the hinterland, despite the fact the Port of New York/New Jersey largely serves a local metropolitan area that encompasses nearly 20 million people—the largest in the nation. Die hard Southerners have advocated that the “South would rise again.” Given geo-political events, Southern states have seen a flux of investment. Most noteworthy was Mercedes and BMW when they chose to set up manufacturing in Alabama and South Carolina, respectively, upon being enticed by millions of dollars of incentives. Today low tax rates and a business friendly environmental (say nothing of cheaper wages and lower utility bills when compared to the North) continue to attract manufacturers below the Mason-Dixon line. Companies are taking advantage of state- and local-funded business incentives and convenient transportation routes, as well as the Southeastern U.S.’s cost of living and wages that are inexpensive relative to other parts of the country. The latest big grab was Boeing in North Charleston. South Carolina offered Boeing an incentive package worth more than $450 million. Southern Business & Development (SB&D) magazine, which tracks commercial projects valued at more than $30 million, reports that manufacturing made up 68% of investments announced in 2013. GPA Perspective The primary macro-economic driver behind the rapid growth of ports in the South is the continued demographic expansion as populations shift to the Southeast and manufacturing expands throughout the region. Case in point: the US Census Bureau determined that over the past decade, population growth in the Southeast outpaced any other region in the country. According to the 2010 U.S. Census, the South’s population grew 14.3% between 2000 and 2010 to reach 114.6 million inhabitants at the end of the decade. As of 2010, six of the ten fastest growing counties were in Southeastern states along with a total of 36% of the nation’s population. “As the ports in Georgia and South Carolina are in close proximity to key demographic centers and new large manufacturing facilities, the rail and road connectivity provides customers an excellent and efficient solution to serving their global supply chains,” says Georgia Ports Authority (GPA) Executive Director Curtis Foltz. “As major port gateways throughout the US struggle to handle current volumes, the ports in Georgia and South Carolina have continued to operate at very high service standards.” Already GPA and South Carolina Ports Authority (SCPA) operate very large container ports. GPA’s Port of Savannah is ranked fourth in the United States and second on the East Coast; SCPA’s Port of Charleston, ninth and fourth, respectively. GPA’s growth rate for Calendar Year 2014 should be in the 7% to 8% range. “Over the next decade, we expect a cumulative annual growth rate of 4%, bringing our total volume to approximately 5 million TEUs at the end of that time,” Foltz says.

The GPA handled 3.1 million TEUs last year and is expected to exceed 3.3 million this year. Savannah’s port is a gateway to rail and road distribution networks that offer efficient and reliable intermodal access to markets across the Southeast and Midwest U.S., as well as 70% of the U.S. population. Immediate interstate access is available via interstates 95 (north/south) and 16 (east/west), which are within minutes of both terminals. GPA officials take the expanded Panama Canal into consideration in all of its long-range economic forecasting models. “However, due to the present restrictions at the Panama Canal, the Suez trades have grown rapidly over the past five years and have constituted our fastest growing trade lane during that period,” Foltz says. The GPA is currently the only East Coast port serving all 13 Suez services. “Once the Panama Canal’s expanded locks become operational in 2016, we believe some of the Suez market from Asia will revert back to Panama services, as well as expanded market share currently moving through West Coast ports,” he adds. At that point, Foltz foresees the Southeast, in general, being well positioned to take advantage of increased volumes moving through an expanded Panama Canal. SCPA Viewpoint In June, the SCPA Board of Director approved a 2015 fiscal year plan that included a 3.4% increase in pier container volume over FY2014 levels. “This plan was developed prior to strong fourth quarter FY2014 volumes we experienced,” reports SCPA President and CEO Jim Newsome. While he deems these figures to be quite conservative, he points out that they are higher than the national port average. “Our first quarter FY2015 volumes greatly exceeded the plan, with 13% growth from July through September,” he adds. “We expect this growth to moderate toward the end of the year, but the Southeast port market will continue to grow above the national port average.” SCPA’s container growth in recent years was more than double the port market average, with growth of 8% in FY2014 and 9%in FY2013. The Port of Charleston currently serves eight post-Panamax vessels weekly, including some large vessels traveling via the Suez Canal. SCPA officials expect to see the frequency of big ship calls on the East Coast and in Charleston increase with the expansion of the Panama Canal. “We also expect the raising of the Bayonne Bridge in New Jersey to allow for additional post-Panamax vessels to call the East Coast by removing the height restriction that currently prevents big vessels to make an initial call in NY/NJ and then multiple stops along the East Coast,” Newsome adds. Overall, Newsome sees a number of strong fundamentals supporting the volume growth at SCPA. “The trend we expect to dominate the remainder of this decade is the systematic deployment of the largest vessels possible in major trades consistent with demand and port capabilities,” he says. “SCPA recognizes the competitive need to accommodate post-Panamax vessels both now and in the future, and this trend is the key driver of our harbor deepening project to 52 feet.” Currently, the Port of Charleston has the deepest harbor in the Southeast. Consequently, it can handle post-Panamax ships fully-loaded with export containers on the tides. “Our deepening project, which is expected to be completed by the end of the decade, will allow the port to

accommodate post-Panamax vessels without tidal restriction,” Newsome adds. He points out that Charleston and other Southeast ports do not generally suffer the congestion issues that are widely reported to occur at other ports. “We are committed to fluid operations and handling large ships within 24-hours pilot to pilot,” he emphasizes. “Charleston is among the nation’s most efficient and productive ports, with crane production averaging more than 40 moves per hour and truck turn times averaging below 25 minutes.” Newsome sees the port well poised from a population perspective, since the Southeast is the fastest growing region in the country and provides a growing consumption base that drives import gains. “On the export side, the resurgence in manufacturing in South Carolina and the region coupled with worldwide demand for agriculture products are boosting export volumes,” he adds. “The SCPA expects export volumes to outpace imports by the end of the decade. Active recruitment of discretionary cargo is another key driver in the SCPA’s above-market growth.” Consequently, SCPA is preparing to accommodate future growth with modern, capable facilities and infrastructure. Of the SCPA’s $1.3 million capital plan, $600 million will be spent to upgrade existing facilities with new IT systems, cranes and the structural improvements necessary for accommodating big ships. From a transportation perspective, Charleston provides an intermodal rail capable port. “We offer dual Class One service and a RapidRail drayage program, which coordinates container movements to and from rail yards,” Newsome points out. A state-of-the-art Intermodal Container Transfer Facility is on the horizon through a project with Palmetto Railways and the South Carolina Department of Commerce. The SCPA opened the Inland Port in November 2013 to improve the efficiency of international container movements between the Port of Charleston, the South Carolina Upstate and neighboring states. The Inland Port utilizes an overnight Norfolk Southern train service to handle double-stack container trains to and from the Port of Charleston. In addition, completion of the Port of Charleston’s new Navy Base Terminal is on the horizon and scheduled for a late 2019 opening. The terminal will expand Charleston’s container capacity by 50%. Given the new terminal and the fact Charleston’s existing terminals are not at capacity, Newsome does not anticipate SCPA having capacity issues. Tipping Points Given the volume of growth ongoing in the South, however officials agree that long term planning for future growth must be addressed, particularly given that the development of a new terminal can take some 20 years or longer to plan. In fact, over the next decade, GPA anticipates container volumes at the Port of Savannah’s Garden City terminal to approach 4.5 million to 5.0 million TEUs, and reach approximately 80% of the designed maximum throughput of 6.5m TEUs. “This is a practical level to begin introducing new terminal capacity,” Foltz says. Consequently, both Georgia and South Carolina entered into an agreement in 2008 to collaborate on the formation of a bi-state venture in Jasper County, SC. “We are currently working with Georgia through the Joint Project Office to plan and file permits for the Jasper Ocean Terminal and the additional harbor improvements necessary for the facility,” Newsome says. “Permits will be filed as soon as late 2015, or once SCPA receives the Chief’s Report on our harbor deepening project.” While SCPA believes there will be market demand for this terminal by approximately 2030-2035, Newsome points out that the project will require a further deepening of the Savannah River up to the western edge of the Jasper Terminal in order to handle the size of vessels anticipated. “This joint development will likely drive the long-term need for closer commercial cooperation between the ports,” he says. Newsome sees the Jasper Terminal project as just one example of regionally co-located ports working together toward a common goal. The large 1,500-acre terminal represents a net $5 billion investment. Once completed, it would become one of the largest terminals built in North America, capable of handling 550,000 to 1.1 million TEUs in its first decade of operation. Discussions have been ongoing, a commission is in place representing both states, the initial design features, and economic modeling, capacity studies and master planning are all in motion. Significant funds have and continue to be spent to form a future bi-state terminal on the Jasper site. “The actual operating and reporting structure has yet to be determined; however, we feel the creation of a bi-state authority to oversee a future Jasper Port is not only doable but a reality that will occur,” Foltz remarks. He is convinced that for the Southeast to continue to grow, the region must have a future Jasper Port. “Over the next two decades the combined ports of Georgia and South Carolina will reach their throughput capacity,” he says. “ Our economic studies indicate that continued demographic growth in the South is undeniable and, as such, the ports in Georgia and South Carolina must expand and modernize to support this activity,” Foltz says. “Our projected growth and long-term volume increases are driven by market data and trends in the Southeast region,” Newsome says. “We project that the above-market growth we’re experiencing in the Southeast will allow for balanced trade or even export-dominant trade before an eventual leveling-off in the long-term with a level that is more aligned with national average port growth.