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Port expecting cargo lull, plans to focus on capital investment
By Dan McCue
Staff Writer
The Port of Charleston will continue to feel the effects of a flagging economy in 2008, but will press on with numerous capital projects in preparation for the rebound that industry insiders predict is just around the corner.
Cargo volume from January to November 2007 was down about 10% compared to the same period in 2006, and the expectation is that volume will remain flat at least into next summer, said Byron Miller, spokesman for the S.C. State Ports Authority.
“We’ve been hurting, there’s no doubt about it,” he said. “Part of it is a matter of perception. Despite our having secured a permit to build a new terminal at the (former Charleston Naval Base), there are still lingering concerns in the shipping community regarding Charleston’s ability to grow. The other thing you have to remember is that ports serve trade, they don’t create it, and in that respect, we are a reflection of what’s going on in the broader economy.”
For much of the fiscal year to date, a weak dollar has been depressing imports—the bread and butter of shipping firms—and that’s caused the carriers to reallocate ships to more profitable markets.
According to Global Insight, an international leader in the fields of economic and financial analysis and market intelligence, the U.S./international trade scene is in something of a funk largely because of domestic economic conditions and competition in more rapidly growing foreign trade markets.
Making matters worse, concerns over the economy have diminished Americans’ typically voracious appetite for goods. The National Retail Federation predicted this past Christmas season would see just a 4% gain in sales, the smallest growth in holiday spending in five years.
As a result, ocean carriers are repositioning ships from the U.S.-Asia trade route to the Asia-Europe route.
SPA President and CEO Bernard S. Groseclose Jr. and other senior managers have met recently with shipping line representatives and have concluded that this situation will likely define the remainder of the fiscal year, Miller said.
National Retail Federation spokeswoman Ellen Davis said the group’s next forecast, a set of predictions about 2008 eagerly awaited by the maritime community, won’t be released until Jan. 14.
While a weak dollar has helped boost the volume of exports leaving the docks in Charleston for points worldwide, the rate of increase and the potential for profit hasn’t been enough to keep shipping services from curtailing their calls to U.S. ports.
Entering 2008, exports are white-hot, so hot that shipping lines have occasionally told customers they don’t have room for their goods, Miller said.
“What happens in times like these is more ships head to Europe and other profitable markets and fewer ships call here,” he said. “That obviously reduces capacity and that means higher rates for those who are still importing goods.
“The other thing you have to realize is that exports are typically a lower-paying freight, and as a result, carriers are not as interested in them.”
Economic analysts and maritime community members agree that such a surge in export activity is an indication of a weakness in the overall U.S. economy.
“It’s very rare, to have a strong domestic economy and strong exports,” Miller said. “On the other hand, this kind of situation is good for a lot of our key industries in South Carolina—agriculture, forestry products, specialty chemicals and manufactured products.”
But if 2008 is expected to be a tepid year in terms of cargo volume, it will nonetheless be a significant year in terms of capital investment and spending in the local economy.
This fiscal year alone, the SPA has allocated $128.7 million to fund improvements of existing
facilities and to begin work on the Navy base terminal. Demolition at the site began in September and the port has signed an $8.5 million contract with PB Americas Inc. of
Orange, Calif., to manage the construction set to begin later this year.
A second demolition contract for work at the Navy base is expected to be let this month. This spring, the SPA is also planning to let a $100 million to $200 million contract for dredging and filling for the Navy base project.
The SPA is also working to add 50 acres of new terminal yard at its largest facility, the Wando Welch Terminal. The O.L. Thompson Construction Co. of Charleston was awarded a $27.8 million contract in late 2007. This work will continue through the year.
“All of this is an investment, maybe not for 2008, but certainly for tomorrow,” Miller said.
John Vickerman, a founding principal and member of the board of directors of TranSystems Corp., a transportation consulting firm based in Kansas City, Mo., acknowledged the recent slowdown in imports in his most recent analysis of trade trends, but predicted container volumes will nonetheless increase by 50% in North America by 2015, and that by 2020, most ports in North America and their associated intermodal systems will be severely congested.
Vickerman’s prediction is not unique. The rationale and statistics behind it have been critical factors driving recent multimillion-dollar investments in South Carolina by Jafza International, Hillwood Investment Properties, the Rockefeller Group and others.
Gary Frederick, senior vice president of Hillwood Investment Properties, and Chuck Heath, managing director of Jafza International, have both said those trends made this the right time to invest in South Carolina and to try to be part of the supply chain solution for what they think will be a booming port for decades to come.
“The ports authority’s investment in expansion is becoming obvious, and it seems like the stage is set for the Port of Charleston to be an increasingly important port in the United States,” Frederick said.
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@setcommedia.com.
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