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Ports of contention
Port of Charleston goes toe to toe with rivals despite uneven playing field
By Dan McCue
Staff Writer
No one would argue that the first half dozen years of the 21st century haven’t been challenging for the Port of Charleston and the S.C. State Ports Authority that runs it.
Flush from the success of the Wando Welch terminal, which came online in the late 1990s and catapulted the Port of Charleston to No. 4 on the list of busiest ports in the United States, one factor after another has stymied its growth.
Traffic and environmental impact concerns thwarted the SPA’s plan to build the massive Global Gateway on Daniel Island, and similar worries, along with federal regulators’ concerns about potential impacts to the endangered North Atlantic right whale, have slowed development of an alternative terminal site at the former Navy base in North Charleston.
Compounding those issues is an explosion of cargo volume from China and the Far East and an ongoing feud with Jasper County over plans to build a new terminal on the South Carolina side of the Savannah River.
And in the meantime, the Port of Charleston’s competitors in the region—all of them state-subsidized, which the SPA is not—have gone on a terminal growth tear in hopes of challenging the SPA’s dominance.
But if the Port of Charleston’s circumstances seem dire, a dispassionate examination of recent revenue and volume statistics, as well as a review of recent moves made by the SPA board, reveals a markedly different story.
While the Port of Charleston is hemmed in by land constraints, it continues to hold its own and, in some respects, to thrive in an increasingly competitive global marketplace, closing its most successful fiscal year ever on June 30.
The problem is that while the port has been able to keep pace with container volume increases over the last five years, ports throughout the Southeast, most notably the Port of Savannah, which is only 105 miles away, have enjoyed double-digit growth during the same period.
In fact, Savannah recently surpassed the Port of Charleston in terms of the volume of cargo handled for the first time.
“There’s no question that we’ve done a lot of things to make our terminals more efficient,” said Bernard S. Groseclose Jr., president and CEO of the ports authority, during a recent meeting of the SPA’s board. “These range from better utilization of land to purchasing new equipment. The bottom line, however, is that we need a new terminal in Charleston, not just for the well-being of the ports authority, but to foster the well-being of the region and the state.”
Regional supremacy at stake
Since the advent of containerization in the late 1950s and early 1960s, the ports of Charleston and Savannah, the two largest container facilities on the South Atlantic seaboard, have been engaged in a virtual shootout for regional supremacy.
Both vie for lucrative contracts with the same shipping lines; many of the markets they serve, both inbound and out, overlap.
While it is inescapable that they share some similarities, there also is a significant difference between the two ports and the ports authorities that run them. The Georgia Ports Authority is heavily subsidized with public funding from the state of Georgia. The SPA, on the other hand, is an independent operating authority that must raise its funding outside of state coffers.
Ports in Virginia, North Carolina, Florida and Alabama all receive state subsidies similar to Savannah’s. The SPA has not received an ongoing operating or capital subsidy in more than 25 years.
That difference has augured well for Savannah. At the same time the SPA began feeling the full effects of land constraints in the Charleston metropolitan area, state subsidies allowed the Port of Savannah to grow and to offer its services at highly competitive prices.
That support has also aided the Port of Savannah’s efforts to foster the development of a network of distribution centers that has bolstered the appeal of its Garden City terminal, making it a magnet for trade from China.
The proof of that strategy’s success is in the numbers. Savannah moved 1.037 million 20-foot equivalent units, or TEUs, the standard measure of volume in container shipping, from January to June of this year, while the Port of Charleston moved 989,240, according to the American Association of Port Authorities.
Hoping to keep that momentum going, the Georgia General Assembly is currently funding a $109 million, four-year expansion of the Garden City terminal, allocating the last $15.9 million the Georgia Ports Authority needs to finish the project in the state’s 2007 budget.
Doug J. Marchand, GPA’s executive director, said the first phase of the project, a 1,200-foot dock, is already in use, and an additional 1,000 feet of dock will come online in July 2007.
At the same time, the GPA is adding 30 acres of paved container handling and storage space to its main facility, making it available to customers in the first quarter of next year.
The project will increase the terminal’s capacity by more than 40% when it is completed. Over the past two years alone, the General Assembly has contributed nearly $43.6 million in capital to the GPA, state records show.
“They’ve done a great job, there’s no doubt about that,” said SPA spokesman Byron Miller. “But that doesn’t mean we’re throwing up our hands and saying, ‘OK, you’ve won.’ Both ports continue to try to develop and expand. That’s why it’s vital to expand in Charleston. If you don’t grow in this business, you decline.”
But while it may be bulging at the seams, the Port of Charleston is anything but in decline.
Miller pointed out that at the same time the Port of Savannah was trumpeting its “victory,” the Port of Charleston set a new container volume mark, handling more than 1.978 million TEUs in fiscal year 2006, up from last year’s total of 1.970 million TEUs.
At the same time, operating revenues at the Port of Charleston were $154 million, up 11.6% from last year, while operating earnings rose to $53.3 million, he said.
But the ports’ relative strengths, and the volatility of the industry they serve, is reflected by more than mere statistics. Another factor to consider is their relative ability to entice new shipping services to their terminals, something both ports have been crowing about this year.
Early this summer the CKYH Alliance, a confederation of shippers, announced that it would be adding Charleston to its service between Asia and the East Coast of the United States.
In September, the world’s largest ocean-going cargo carrier, Maersk Line, announced the realignment of its liner service to Brazil, resulting in weekly vessel calls for Charleston beginning in October. That realignment includes dropping a longstanding call in Savannah.
Not to be outdone, the Port of Savannah in recent weeks has announced its own long-term agreement with the Maersk Line, as well as one with an entity called the Grand Alliance, another confederation of shippers, whose routes extend between the East Coast and the Far East.
Wando helped, Daniel Island hindered
If the competition between the two ports is beginning to sound like a heavyweight prizefight, that’s because, in almost all regards, it is.
The Port of Charleston had a longtime presence in the bottom reaches of the top 10 ports in the nation. Then the Wando Welch terminal came online and lifted it into the stratosphere.
Charleston became the leading U.S. port in terms of containerized export volume to Northern Europe and the second U.S. port in terms of containerized imports from Northern Europe.
But what would have made Charleston the 800-pound gorilla on the East Coast and virtually unchallengeable in its dominance of the Southeast market was the Global Gateway on Daniel Island.
The groundwork for the mega-terminal was laid in 1992, when the SPA bought an 800-acre parcel directly across from the Navy base. In 1997, it bought 500 more acres after projections showed a looming need to handle more cargo traffic and larger ships.
The plan announced for the island included eight 1,000-foot berths, each of which would have had 100-plus acres of paved storage.
“At the time, there wasn’t a house on (Daniel Island),” Miller said of the acquisitions and the strategy.
A vocal faction of the pubic, however, said that was exactly the problem: A virgin piece of land a stone’s throw from downtown was about to be paved over, and when the work was done they feared the trucks coming to and from the facility would choke off the region.
Then, just as the permitting process and the brickbats started rolling, the federal government announced the Navy base closure and with it, a mandate to look at that site as a possible location for a new terminal.
That mandate provided the SPA with the fall back position it would need when the Daniel Island plan unraveled in mid-2001. The defeat of the Daniel Island plan had an immediate effect on cargo volumes, which dropped precipitously between 2001 and 2002.
“Of course, you could say that the terrorist attacks of 9/11 contributed to that, but the reality is, the Port of Savannah actually picked up volume during that period,” Miller said.
“It really seemed like the reduction in cargo volume was an articulation of a loss of confidence in us. That appears particularly true in light of subsequent years, when as we’ve moved forward with plans for the Navy base, our cargo volumes have steadily risen.”
In fact, Miller’s statement is not hyperbole. Statistics provided by the AAPA show that the Port of Savannah was actually the fastest-growing terminal in the country at the time that the Global Gateway was being hotly debated here..
Savannah’s port business increased 13% in 2001, while Charleston’s declined 8%, according to AAPA statistics.
That same body of statistics also shows that Charleston began to rebound in FY03. Miller attributed the turnaround to a combination of aggressive management and its touting the proposed Navy base terminal as the new solution to its customers’ logistical needs.
“Certainly, our critics would have you believe that our ports authority is a throwback to some bygone era, but in fact, I think our fiscal self-reliance enabled us to quickly act on the challenges we faced in the aftermath of the Global Gateway,” Miller said.
Distribution strategy key
While the SPA entered the 2000s doing everything it could to maximize the returns on its properties, Savannah steadily closed the volume gap.
While good infrastructure, good rail connections and almost immediate access to highway connections outside the city proper all helped, the single biggest factor propelling the Port of Savannah’s growth has been the number of distribution centers that have opened in the Savannah area over the past decade.
The GPA made a conscious effort to begin recruiting warehouse business, with the endeavor beginning in earnest in 1994 and drawing on the expertise of the Savannah Economic Development Authority.
Among businesses that have opened warehouses in the area over the past decade are Best Buy, Dollar General, Family Dollar, Hugo Boss, Lowe’s, Pier 1 and Wal-Mart. Kmart even went so far as to open its distribution center on the Garden City terminal property.
That concentration of distribution centers and the retailers they serve was then marketed heavily to receptive traders in China and the Far East, who were seeking an alternative to U.S. West Coast ports, which experienced a labor and logistical meltdown in 2002.
“What Savannah has done to lure the China trade is hard to compete with,” Miller said. “They’ve essentially lured the big box retailers with free land. We’re not going to do that. We’re not going to get into the business of buying land and giving it to people.”
What the SPA has been doing is working with large development companies to lure not just distribution centers, but also light assembly and other manufacturers to the area who will then, in turn, use the Port of Charleston.
“We’ve got several big projects cooking,” Miller said, declining to elaborate.
In Georgia’s case the distribution centers do more than provide activity for the port; they form the basis of a cyclical revenue stream in which the state itself is a partner. The distribution centers create jobs, which create tax revenue streams, which are reinvested, in part, in port enhancements intended to better serve the big box retailers.
An example is the intermodal container transfer facility the GPA established directly adjacent to the Garden City terminal.
While Miller concedes the efficiency of such a move, he said the geography of Charleston’s terminal system would make a similar investment here impractical.
“Like anything else, you have to deal with the realities on the ground,” Miller said. “Our terminals were established over the course of hundreds of years, and if you try to alter the natural flow of commerce, you either fail or you’re going to spend an awful lot of money to try to make it work.”
Instead of establishing its own intermodal facility, the Port of Charleston relies on the Norfolk Southern railroad, which has a rail yard off Montague Avenue, and CSX railroad, which has an intermodal facility off the Meeting Street extension.
While there’s long been talk of the two railroads combining their intermodal depots, the port doesn’t have a role to play in making that happen, Miller said.
“They’re private enterprises, so whether or not they’ll opt to go in that direction is really up to them,” he said.
Shippers prefer balanced ports
There is, of course, another way to make a port more attractive to shippers than a competitor’s port: having a closer balance between imports and exports. Ships that arrive laden with cargo for delivery would like to leave laden with cargo for delivery somewhere else.
“We want them to leave balanced; after all, that’s how they make their money,” Miller said.
Most ports in the United States reflect the nation’s unequal trade balance with the rest of the world, according to data provided by the SPA. In FY05, for instance, the trade through the Port of New York and New Jersey was 70% imports, 30% export, while the Port of Los Angeles was 75% imports and 25% exports.
By comparison, both the Ports of Charleston and Savannah were decidedly more balanced. The Port of Charleston, for instance, ended FY05 with 57% of its trade being imports and 43% exports. The Port of Savannah, meanwhile, was more balanced, with 51% imports and 49% exports.
“Again, that’s a byproduct of the Asian trade,” Miller said. “There are a lot of consumer goods coming in, but they need paper and other recyclable material to turn into packaging for all those My Little Ponies.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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