Charleston prepares for larger ships despite trade slowdown

South Carolina Ports Authority President and CEO Jim Newsome outlined big ambitions for keeping Charleston a top 10 container port at his annual “State of the Port” address Monday.    Optimizing terminal operations, infrastructure investment and expanding the cargo base remain top priorities for the South Carolina Ports Authority (SCPA) despite a cooling off in container business in the past year, SCPA President and CEO Jim Newsome said Monday in his annual “State of the Port” address.
   All three focus areas are tied to making the Port of Charleston capable of efficiently working 10,000 to 14,000-TEU vessels, which increasingly are calling the U.S. East Coast from Asia through the Suez Canal and the recently expanded Panama Canal. The new vessel classes are two to three times bigger than containerships that dominated the market for the past eight years and require ports to reengineer physical assets and processes to meet safety and logistics needs.
   Only a handful of ports are in the running as gateways for these cargo behemoths of the sea – and Charleston is one of them. It is the ninth largest container port in the nation and grew faster in 2015 than any of its counterparts.
   A 10-year capital budget calls for the port authority to spend more than $1.3 billion for construction of a new container terminal at an old Navy base ($747 million) as well as upgrades for existing terminals, including new cranes, plug-in racks for refrigerated containers and information technology systems ($600 million). The fiscal year 2017 capital budget is a record $248 million. On Monday, the SCPA board signed off on the development of a second inland port on the northern border where containerized freight can be relayed by rail to the Port of Charleston, and officials have said they also plan to expand the existing inland port in Greer.
   Back in June, the port authority went live with an automated gate system at the Wando Welch Terminal. Newsome acknowledged that implementation glitches caused some problems for the trucking community, but said issues have now been ironed out.
   SCPA’s terminals aim to have trucks complete a double move – box drop and pick up – in 45 minutes to an hour, but during the worst of the system issues, truckers were averaging 1.5 to two hours on the dock. “And that’s really not acceptable. I mean, we have made it a point of being a good partner of the truckers by treating them well. And we sort of failed in that. But anytime you implement a new system, you have some problems,” especially when the terminal operating system has to talk to the gate system and the yard management system, Newsome told reporters.
   The Wando Welch Terminal is doing upwards of 600 gate transactions an hour, at about three minutes per transaction, and “we couldn’t handle our growth with our old system,” he said. The SCPA, which operates all terminals itself, expects to add new kiosks at truck gates and the automated gate system at the North Charleston Terminal by the end of the year. North Charleston has about a quarter of the container volume of the Wando Welch Terminal and “we’ll have run all the traps on the issues, so I anticipate it will go very smoothly,” Newsome said.
   Last month, Chinese manufacturer ZPMC delivered two giant cranes with 155 feet of lift height, to the Wando Welch Terminal. The giant cranes can reach across the super post-Panamax vessels to load and unload containers. Meanwhile, the terminal is undergoing a $44 million project to strengthen the wharf to withstand the pressure of tying down massive ships and support heavier cranes.
   In July, the SCPA board approved the purchase of two additional large cranes for delivery at the end of 2017, coinciding with the completion of the wharf project.
   The SCPA said it expects to handle its first 14,000-TEU vessel later this year.
   The state of South Carolina is pitching in another $900 million for its cost share with the federal government for deepening the harbor to 52 feet, an access road to the future Hugh Leatherman terminal and a new dual access rail ramp adjacent to the Leatherman facility.
   The investment strategy has been well documented for several years, but Newsome did say that the port authority has outgrown its home-grown terminal operating system and will need to find in the next year a sophisticated commercial off-the-shelf system to help manage ship, rail, truck, yard and labor resources in a coordinated fashion.
   In an interview following his presentation, Newsome said, “Just as in finance, you use SAP or PeopleSoft, I think in terminal operations you should use an industry standard system.”
   Container volumes at the Port of Charleston inched up 1.4 percent in fiscal year 2016, ended June 30, to 1.94 million TEUs, compared to 14 percent growth in the prior fiscal year. The number of containers lifted, regardless of box size, remained flat at 1.1 million.
   Ports across the United States have been hindered by the tepid global trade environment and a strong dollar that has crimped exports. East Coast ports have also relinquished volume back to West Coast ports that they gained in 2014-2015 when shippers diverted cargo to avoid extreme congestion and productivity declines due to a dockworker contract dispute.
   The SCPA’s revenues still grew 7.3 percent year-over-year to $211 million and the agency was able to eke out a 3.2 percent increase in operating income to $31.3 million.
   The increase in revenues was made possible by continuing efforts to get carrier customers to pay higher tariffs for services, which Newsome admitted is difficult to achieve given the poor financial health of so many container lines.
   “We have to have a good value proposition. When you look at our cost structure – it’s a lot less than other ports. So, we’ve got to be convincing about our story,” Newsome told the media group. “It’s not easy. But we need one [an increase]. We deserve that given the quality of the product that we have.”
   Profits are critical for the port authority to fund and finance improvements, but Newsome has previously said they are not enough to fully support the needed investments and attract capital. The SCPA’s return on capital is about 3 percent. Although the fiscal year financial gains were small, they still represent a huge improvement from eight years ago when Newsome took over and Charleston was losing container business.
   The local Post and Courier newspaper reported Wednesday that Newsome and other top executives saw much smaller bonuses because cargo volumes fell short of the agency’s goal by about 53,000 containers – although it should be noted that the drop was largely due to macroeconomic factors outside the port’s control.
   And the SCPA exceeded projections for cash flow ($65 million, up 1.3 percent) and breakbulk tonnage, but containerized cargo was the most heavily weighted incentive category because it represents almost 80 percent of the agency’s business.
   The SCPA is projecting container growth of 6 percent for the current fiscal year. Despite the slowdown in trade, there are pockets of strength that agency officials say play to Charleston’s strength.
   The automobile industry in the United States is flourishing once again and containerized shipments of auto components and parts represent about 10 percent of Charleston’s volume. BMW operates a major plant near Greenville/Spartanburg and there are five tire manufacturers in the state, as well as countless component suppliers. Meanwhile, Mercedes Benz is setting up a plant to make utility vans, while Volvo is investing in a major assembly plant outside Charleston. These investments are expected to further increase container throughput at the port.
   The port authority has worked with private sector companies to develop refrigerated cold storage facilities near the port, and with more than 600,000 square feet of space now available, frozen meat and other refrigerated cargo is rapidly becoming a key line of business. The port authority also expects to tap into the plastic pellet export market, spurred by the shale oil revolution, as energy producers look to ship the product by rail to East Coast ports because of limited container and vessel capacity in the Gulf.
   Charleston has a strong ratio of exports and Newsome said the growing middle classes in China and India will increasingly demand American products. Also supporting the growth thesis is the fact that the Southeast is experiencing strong population growth, which translates into demand for goods, and is attracting a heavy amount of foreign direct investment in manufacturing.
   Meanwhile, Newsome said he is optimistic that Congress will pass Water Resources Development Act (WRDA) reauthorization legislation this month before adjourning so members can campaign ahead of the November election. Senate leaders are trying to line up a vote this week and House Transportation and Infrastructure Committee Chairman Bill Shuster is pushing the Republican leadership to schedule a vote in that chamber, although their focus at the moment appears to be on wrapping up a continuing resolution to fund government at current levels in the absence of completed appropriation bills.
   The WRDA includes provisions to authorize seven harbor deepening projects, including those for Charleston and Port Everglades. The U.S. Army Corps of Engineers has recommended that project go ahead because of its economic benefit and the state of South Carolina has committed to cover the cost of an extra two feet of dredging to make the navigation channel 52 feet at mean low water so fully laden megaships can transit in and out of the port 24-hours a day without tidal restriction and still maintain a four-foot draft clearance.
   On the operations side, Newsome said more work is necessary to make the terminals operate at peak efficiency and squeeze out every ounce of capacity. That will require making container stacks denser – higher and closer together, being able to work two 14,000-TEU ships at the same time, getting chassis leasing companies to invest in newer equipment, and making IT improvements.