In a second-floor conference room at the Georgia Ports Authority’s headquarters in Savannah, Chris Logan, GPA’s senior director, trade development, beneficial cargo owner sales, moves through a standard Powerpoint presentation on the capabilities of the Port of Savannah, the nation’s fourth-busiest container port.
About a third of the way through, however, is a slide that might seem out of place in a seaport presentation. It shows a swath of approximately 60 percent of the United States extending from Savannah along the East Coast, Miami to the South, Chicago to the Midwest, and Oklahoma City to the Southwest. An inner ring stretching from the South Atlantic seaboard to eastern Arkansas and housing 20 percent of the U.S. population is best served by Savannah, GPA touts in a caption. The outer ring, which besides Oklahoma City include Chicago, Kansas City, Houston, and Dallas, is “within easy reach of inland connectivity infrastructure,” the caption reads. Combined, the rings account for 44 percent of the nation’s population, according to the slide.
The single slide captures GPA’s ambitions better than a thousand words could. GPA wants to extend Savannah’s reach to cover at least one-third of the country’s geography and the dense population centers that fall within it. In so doing, GPA believes Savannah can take share of Asian import traffic bound for the Midwest and the Ohio Valley that typically enters the ports of Los Angeles and Long Beach, the largest U.S. port complex, and is then trucked straight thru or drayed to the California interior and then trans-loaded to rail.
The catalyst is the $128 million “Mid-American Arc” project, so-called because its network forms an arc encompassing Atlanta, Memphis, St. Louis, Chicago, and Columbus, Ohio. Launched in September 2016 and expected to be completed over two phases during 2020 and 2021, the project calls for combining and expanding Garden City’s two rail lines to enable more container throughput. According to GPA, the expansion will double rail “lift” capacity to approximately 1 million containers per year. Taking a container from a rail car, or placing a box on a rail car, constitutes one lift.
The project will expand the ability of the two railroads serving Savannah, Norfolk Southern Corp. (NYSE:NSC) and CSX Corp. (NYSE:CSX), which already have on-dock operations at Garden City, to assemble unit trains, each of which is 10,000 feet or longer and is designed to carry one commodity between the same two points. Unit trains are attractive for hauling large-volume commodities because cars can be quickly loaded and need not be split up or stored en route. Right now, Savannah doesn’t operate unit trains to Chicago, a prime destination for such traffic and which the San Pedro ports have come to dominate, as well as to the Ohio Valley. It also wants to build more unit-train capabilities in Atlanta and Memphis. “We are pretty much tapped out on intermodal capacity,” said Logan at an event on Friday in explaining one of the reasons behind the project.
Taking share from Los Angeles and Long Beach won’t be easy. Besides a well-established infrastructure and the best unit-train service to Chicago, the two ports have the shortest receiving times for Asian sea imports. Asian goods transiting Los Angeles or Long Beach can reach Chicago in as little as 15 days, and in 21 days at the outset if there is heavy congestion at the gateway, according to data from A.T. Kearney, a consultancy. By contrast, it can take up to 24 days for the same Asian-originating vessel to transit the Panama Canal, dock in Savannah, and have the freight off-loaded to rail for the inland move, according to Kearney.
To offset the longer distance and transit times, GPA must rely on competitive box pricing and a super-efficient terminal operation. According to Logan, GPA has legs up in both areas. Savannah’s average container-handling rate is $125 per box, compared with rates twice that or more along the West Coast, he said. That’s because Savannah has a smaller organized labor presence than do West Coast ports, and, as a result, does not have to pay higher union wages across the board.
At Savannah, the International Longshoremen’s Association (ILA), which staffs ports on the East and Gulf Coasts, has jurisdiction over gate operations, stevedoring, and equipment maintenance. That is a lighter footprint than the International Longshore and Warehouse Union (ILWU) has at all the West Coast ports where it sets up shop.
In addition, Savannah benefits from more flexible work rules, according to Logan. For example, one ILA member at Savannah tracks the movement of a box from the vessel to the stacking areas to await a truck pick-up. At West Coast ports, multiple ILWU workers may touch a box as it moves from ship to the stack areas.
Then there is Garden City, Savannah’s crown jewel. It is just one terminal, but with 1,200 acres it is the largest of its kind in the Western Hemisphere. All terminal operations are conducted at Garden City, unlike at other ports that have multiple terminals. “One footprint is a big advantage” in quickly moving goods to and from the facility, according to Logan.
Garden City is just 6 miles from either I-95 or I-16, the latter an east-west highway that connects around Macon with I-75 running north-south. It has 36 global ship calls per week, tied with the Port of New York and New Jersey for tops among East Coast ports. According to GPA data, Garden City processes 10,500 gate moves per 12-hour shift. On average, all trucks are in and out in less than one hour, GPA said.
A large and growing cluster of enormous retail distribution centers are located within 5 to 6 miles of Garden City. That is unlike other port complexes where DCs are often a good number of miles from the terminals. Online furniture retailer Wayfair was the latest to commit, announcing on Thursday it would build a 1.16 million square-foot DC in the area. The close proximity of available DC space to Garden City is “something you can’t find anywhere else,” Logan said.
GPA also believes Savannah will continue to benefit from macro trends in the shipping industry. The opening of the expanded Panama Canal has encouraged carriers to push larger ships through the Isthmus. According to GPA estimates, 45 to 47 percent of all Asian cargo is bound for East Coast ports. Much of that is due to where retailers have positioned their DCs to be close to markets east of the Mississippi, where most of the U.S. population resides. The expanded Panama Canal was a “tailwind” for trends already place, Logan said.
Along with other East Coast ports, Savannah has gained from labor and congestion issues that have plagued West Coast ports for the past 20 years. A standoff between West Coast port management and the ILWU in 2014-15 prompted businesses to divert traffic to East Coast ports. While much of that traffic eventually returned to the West Coast, a decent albeit unquantifiable amount did not. Savannah was a prime beneficiary of that shift, and Logan estimated that it retained between 25 and 30 percent of the diverted business. The port seems to benefit each time there is a crisis of some sort out west, he noted.
The past decade have been bumper years for Savannah. Since 2008, it has grown twenty-foot equivalent unit (TEU) volumes by a compounded 4.5 percent annually, a pace well above any of the other top 9 ports, according to the American Association of Port Authorities. It hit 4.18 million TEU in the 2018 fiscal year ending June 30. Its fiscal year 2019 run rate is at a record 5 million TEUs, though Logan said the current figures are goosed by a large amount of inventories being advanced into U.S. commerce ahead of the threat of new and increased U.S. tariffs on Chinese imports Jan. 1. Imports remain strong, though export traffic has slowed somewhat, Logan said. In all, “business remains really good,” he added.
It may get better. GPA is bracing for substantially higher volumes over the next 10 years, spurred by the ongoing value of the expanded Panama Canal; a project to be finished in the next few years to deepen its channel from 42 feet to 47 feet, thus allowing bigger ships with more cargoes, and Garden City’s continued allure. Investments are currently underway that will boost box-handling capacity from the current 5.5 million TEU level to more than 8 million by 2028.