The South Carolina Ports Authority (SCPA) was on track for a record fiscal year — until the coronavirus spread across the globe.
SCPA President and CEO Jim Newsome said during a livestreamed interview staged by SC Biz News on Thursday that the COVID-19 pandemic has dealt a blow to container volumes during the fiscal year, which runs from July 1 to June 30.
“If you look through February of our fiscal year, which was eight months, we were 25,000 containers ahead of our plan, a record pace,” Newsome said. “We were headed easily to $100 million cash flow. And then China really never came back from Chinese New Year for six weeks and then the Western world shut down due to the pandemic.
“We had 61 blanked sailings between the end of January and July, so about 10% of the number of sailings we would expect. Our volume in the last three months is down about 15%. From being 25,000 containers ahead of plan, we’ll probably end the fiscal year 50,000 containers behind plan,” he said.
Newsome believes the SCPA will begin to crawl back to precoronavirus levels in a “U-shaped recovery that gets us to a number next year that’s probably about 8% lower than this fiscal year.”
“The one big impact on us was the automotive industry. We’re very dependent on the automotive industry and so when the automotive industry shut down at the end of March basically and reopened somewhat in May, that really impacted us in April and May and continues to impact us,” he said.
“Additionally, Europe has impacted us. We’ve always been a disproportionate Europe port and Europe has impacted us because the economy is really slow there,” Newsome said.
He said a piece of positive news is plastics transloading business slated to come online in October.
“That should, in a year or two period of time, add about 60,000 or 70,000 containers to our volume,” Newsome said. “So we’ve got pluses and minuses, but I think our major goal has been to diversify our cargo base, to grow our cargo base and I think we’ve been successful at that and we’ll continue to be successful.”
Newsome said while the pandemic has caused a “short-term disruption,” the SCPA’s capital improvement projects never got off track.
“We’re really at the tail end of a six-year infrastructure investment plan where we have planned well for 20, 30 years of future growth of the port and really addressed every need that we would have — in terms of harbor deepening, in terms of improving the capacity of our existing terminal, the [Wando Welch Terminal], with big cranes to be able to handle big ships and building the only new terminal in the United States since 2009, the Leatherman terminal, along with our inland port network,” he said.
The Hugh K. Leatherman Terminal is slated to open in phases, beginning next year. The terminal initially will have five cranes with 169 feet of lift height and 228 feet of outreach, as well as 25 hybrid rubber-tired gantry cranes. By 2030, when fully opened, the terminal will provide an additional 2.4 million twenty-foot equivalent units (TEUs) of capacity.
Newsome said that “in six years’ time with a lot of money — $2 billion worth of investment — we have really met every need and things are really coming in place despite the pandemic.”
Expansion of the Wando Welch turning basin to 1,650 feet will be completed in May 2021. The entire project, including channel dredging, is slated to be done in May 2022.
“It’s actually ahead of time and the best news of all is it’s fully funded by the federal government. We’re past all those hurdles so we don’t have to worry about any contingent funding depending on what happens with the federal budget going forward due to the pandemic,” he said.
Newsome said the project is critical to SCPA’s future as it will allow it to handle a ship with a capacity of 18,000 TEUs.
“The name of the game is really to get a ship in and out from pilot to pilot as fast as possible with what we call maximum berth productivity, which is individual crane productivity times the number of cranes you can deploy on a ship,” he said.
“The goal of the deepening project, the goal of the turning basin widening, the goal of buying bigger cranes, everything we do is to remove restrictions to timeliness and productivity,” Newsome said.
“If we can get a ship into the dock without having to wait for another start time, we get it out faster, we free up that berth for the next ship.
“Our world is really about improving productivity — productivity per TEU and really the number of TEUs we can handle per acre. All that we’ve done — buying 15 big cranes that can work these big ships very timely — is all about speed, all about productivity, ultimately all about cost. Shipping lines want to go places where they don’t have to wait,” he said.
And businesses want to go where there’s a port nearby, Newsome said.
“We have a lot of demand for transloading of cargo, which is really a very efficient, fast-paced handling of a lot of containers in 100,000- to 300,000-square-foot buildings,” he said. “On the other end is really large distribution. … The big retailers are getting bigger. They’re looking at buildings of a million feet or bigger. So there’s really two ends to the spectrum and we think that’s going to continue to grow.”
Skepticism over reshoring
Newsome said he is skeptical that a return of manufacturing to American soil will grow.
“Over 20 years’ time, we offshored a lot of manufacturing, mainly to China, and China developed a really robust supply chain, a great port network. I think eight of the 10 largest ports in the world are in China,” he said.
“Starting a couple of years ago, there was a move afoot that a lot of manufacturing would go to other countries such as Vietnam. They called it a plus-one strategy. Some of that happened. And then there was also talk about reshoring. But I’m skeptical about reshoring. I don’t believe, at least prior to the pandemic, that we have the workforce to really do that on a grand scale,” he said.
Still, Newsome is “bullish” about the future of the ports and the region.
“The Southeast region we think will outperform the rest of the country because of population growth, shifting population and because we are really good at manufacturing and distribution here,” he said.
Retail distribution is the name of the game now.
“A port is dependent upon land to do big-scale retail distribution. We didn’t have a lot of that. So in 2018 we bought 1,000 acres in Ridgeville as sort of our starting point to really develop a retail distribution strategy. We also marketed our Wando transload facility for that purpose,” Newsome said.
“We should also not lose sight of the fact that our inland port network supports that as well. If you look at an inland port like Greer [South Carolina], that has really set the standard for short-haul rail at inland ports, handling about 150,000 containers a year and being within 500 miles of 100 million consumers with a lot of onward distribution capability,” he continued.
“What people don’t realize is one of the biggest challenges for retail distribution is not getting the containers to an import distribution center, it’s actually getting the cargo out of the container and into a domestic 53-foot trailer to where it’s finally needed. That’s where Greer really stands out in terms of being between Atlanta and Charlotte on a very busy highway system. So we’ve got a lot of things to offer and I think we’re very focused on doing that today.”
No ‘death knell’
The pandemic has spurred Americans’ reliance on e-commerce.
“We all have higher expectations for e-commerce today. You want stuff in a day, not in a week or two weeks,” Newsome said.
“That’s where our focus has been in terms of retail distribution, because most studies show that e-commerce distribution takes a lot more square footage and a lot more capacity because people want faster delivery. I think we were on top of the trend.”
But Newsome is not sounding a “death knell” for brick-and-mortar stores.
“I think that’s probably a bit too dramatic. Certainly there will be challenges in commercial real estate as a result of [the pandemic]. I think that the bricks and mortar that successfully remain will be part of a broader omnichannel strategy, where … the store functions as sort of the catalog, if you will, for a broader offering of products. I think it’s good for the port because there’s going to be the need for more distribution centers to support good e-commerce and good omnichannel delivery,” he said.
No ‘blood war’
Newsome rejected the notion that the Port of Savannah was the SCPA’s “mortal enemy.”
“They’re a great port and we’re a great port and we both coexist in the best market to be in the port industry,” he said. “I think Savannah and Charleston really lift the public operating port concept to a new level.”
Newsome pointed out that the SCPA and Georgia Ports Authority (GPA) are even working together on the Jasper Ocean Terminal. An agreement was signed in 2015 for the terminal, which will be jointly owned and operated by both port authorities. A first phase could open between 2035 and 2037.
“We think there’s enough business for both of us,” he said. “We’re not in this blood war against each other. We have a lot of respect for what they do and I think the same applies to Norfolk. There’s enough freight for all of us if we do our jobs well.”
He granted that the Port of Charleston’s biggest competitor is Savannah.
“They have really focused on retail distribution,” Newsome said. “They’ve also done a good job in rail. One of the key things we have to do at Southeast ports is to leverage short-haul rail. We cannot continue to rely on trucks to move every container everywhere.”
Within the SCPA, “we do about 25% of our volume by rail, which is exceptional. A lot of that has to do with our inland port network. We do about 350,000 containers by rail,” Newsome said. “We have to continue on that path. … We’ve got to turn our attention to rail infrastructure and broadening our cargo base in retail distribution. [The GPA has] done a great job. It’s something they should be very proud of, but equally I think we’ve done a great job.”
On the horizon
Newsome said an intermodal transfer station near the Leatherman terminal is in the works, but funding is needed.
“We need it soon. It’s time to realize that project. It’s a project that we’ve talked about here in South Carolina since before I came here [a decade ago]. That is too long to talk about a project, so we need to get that done. I think we’ve got a good plan to get it done. It’s going to take some funding.”
Newsome declared the trend for bigger and bigger container ships over.
“Most of the innovation in container shipping has been done in the sense that they’re not going to build bigger ships anymore, fortunately. They’ve reached the outsized limit of big ships,” he said.
Newsome does foresee more ships coming his way.
“I think we see more and more cargo coming to the East Coast ports because 70% of the population is east of the Mississippi River and we do manufacturing and distribution here really well so we think we will grow above the market,” he said.
“And I think the ability to move containers to the interior of the country, get them off a chassis, onto the ground and make them last-mile delivery available to retailers is the next wave of things,” Newsome said.
Before that wave hits, the stakeholders should deal with the “big problem in our industry today about chassis and who provides them and what do they cost and inefficiencies of them we have to address,” Newsome said.
He said shippers want reliability.
“Supply chain management is about risk management,” Newsome said. “Whatever we can do to improve reliability, predictability, manage costs, those are the innovations. It’s not wind-powered ships or anything like that. That’s not going to happen.”
Thanks to the pandemic, what has happened is a newfound appreciation for the supply chain, according to Newsome.
“People kind of took the supply chain for granted and they hated having a truck next to them on the highway. Well all of a sudden people realize trucks carry toilet paper to the stores.”
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