A Deeper Impact

It is a tale of two ports, but it’s a story with enormous implications for how U.S. trade will move for decades to come. By attracting retail distribution centers from Lowe’s, Target, Home Depot and others to its local area such that importers pressed their carriers to call its port, Savannah, Ga., rode the wave of Chinese imports, becoming the fastest-growing container port in the U.S. over the past 15 years. It’s a compelling strategy now emulated by ports worldwide.

A mere 66 sea miles north, Charleston, S.C., the other major South Atlantic port, stalled as Savannah surged. A larger port than Savannah just a little more than a decade ago, Charleston was slow to tap into the China market, losing years — and tens of millions of dollars — in a distracting and ultimately futile attempt to expand on an undeveloped island in Charleston harbor.

While Savannah chalked up average annual growth of more than 10 percent between 1995 and 2009, Charleston — dependent on slower-growing European markets — managed average yearly growth of only 1.6 percent during the same period and actually saw declines over the past decade, according to a Bureau of Transportation Statistics report released in January based on data from Journal of Commerce sister company PIERS.

Savannah’s growth, however, was based largely on a unique set of circumstances that the port, to its credit, exploited for maximum gain.

Labor disruption and port congestion on the West Coast in the late 1990s and early 2000s led shippers to diversify ports of entry, elevating the popularity of the once-sleepy Asia-East Coast all-water route through the Panama Canal.

That, combined with a focus on the high-growth China market, was a winning combination: Savannah’s share of China imports among South Atlantic ports surged to 71 percent during the decade to 2010, while Charleston’s fell to 16 percent.

Because the maximum draft of the Panama Canal’s lock chambers is 39.5 feet, Savannah achieved its growth largely with ships of limited draft and capacity. Because the 36-mile channel from the ocean to the port has a maximum depth of 42 feet, meaning the maximum ship draft is a few feet less, handling ships arriving from Asia via the Panama Canal was no problem for Savannah, so the strategy worked.

With the Panama Canal expanding to allow much larger ships from Asia to pass through its lock system, however, the landscape has changed.

Charleston’s deeper 45-foot channel has always allowed that port to handle larger and more heavily laden ships than Savannah. But that didn’t matter because nearly all of the growth was coming via the constrained Panama Canal, and Savannah could handle those ships.

With the canal expanding to handle 50-foot draft vessels as early as 2014, the game is changing. Ports with 48 to 50 feet of draft will rule the day, so ports from New York-New Jersey to Miami are scrambling to eliminate obstacles such as the Bayonne Bridge or to deepen channels to be positioned to accommodate the larger ships that will arrive soon on the East Coast.

In this new environment, Charleston sees a historic opening — and a threat. If Savannah can deepen its channel to 48 feet, a goal the Georgia Ports Authority is pursuing aggressively, that will lock in Savannah’s competitive advantage for decades while likely keeping Charleston’s status at the margins. South Carolina officials understand this well and seem prepared to take action to prevent the story from playing out that way.

Litigation has been threatened that could delay Savannah’s 48-foot project for years, while Charleston, still earlier in the approval process than Savannah, pursues its own 50-foot project. Gov. Nikki Haley exemplified South Carolina’s newly assertive posture upon taking office last year: “Georgia has had their way with us for way too long and I don’t have the patience to let it happen any more,” she said.

Savannah understands the new picture as well, as GPA Executive Director Curtis Foltz recently told JOC Senior Editor Peter Leach. “Savannah is the shallowest of the major global ports,” he said. “Without approval for (Savannah’s 48-foot deepening project), our ports are out of play.”

This is a high-stakes showdown that will determine the future of South Atlantic ports and all of the logistics that occurs around them. In the second part of this discussion next week, I’ll look at the impact this rivalry will have beyond the water’s edge.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/petertirschwell.
 

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