S.C. Ports Authority’s Jim Newsome reflects on three years as CEO and the path ahead

The nation was deep in one of its worst recessions in 2009, and many businesses were suffering, but the serious problems facing the S.C. State Ports Authority that year had started much earlier.

Container shipping, the Port of Charleston’s primary business, had been declining since 2005 even as other ports saw gains. Maersk Lines, one of the world’s largest shippers and the port’s top customer, had announced plans to leave Charleston by the end of 2009. This came after SPA’s then-chief executive Bernard S. Groseclose Jr. had resigned abruptly during a performance evaluation in January.

Against that backdrop, Savannah native and career shipping executive Jim Newsome was hired in June 2009 to run the SPA. He had been the head of North American operations for German shipper Hapag Lloyd’s North American operations and before that he ran the company’s Southeast operations from offices in Atlanta.

SPA board Chairman Bill Stern predicted as Newsome was prearing to start work in September 2009 that he “is going to take us to heights we haven’t seen.”

That hasn’t happened yet. The Port of Charleston is still struggling to return to the heights it reached in the mid-2000s.

But during Newsome’s first 100 days on the job in the fall of 2009, the SPA and Maersk signed a new contract, the authority’s board approved a new strategic plan, and the SPA announced what proved to be controversial plans to redevelop Union Pier in downtown Charleston and create a new terminal for cruise ships.

This month, three years after Newsome started, The Post and Courier sat down with him to review the changes and challenges the port has seen. Here are the key portions of that interview:

Q: You became president and CEO three years ago, at a time when container volume here had been declining for 5 years. We were in a recession. What was the first thing, the most important thing, you came in thinking needed to be done?

A: We had to really stabilize our business and get back on a normal footing. We were faced with the prospect of losing Maersk, and one other group of lines right behind it if we didn’t harmonize our operating model.

And what a lot of people don’t realize is that we had equal challenges with BMW (automobile exports). If we insisted on keeping BMW at Union Pier, they were certainly not convinced, and rightly so, that Union Pier was a solution that would manage their growth.

So, we had to make sure we didn’t lose any more business. To be quite honest, we had lost our competitiveness in our contracts with customers over time. We had to get back to a competitiveness focus and a growth focus.

We had to unfortunately do the very painful step of downsizing our organization by 75 people. That’s always a failure in an organization, and something you don’t want to go through.

We went through discussions with the stevedores and the ILA (International Longshoremen’s Association) about what our customers wanted, and we were able to harmonize our operating models early on.

Q: During this past decade to 12 years, we’ve seen (the Port of) Savannah triple container volume while Charleston has lost container volume. What did they do so right, and what did Charleston do wrong, that made that happen?

A: Well, I think they did a lot right. They went after growing their cargo base. They were very aggressive in growing the retail side of their cargo base. And they were extremely competitive.

I don’t think it makes a lot of sense to look backwards — I’ve been here three years — but we lost our competitiveness and did not maintain our customer focus. I would say to you that our customers were not happy with us, and today, they are very happy with us.

We had to turn to infrastructure as well, and manage the development of infrastructure properly.

We see that in two aspects. One is the (former) Navy base, and continuing our progress on the Navy base terminal. The other is the harbor deepening project. I think that what has been done in that (plan to deepen the harbor to 50 feet) is a herculean accomplishment. Two years ago we were essentially nowhere and today we are in the heart of the deepening project.

The port business is not that complicated. It’s a long-cycle business, and it’s driven by growth. If you are efficient and productive, and we are, then you should be able to grow.

Q: The Ports Authority is planning to spend $26 million on an inland port in Greer. That idea had been kicking around for 30 years. Just five years ago the Ports Authority sold most of the land for that site. What makes that plan a good idea now?

A: I don’t know what they were thinking in 1982, or five years ago. But we are in a rail renaissance, number one. We are in the era of intermodal rail. Rail is efficient. The railroads have become more interested in short-haul rail.

I knew that land was up there, and we know that is the breadbasket of manufacturing in our state, the Greer-Spartanburg area. We were looking for an opportunity, and as it turned out, the Norfolk-Southern (railroad) decided to approach BMW about handling their volume. The other railroad, CSX, did as well.

Norfolk Southern knew we had that land up there and asked if we would partner with them. They had an existing rail route to Charleston that allows them to provide overnight service.

We started collaborating with them to put this plan in place, to develop an inland port that we, the port, would run. It certainly makes the possibility of multimodal container transportation more real.

I think it’s part of extending the presence of our port to the inland. Who knows? It may not be our only one over time.

Q: The new cruise ship terminal (planned for the north end of Union Pier in Charleston) is an even larger investment than the inland port; $35 million is the latest number that’s been kicking around. Obviously, lots of controversy and litigation, and you have mentioned several times that cruise ships don’t generate a large portion of ports authority revenues.

A: It’s 5 percent. And it will be a declining percentage over time because it’s not a growth industry for us.

Q: So, why does it make sense ... to invest $35 million there when the whole cruise ship business, by your math, is generating $7 million to $8 million a year in revenue?

A: It is incrementally very profitable for the port. The calculations do support that investment.

Union Pier has been a maritime terminal, and some component of it will remain a maritime terminal. We think this is the best use for it, allowing us to keep that portion as a maritime terminal and redevelop the southern portion of Union Pier.

You have to look at this as a before and after. Any terminal under 100 acres, for cargo, long-term is not usable. You need to have the proper infrastructure for rail and other things. So, we have a small footprint at Union Pier, and it doesn’t make sense long term to use that as a cargo port.

It’s got 63 acres of chain link fence and blighted buildings. If you look at the future, (it will be) 25 acres of a very attractive cruise terminal … and then an exciting nonmaritime development of 35 acres of the most attractive property on the Charleston peninsula, reuniting it with the rest of the city.

Everyone understands that we want to make money out of that transaction, but equally important, we want to be a good partner with the city.

It is under litigation, so there’s not a lot more I should say about it.

Q: Let’s tackle something easier, like labor talks (laughter). As you know, talks between the ILA and USMX (U.S. Maritime Association) broke down. Has the port seen an impact on its business yet, and what do you think will happen?

A: There is still time. Necessity is the mother of invention, and I don’t think anybody wants to go down to the last minute on this. We have to wait and see.

We are not at the negotiating table. The negotiations are between the ILA and our customers.

I don’t think we have lost any business. If you are an exporter of basic cargo, you can’t afford to re-route it to the West Coast. If you re-route a bunch of cargo, and nothing happens, then you have to explain to your managers why you spent $5 million. Logistics people are pretty risk-averse.

Q: Harbor deepening is a top priority for Charleston, and other ports as well. We’ve seen state and federal support ramp up quickly, since we started talking about it (two years ago). We’ve also seen extensive efforts here in South Carolina to block Savannah’s deepening project. Does Charleston’s commercial success depend on keeping Savannah from getting a deeper shipping channel?

A: The focus on Savannah’s deepening, in my judgment, is environmental in nature. I don’t see it as an effort to protect Charleston. That’s not my take on it.

If, in a $650 million project (the cost of the Savannah River deepening project), $310 million is environmental mitigation, then there are environmental issues. One has to ask the question, have they been properly dealt with? That’s not an area for me to focus on. The Savannah River Maritime Commission was established to look at that.

There is no doubt that the deployment of large container ships is one of the megatrends of the future in container shipping. We’ll have a ... (a ship that can carry the equivalent of 14,000 20-foot containers) in this harbor in the next two years. I’m sure of that.

Harbor capability will be a defining capability for regional ports in the near future. Inland costs define where cargo goes, but having a deep harbor is a critical differentiator for a port. That’s been a thesis central to our planning since I’ve been here.

The whole state really just coalesced behind (Charleston’s deepening) project. We really worked with purpose and persistence, and it came together.

Q: In the background, there’s still the plan for Jasper (a massive bi-state container terminal planned on the Savannah River in Jasper County), which the SPA supports, but that’s all tied up in the Savannah River deepening, where do we put the dredging material, and all that business. Can South Carolina officials fairly take the position that Jasper only works with a 50-foot-deep Savannah River, but the river shouldn’t be deepened to 47 feet for the Port of Savannah? It’s the same river.

A: There is a case to be made that the current (Port of Savannah) deepening could preclude a further deepening up to the Jasper terminal. I’m not saying that authoritatively, but I’m saying that’s a concern.

I think, from just the port business, why would we argue for a 50-foot harbor in Charleston if we didn’t think that was a necessary standard for the East Coast?

We are not the only ones saying that. New York is authorized to 50 feet, Baltimore is authorized to 50 feet, Norfolk is authorized to 50 feet, Miami is authorized to 50 feet, the Panama Canal is at 50 feet or more. That’s not just a coincidental number.

The name of the game is to remove the tidal restrictions.

We’re talking about building the largest contiguous container terminal in North America (if Jasper is built). It seems logical to us to see what the outcome is of that (Port of Savannah) deepening, then discuss what it would take for the Jasper terminal.

Our next investment is the Navy base. From there, we move on to the next increment of capacity, be it in Jasper or somewhere else. Neither port (in South Carolina or Georgia) has got a dime in their budget for the Jasper terminal. I look forward to working on it one day.

Q: Let’s talk about the Port of Georgetown. Volume has increased five-fold there since 2010. What’s going on?

A: First, the bad, and then the good.

When you get below 1 million tons at a port, you lose the right to have your channel maintained. So, we lost the right to have our channel maintained. Today, it is down to 20 feet, or less in some places.

The good news is our folks are pretty creative, and there are some accounts that can use barge transportation. There’s a cement company, Holcim Cement, and some that use shallow-draft ships.

We have to get the harbor back to 27 feet, at a minimum. That’s the authorized depth. If we restore it to 27, we believe we can get back to the 1 million-ton threshold that would get us back on the maintenance threshold.

The beneficiaries there, such as the steel mill, they need to have some skin in the game, too.

Q: You mentioned the Navy base, the next big capacity project. I think the thing that people on the street are most aware of (in North Charleston) is the rail issue, which is tied up in litigation. How do you see that getting resolved, this issue that sort of pits commercial growth against residential redevelopment? (The city and state are in litigation over rail plans for the port).

A: First of all, none of the rail plans will come onto our terminals. So, what is at stake here is the two class-one railroads and (S.C.) Public Railways finding a suitable location that can most efficiently serve two or three container terminals: Wando, North Charleston, and the Navy base terminal.

I don’t believe the port has to be involved in everything. The parties that have the greatest vested interest in this are the two class-one railroads (Norfolk Southern and CSX) and Public Railways, and I think they can intelligently determine where that (intermodal rail) facility should be, and what it should look like. That’s been our position since I’ve been here, and it hasn’t really changed.

The reality is, at every port in this country, one railroad has tried to gain advantage over another railroad. I think when they finally determine that they will not get an advantage — that it has to be dual-rail-served — then I think it will be solved.

Q: But it’s not just two railroads competing for advantage. It’s also the city of North Charleston and what they want.

A: Those parties can have that dialogue and can solve that. I don’t see any reason for the port to be in the middle of it. And we’re not.

Q: So, in three years of running the show here, what would you say has been your most successful decision or initiative. I’m also going to ask you to think of at least one thing that’s been a mistake.

A: OK. I think the most successful initiative is turning around the culture to focus on growth, and to orient our organization toward being aggressive. Everyone understands that’s our priority. I think we’ve done a good job of getting our message out to our stakeholders.

The major failure is when we had to lay off staff (in early 2010). It wasn’t a mistake, we had to do it, but it was a failure of the organization because 75 people who had decided to make their livelihoods with the port were let down by it, because we didn’t do our jobs right.

I’ll tell you what was a mistake. We made a decision, for all the right reasons, to move to an outsourced (technology) program to run all our terminals. We bought a best-in-class product, with all the good intentions of making that work, and for many reasons found out that product didn’t meet our needs.

I think we did all the due diligence we could do. Now, we’re in a situation where we terminated that relationship and we’re going to build the next product ourselves. It cost us a little money and a little time. We had a lot of tough discussions here about that.

Transportation and logistics is not a perfection business, and if you’re going to try, you’re going to make mistakes.

Q: Where do you see the port 10 years from now?

A: We have to get back to where we were, and beyond. We have to grow above the market for the next five years, because of the big ships, the Panama Canal expansion and the growth in the Southeast. We have to grow to justify our capital investment, and to really restore our stature as a prominent world port.

So, we’re going to be bigger. We’re going to do it in a collaborative way. The port has to co-exist with what I think is one of the most beautiful cities in the U.S. So, the growth of the port has to be done in a way that is acceptable to the people of the city as well.

I am a restless person, I’m never satisfied, and I’m certainly not satisfied with where we are now. We’ve made a good start, but we have to improve every day, and that’s what I expect.

When a shipping line looks around the world and has 20 major customers, I want them to say the Port of Charleston is the place they most like to do business.

Reach David Slade at 937-5552 or Twitter @DSladeNews.