Good news seems to flow abundantly from the S.C. State Ports Authority. This month, the agency reported yet another good business cycle at Port of Charleston terminals. Charleston leads its South Atlantic competitors in business growth rates, even trumping the statistical growth rate of arch-competitor, Savannah - still very much the king-of-the-South Atlantic maritime hill.
And Maersk is once again the port's largest carrier customer. Yep, that "Maersk," the giant containership operator all but gone from the Charleston docks just a few years ago. If completely happy days have not yet arrived for the port, it seems they're on the way. But it's never that simple in the port business.
That light at the end of the Authority's strategic tunnel is the future now approaching at warp speed. It's a scary proposition. The carrier industry is turning on a dime, quickly consolidating itself into mega alliances, and deploying fewer but much larger ships.
SPA President/CEO Jim Newsome has projected this move toward bigger ships. But the trend is quickly becoming reality, and all major U.S. ports are scrambling. The market's general demands - deeper channels, larger terminals, automation, nearest-possible rail interfaces and sound highway connectivity - need to be addressed immediately if not sooner. The SPA's check list:
The harbor deepening project - now being reviewed in some long-overdue streamlined U.S. Army Corps of Engineers procedures.
The North Charleston-Old Navy Yard terminal - staked out but pretty much at "scratch" stage.
The Palmetto Railways intermodal rail project at the old navy yard - in early stages of required federal permitting procedures.
Speeding up these projects to earliest possible completion dates is a monumental challenge. But there's an even bigger hurdle - these "check list" projects will cost around $1.5 billion.
S.C. Senate Finance Committee Chairman High Leatherman, R-Florence, two years ago led an initiative for the state to escrow $300 million for the federal deepening project. This assures the project's initial funding against the unpredictable congressional appropriations process. It's also a neon signal to the marketplace that South Carolina is very serious about growing its port business.
More good news: The state escrowed $167 million for the mandated access road for the planned North Charleston terminal. The bad news - this road as proposed is estimated to cost $240 million. The SPA will have to make up the balance. The new North Charleston terminal is to be financed by the Ports Authority. It'll cost about $650 million and more if it is designed and engineered for full automation, as it should be.
The Palmetto Railways project will cost about $190 million. The SPA balance sheet profiles a public enterprise managing its assets responsibly. But it does not yet project self-financing coverage of a fairly immediate $750 million-plus investments program. Add to that the Palmetto Railways' project and these state enterprises are knocking on the door of an additional $1 billion needed to finance the port's trek back to its promised land of South Atlantic primacy. Newsome is not ducking this issue. He's talking openly about the Authority's investments capacities and he sees higher prices as one key to strengthening that balance sheet. His immediate target is $25 more per container, effective Jan. 1. That would produce about $25 million more revenue annually.
The Ports Authority made some hard pricing decisions to retain Maersk and other books of business several years ago. But Newsome is clear about pricing now: "South Atlantic ports cannot continue to offer prices 50 to 60 per cent of their North Atlantic counterparts - while providing a better product. It's a basic proposition for us and should be for all ports: we must balance operating financial performance with overall capital needs."
Under certain conditions, port authorities can legally collaborate on pricing and Newsome has proposed joint pricing initiatives for South Atlantic ports, including Savannah. So far, there's been little enthusiasm among other ports.
"Whether better pricing comes at a cost of business is an open question," he says. "But this is a mandatory step in view of our capital demands."
And what if higher pricing is not achievable? "We'll scale back our development plans." But that's an "if" he's not ready to engage. "We spend about 75 per cent of our time on capital planning and evaluating our options," Newsome says. "We have outside advisors helping us. We are looking at conventional ways to get this done and creative ways, too."
"Creative" likely means some measured forms of privatization. "Our port enjoys a positive perception in the market," says Newsome. "There is long-term money, pensions and other funds chasing infrastructure investments such as productive port terminals. We'd consider these approaches as appropriate."
Will this challenge to match capital to defined opportunities take the SPA back to its future of half century ago, when containerization was in its infancy and the state was a capital provider for the Authority? Newsome resists that concept: "The port is a business; it should pay its way and earn the capital it requires, and intelligently manage the business risks for its shareholders, the people of our state." That's a reassuring summary declaration, for sure.
Good news from the port authority should always be tempered with an abiding understanding that public port authorities are complex strategic management challenges - especially ours.
Ron Brinson, a North Charleston city councilman and former associate editor of this newspaper, has served as president/CEO of the American Association of Port Authorities and president/CEO of the Port of New Orleans. He can be reached at email@example.com.
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