Expansion of the Panama Canal might have been the driving force behind a slew of seaport expansions and harbor deepenings in recent years, but there’s a much larger trend — the remaking of America’s supply chain — that will determine the future success or failure of East Coast ports.
“Today, it’s all about how do we more quickly and efficiently fulfill goods and move things from factories to ports and then from ports to the inland,” said K.C. Conway, senior vice president of market intelligence for SunTrust Bank in Atlanta.
Conway says the West Coast-based supply chain — developed in a post-World War II era when interstates were new, diesel fuel was cheap, environmental laws were few and a less-regulated trucking industry brought most goods to American cities — is no longer efficient.
These days, ports need direct access to rail — either at the seaport, an inland port or both — that can move goods as close and as quickly as possible to customers or distribution centers.
“We’re shifting the supply chain from West Coast-concentric to the East Coast, and the Panama Canal expansion is just one piece of it,” Conway said.
In fact, the shift has already begun, months before the expansion is completed.
East Coast ports saw an 11.5 percent year-over-year growth in cargo in 2014 compared to West Coast growth of 4 percent, federal statistics show. What once was a 61.2 percent market share for West Coast ports in 2007 has declined to 55.2 percent, according to the commercial real estate giant Jones Lang LaSalle.
A study this year by Boston Consulting Group predicts another 10 percent West Coast decline by 2020.
“It’s e-commerce, it’s closer proximity to 70 percent of the nation’s population, less use of trucking and more use of rail, right-to-work laws that are attracting more manufacturing onshoring,” Conway said of the East Coast advantage.
“Those are all a part of the bigger picture that I think is going to spell a lot of success for East Coast ports.”
The Panama Canal will be center stage at this week’s S.C. International Trade Conference at Wild Dunes Resort on the Isle of Palms. Among the headline speakers is Manuel Benitez, deputy administrator of the Panama Canal Authority, who is scheduled to give an update on the expansion project. He recently said the famous waterway will be ready for bigger ships carrying up to 13,000 cargo containers — called Post-Panamax vessels — by April 1.
The conference also will include an update from the Army Corps of Engineers on plans to deepen Charleston Harbor to 52 feet to accommodate those larger ships.
The $509 million dredging project — which will give Charleston the deepest commercial shipping channel in the Southeast — is one of several harbor-deepening and bridge-raising initiatives taking place along the East Coast, and costing billions of dollars, to prepare for the expanded canal’s opening.
BMI Research, an industry analyst, says that money is well-spent because shipping lines are being lured by the East Coast’s proximity to densely populated cities and the lower costs of getting goods to those residents without having to pay cross-country freight fees.
“The Panama Canal provides another catalyst to reroute containers ... to the East Coast, particularly for products moving to or from the Southeast,” Philip Damas, director of London-based Drewry Supply Chain Advisors, said during a logistics management roundtable in August. “Carriers are already scrambling for position on the Asia-U.S. East Coast route via Panama.”
While Panama will be a main topic this week, it’s a less-publicized seminar focusing on innovations in intermodal rail that might give the best indication of how far the Port of Charleston can go in attracting new cargo business. The moderator for that event will be Jack Ellenberg, a senior vice president at the State Ports Authority who oversees the agency’s inland port in Greer.
One of Charleston’s “core strengths lies in its rail connectivity,” according to a “Seaport Outlook” study produced last month by Jones Lang LaSalle.
And the port’s biggest rail success is the inland port, which has an on-dock Norfolk Southern line, with double-stacking capability, that makes the daily 212-mile trek from Greer — where BMW, Michelin and other manufacturers operate — to the docks in Charleston. The inland port, which opened in 2013, is within a one-day drive to more than 95 million consumers and is on track for 70,000 cargo container moves this year. It’s been “an overwhelming home run,” according to SunTrust’s Conway, and business there is expected to increase exponentially once retailer Dollar Tree — one of the nation’s top 10 importers — opens a 1.5 million-square-foot distribution center in the Upstate next year.
The SPA is building a new cargo terminal at the closed Navy base in North Charleston, scheduled to open by 2019, to handle the expected increase in Post-Panamax containerships. That facility will have an intermodal yard, to open at about the same time, where cargo can be loaded onto and off of CSX Transportation and Norfolk-Southern trains without ever having to be transported over public roads.
Palmetto Railways, a division of the state’s Commerce Department, is working with both carriers on a plan to build a rail line that would connect a new Volvo automobile manufacturing facility in Berkeley County with the Port of Charleston, also reducing the need for truck transport.
“Success is going to come from how you develop on-dock rail,” Conway said. “The more you can do ... where the ship comes in and the rail cars are on the terminal space and you can unload right onto rail cars or have shorter distances to move cargo to the rail yard, the better.”
That kind of port-focused rail network gives the East Coast an advantage over California’s Long Beach and Los Angeles ports, where much of the cargo has to be trucked 50 miles or more to a staging area at the “Inland Empire” before getting on rail.
The number of East Coast ports that are tying into rail networks also gives this region a redundancy advantage — if a natural disaster, labor issue or other problem closes one port, shippers can easily move to another without a major disruption.
“If I’m on the West Coast and Los Angeles and Long Beach are closed, I’m pretty much out of luck,” Conway said.
Getting to the Post-Panamax party early is important because shipping customers don’t like to change longstanding routes and long-term contracts.
“It’s not easy to just say, ‘I’m going to abandon shipping in Savannah and go to Charleston,’ ” Conway said.
So, whoever has the infrastructure and other logistical assets in place — such as an inland port on on-port rail — will have an advantage over the competition.
“Those will be distinguishing factors as much or more so than the Panama Canal,” he said.
Even for the second-tier ports, however, there will be plenty of new opportunities.
The Port of Tampa, for example, knew its chances of getting dredging dollars were slim so it has focused on agriculture — getting the fruits and vegetables from Latin America and South America that used to go through California. The port is partnering with CSX on a “green express” to ship those products directly to East Coast markets.
The Port of Jacksonville, an also-ran in the cargo container category, is putting an emphasis on “roll-on, roll-off” automobile cargo coming from a new deal with Volkswagen, which is moving its import facility for cars and SUVs to the north Florida city. The Jacksonville port already is the nation’s leading vehicle export facility, and the VW deal will bring more than 100,000 cars into the country each year for the next five years.
“The challenge for East Coast ports is everybody not trying to do the same thing and have 50-foot depths and go after Post-Panamax ships,” Conway said. “They need to find their particular niche and succeed at that niche. There’s plenty to say grace over.”
Reach David Wren at 937-5550 or on Twitter at @David_Wren_