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Charleston Business

State of the Low Country:Port Deepening Bodes Well For Economic Development

May 09, 2018 07:07AM ● By Makayla Gay

By Dan McCue

  When the U.S. Army Corps of Engineers awarded the first contracts last fall for the long-discussed deepening of Charleston harbor, it not only fulfilled the immediate ambitions of the South Carolina State Ports Authority; it also made a down payment on economic development that could well be paying the state dividends for decades to come.

“The port has always been the economic driver of our state’s economy,” said Mary Graham, chief strategy officer at the Charleston Metro Chamber of Commerce, shortly after the pacts for the dredging and removal of nearly 8 million cubic yards of material from the harbor’s entrance were announced.

“If you look back in history, anytime the port has been growing and thriving, the state’s economy has been as well,” Graham said. “With the soon-to-commence deepening, Charleston will be positioned as one of the largest ports in the world with the ability to accommodate the largest of vessels.

“And when you consider the deepening within the context of the pending opening of a new terminal [at the former Charleston Naval base], Charleston’s port is clearly positioned for the future.”

But what exactly does one mean when the say “harbor deepening”? And why is it necessary now, and who will reap its tangible benefits?

To find out, it’s first necessary to catch up with Jim Newsome, the ports authority’s energetic and cerebral executive director, the man who has championed the project for nearly a decade.

“The deepening will ultimately impact the whole length of the channel,” Newsome said on a recent Friday morning before heading out to meet with members of the city’s maritime community.

“It will start at the entrance of the channel, which is out beyond the jetty and out of sight from the shore, and then wind its way first to the Wando Welch Terminal, in Mount Pleasant, before continuing on around to the new Hugh K. Leatherman Terminal, which is scheduled to open in 2020, and eventually extending to the North Charleston terminal,” he said.

The total length of the project is 38.25 miles. Work on the main channel will take it to a depth of 52 feet from its current depth of 45 feet at mean low water—the average of all low water depths measured at a given location over time—while the initial offshore piece of the project will go to 54 feet from its current depth of 47 feet.

“When I first got involved with this business, on the independent side of the shipping industry, the ships we talked about were all 5,000 TEU, and we didn’t expect ships to get a whole lot bigger than that,” Newsome said.

A TEU, also called a “twenty-foot equivalent unit,” is a unit of cargo capacity. If one were to stand on Concord Street in downtown Charleston and look out at the harbor as a cargo ship passed by, each one of the boxes on its deck, with rare exceptions, would be considered a single TEU.

But the expectations of shipping professionals were shattered in the year 2000 when shipping lines began to order vessels that could carry up to 8,000 containers at a time. Soon, a building frenzy was on, which ships getting progressively larger as one shipping line after another strove to seize the competitive advantage. Today, the largest vessels—known as “Post-Panamax” ships—can carry as many as 22,000 at a time.

“It’s a really dramatic change ... and the main reason we’re deepening the harbor is to remove the restrictions on the navigation of these big ships,” Newsome said. “Our goal, simply stated, is to be able to handle a fully loaded Panamax container ship, with 48 feet of draft, without restrictions.”

Charleston is currently one of four deep-water ports on the East Coast. The others are the Port of Norfolk/Hampton Roads, the Port of Baltimore, and the Port of New York-New Jersey. The three other ports all currently have a mean water depth of 50 feet.

But all have made substantial investments in recent years to pull ahead of their rivals. And it’s little wonder why—a study by the Charleston Harbor Pilots Association found that each foot of available draft represents an additional $10 million to $15 million worth of cargo that can be brought into a port.

“A foot of draft is worth another 100 to 200 loaded containers,” Newsome agreed. “That’s an important contribution to the profitability of a shipping line.”

But there is more to the harbor deepening in Charleston than simply besting the East Coast other most competitive ports, he said.

The reality, the port director said, is that Charleston—and South Carolina as a whole—is an exporting region, and “exports tend to be heavier, so they require more draft.”

Shipments departing South Carolina tend to be on opposite ends of the export continuum. On one end are raw materials heading out to manufacturing centers around the world. These include plastics and forest products and chemicals. On the other end of the spectrum are shipments of BMW vehicles and other non-containerized goods largely manufactured in the Upstate and Midlands.

“The mix of what moves through the port is changing as manufacturing grows across the country, but I think we still tend to import more finished products [than we export],” Newsome said.

“All of the investment we’re doing today is designed to handle bigger ships and to facilitate growth and add capacity intelligently so we can handle more containers through our terminals,” he concluded.

Outside the terminal gates, the greater port community is also working overtime to keep up and take full advantage of the harbor deepening’s promise.

“The big ships are here and have been since May 2017,” said Patrick Barber, president and CEO of Superior Transportation in Charleston. “The increased ship capacities mean more import loads are discharged in a shorter time window, and ... the downstream supply chain has to adapt.”

According to Barber and his colleagues at the Maritime Association of South Carolina, warehousing and distribution companies are already queuing up to take advantage of the cargo surge, pushing the region’s legacy logistics partners to “evolve by necessity.”

Barber said that just as ports and logistic service providers have had to play catch-up with the bigger ships, so too have the owners of warehouses. At one time, shipping lines and customers were content to “warehouse” their products and goods in containers in the terminal yard.

But as those precious spaces have filled up, “the steamship lines want to try to curtail that as much as possible,” Barber said.

The problem is most local warehouses are already at or near capacity. As a result, millions of additional square feet of warehousing space are already under construction or in the planning stage, and many developers are looking hungrily at land in Dillon and the surrounding Pee Dee region, where the South Carolina State Ports Authority has one inland port and it creating another.

In addition, Palmetto Railways will soon receive the Army Corps of Engineers’ environmental impact study for the railroad’s new Navy Base Intermodal Facility. The facility, which is planned to open at the same time the ports authority opens the new Leatherman Terminal, is expected to eliminate the need to move containers from the facility by truck - sparing the region’s already busy local streets and highways.

“Our biggest challenge is not accessing capital, gaining new business, or government regulation. Rather, it’s human capital; a stable, educated workforce,” he continued. “We are a very attractive industry, with above average wages and benefits, but we aren’t as ‘sexy’ as Aerospace and Automotive.  And frankly, those two industries can’t survive and prosper without us, the supply chain.

“Our political machine must face this reality: without the supply chain, South Carolina stops,” Barber said, quoting from a news release put out by the Maritime Association of South Carolina. The release announced the creation of a new video intended to promote workforce development to meet the challenges of the big ship era.

“We must encourage investment in technical and trade schools, and this needs to start in the middle and high schools,” Barber said.

The harbor deepening, and the surge in big ship arrivals it is expected to foster, is seen as also reaping significant benefits for the region’s commercial real estate market.

As of the early spring 2018, the commercial property vacancy rate in the Charleston metropolitan area was 7.4 percent.

“For our market, that’s practically full occupancy,” said Hagood Morrison, executive vice president at Bridge Commercial, a regionally-focused commercial real estate firm headquartered in Charleston.

Morrison and his associate Simons Johnson, senior vice president of Bridge Commercial, added that the market is currently so hot that several of the available properties could be occupied by early summer.

Much of that activity is being driven by strong interest in the region from manufacturing suppliers, warehouse and distribution centers, and military contractors.

“That diverse set of economic drivers bodes well for the area,” Johnson said.

Thanks to the rebounding economy and dramatic increase in manufacturing activity in the region, the Port of Charleston saw its container volume jump 10 percent in 2017.

Morrison said the conventional wisdom is that last year’s surge in container volume is unsustainable and that the numbers will soften a little this year. That said, he expressed confidence that 2017’s dramatic increases in container volume will return in 2019 and 2020 as the harbor deepening progresses toward completion.

“A number of factors feed into this, all of them magnified by having a deeper harbor,” he explained. “First, there’s the heightened demand for goods driven by the high population growth in the Southeast. Then are changes occurring within the shipping itself, the reliance on bigger ships driving them to consolidate their industry around deeper harbors, and finally there’s the dramatic increase of manufacturing and exporting activity in the region.”

All of this bodes well for the warehouse and distribution center market, and developers in the sector are poised to deliver several new properties in a range of sizes and styles.

“Right now we’re seeing projects in the works that start in the 50,000 square-foot to 200,000 square-foot range and go all the way to 500,000 square-feet for larger users,” Johnson said.

Morrison added, “As industrial focused brokers, we are excited to finally have new available product after years of having no buildings for our tenants.”

Among the blockbuster projects directly attributable to the harbor deepening is the Clarius Omni facility currently under construction in Summerville. When it is completed, the 587,720 square-foot property will be the largest available space in Charleston’s Interstate-26 corridor.

While the developers of the project, Clarius Partners, tout a number of area attributes is their marketing materials, the harbor deepening is central to their pitch.

“Trade is now Post-Panamax,” the company’s website says. “Take advantage of Post-Panamax cargo capabilities with the Port of Charleston, which will soon be one of the few ports on the East Coast that can accept fully loaded post-Panamax ships. With two access points to I-26, dual rail access, and more, goods can arrive at the Port of Charleston and quickly reach the rest of the country.”

“We have missed out on projects in the past because we haven’t had these facilities available. So this should also be a contributing factor to heightened growth,” Morrison said.