a look at container ports available to north carolina...

A Look at Container Ports

Available to North Carolina Exporters and Importers

January 3, 2011

Prepared for Save the Cape, Inc.

_________________________

Risingwater AssociatesSouthport, North CarolinaOld Saybrook, Connecticut

_________________________

Contents

Frontispiece

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Hampton Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Terminals and Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Channel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Railroads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Barge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Container Traffic and Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Expansion Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Charleston Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Terminals and Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Channel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Railroads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Container Traffic and Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Expansion Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Savannah River . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Terminal and Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Channel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Railroads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Container Traffic and Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Expansion Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Wilmington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Terminal and Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Channel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Highways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Market Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Container Traffic and Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Expansion Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

The Ports Compared–Capacity and Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Capacity and Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Capacity Exhaustion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Channel Depth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Market Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Cost to Serve Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

The Ports Compared–Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Regional Container Traffic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Container Traffic in North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41The Effects of Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

The Demand for Deep Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Risingwater Associates Save the Cape, Inc.

A Look at Container Ports

Available to North Carolina Exporters and Importers

Find a need and fill it–Henry J. Kaiser

(Also attributed to Ruth Stafford Peale)Summary

The Governor has created a Logistics Task Force to make recommendations fordevelopment of an integrated logistics plan for North Carolina. The first step is a properdefinition of the problem–an inventory and evaluation of existing transportation assets,including ports, airports, highways, railroads, and major distribution centers and business andindustrial parks.

Any review of ports available to North Carolina businesses must look outside of theState as well as in. Shippers and importers are indifferent to state borders. Indeed, four-fifthsof North Carolina’s international commerce moves through ports in other States. The marketdetermines which ports are closest, offer the lowest costs, and provides the most advantageousservice. State loyalty is reserved to the Tar Heels and the Wolfpack.

The current inquiry into ports available to North Carolina businesses must also considerthe plan of the North Carolina State Ports Authority for a massive new marine containerterminal. The new port, to be located on the Cape Fear River downstream from the State Portat Wilmington, has been conceived to compete on even terms with the largest ports in the East.

This report examines the need for container terminal facilities, to provide a context forconsideration of that project or any other to serve North Carolina. We look at containerterminals in Virginia, South Carolina, and Georgia, as well as the State Port at Wilmington. We look at regional port capacity, relative to anticipated need. We look at land-sideinfrastructure–roads and rail.

Then we look at results. What does the market say? Where does the market choose tosend its exports and obtain its imports? What container port facilities would North Carolinabusinesses need in the coming decades? Where should they be?

We find that North Carolina is, and will be, well-served by the small container terminalat Wilmington and the larger terminals in Virginia, South Carolina, and Georgia. All havesubstantial excess capacity, and with expansion projects underway or in advanced stages ofplanning, will have adequate capacity for the foreseeable future. These ports have overlappingservice areas that cover the State of North Carolina and provide a competitive environment.

Risingwater Associates 2 Save the Cape, Inc.

Introduction

By Executive Order Number 32 on December 8, 2009, Governor Perdue establishedthe Governor’s Logistics Task Force to make recommendations to create an integrated logisticsplan for North Carolina. The mandate is very broad, and includes “a thorough inventory andevaluation of existing public and private transportation and commerce assets, including ports,airports, highways, railroads, major distribution centers, and business and industrial parks,”and then to “project future needs” and make “recommendations to create an integrated logisticsplan for North Carolina.”

The North Carolina State Ports Authority operates two ports: the Port of Wilmington,with facilities for bulk and break-bulk cargoes and containerized freight, and the Port ofMorehead City, with facilities for bulk and break-bulk cargoes but without special cranes andother equipment for containerized freight.

The State Ports Authority has also purchased, for $30 million, a 600-acre undevelopedsite on a tributary of the Cape Fear River near Southport about 20 miles downstream from thePort of Wilmington, and has invested $6 million in preliminary engineering for a newcontainer terminal. The proposed terminal, to be called the North Carolina InternationalTerminal, would be larger than any on the east coast of the United States except the combinedterminals at Port Elizabeth and Port Newark, New Jersey. Planned capacity is 3,000,000twenty-foot equivalent units (TEU) per year. The project would include dredging a channelsufficient for deep-draft container ships of the size able to pass through the Panama Canal onlyafter larger locks and other improvements are completed sometime after 2014.

Movements of imports and exports throughports disregard state boundaries. North Carolina isserved by several ports in other states, which arelarger and busier than the ports in North Carolina, dueto proximity to large markets. Four ports at HamptonRoads in Virginia, three ports in Charleston Harbor,and a large container terminal on the Savannah Riverabove Savannah serve North Carolina businesses. These out-of-state ports are closer by road to manyareas of North Carolina in which industry isconcentrated than are the ports operated by the NorthCarolina State Ports Authority. The presence of theseports creates a competitive environment whichprovides a range of shipping opportunities. NorthCarolina businesses can make a shipping decisionconsidering availability of service, distance, cost,time, and scheduling convenience.


These charts show the ports used for North Carolina imports and exports ofcontainerized freight:

Ports in Virginia and South Carolina each handle more of North Carolina’s containermovements than North Carolina’s own port at Wilmington. This is what the market chooses,in an environment of many choices.

Thus an inventory of facilities available for North Carolina imports and exports must ofnecessity include the ports in neighboring states–the capacity, the land-side infrastructure, theadequacy of those facilities today and in the future.

The issue is complicated by the impending expansion of the Panama Canal, the route ofchoice for trade with eastern Asian ports. The locks now in use are about 40 feet deep and 110feet wide. The maximum size container ship (called “Panamax”) able to transit the canal cancarry slightly more than 4000 TEU. All container terminals on the East Coast (exceptRichmond) have channels maintained at 42-foot depth, sufficient for such vessels. However, athird set of locks parallel to the existing locks at the Panama Canal, now under construction,will be 50 feet deep and 180 feet wide, and much larger container ships (called “post-Panamax” or “new Panamax”) would be able to use the canal to reach US East Coast portsfrom Asia. But access may be limited by channel depth. Of ports in the Southeast, onlyHampton Roads in Virginia is 50 feet deep; others have depths ranging from 42 to 45 feet. When the additional dimension of time is considered, plans now in progress for increasedchannel depths must be taken into account in an inventory of ports serving North Carolina.


Development of a logistics plan for North Carolina is like any other problem,mathematical or scientific or economic: it must be addressed first by a comprehensivestatement of the problem. Often, such a statement suggests the solution, and it wouldcertainly suggest a range of alternatives for investigation.

This report attempts to provide an inventory, to define the problem, if indeed there isone. We concentrate on containerized freight, the largest and fastest-growing segment of theshipping spectrum and the segment getting the most attention from various state portauthorities in planning for growth. We examine the characteristics of the marine containerterminals in North Carolina and neighboring states–the capacity, the infrastructureconnections, the market, the ability to accommodate growth.

This should define the need, if any, for additional container terminal capacity to serveNorth Carolina importers and exporters.


Hampton Roads

Terminals and Capacities

The Virginia Port Authority owns and operates the Norfolk International Terminal, thePortsmouth Marine Terminal, and the Newport News Marine Terminal, all at Hampton Roadsnear the mouth of the Chesapeake Bay. All have container terminals, as well as facilities forbulk and breakbulk cargoes. The operating arm of the Virginia Port Authority is VirginiaInternational Terminals, Inc.

In July 2010, the Virginia Port Authority took over operation of the AP Moller terminalat Portsmouth, a privately-owned, highly-automated container terminal opened in late 2007. This is pursuant to a lease for a term of 20 years.

According to theVPA master plan, containeroperations at Newport Newswill be terminated in favor ofbulk and breakbulk cargoes. Container operations will beconcentrated at Norfolk andthe two terminals atPortsmouth.

The Virginia PortAuthority is also movingforward with plans foranother very large containerterminal at Craney Island,which has been created fromdredging spoil.

The VPA operates aninland container terminal atFront Royal in northern Virginia. Containers are moved to that facility by rail for subsequentdistribution to inland points.

The annual capacity of the marine container terminals currently operated by theVirginia Port Authority has been estimated to be about three million TEU by Moffatt &Nichol, the Port Authority’s planning consultant. That capacity has never been tested. Thehighest annual throughput of 2.1 million TEU occurred in 2007.


Norfolk International Terminals (NIT)

The Norfolk International Terminal is the Port of Virginia's largest terminal, with 648acres. The terminal has five berths and 14 container cranes with a reach of 245 feet, able toservice ships loaded 27 containers wide. These facilities provide a capacity of about twomillion TEU annually. The terminal has direct rail access through the Commonwealth RailwayProject. Interstate 564 connects the terminal to I64.

APM Terminal

The APM Terminal, on the Elizabeth River at Portsmouth, is operated by VirginiaInternational Terminals under a 20-year lease commencing in July 2010. The 576-acreterminal is regarded the most technologically advanced marine cargo facility in the Americas. The terminal has 4,000 linear feet of berth, and cranes and other facilities to handle 1.4 millionTEU annually. The space will permit expansion to approximately 2.5 million TEU. On-siterail links to Norfolk Southern Railway and CSX Transportation. Route 164, the WesternFreeway, connects to Interstate 664, thence to I64. A project is underway to move the railroadinto the median of that freeway.

APM Terminal at Portsmouth


Portsmouth Marine Terminal

The Portsmouth Marine Terminal is on the Elizabeth River, slightly south of theterminal at Norfolk. The terminal occupies 219 acres and has 3,540 feet of wharf with threeberths and six cranes for container and break-bulk cargo. Moffatt & Nichol has estimated theannual capacity of the terminal at just under one million TEU.

The terminal has direct access to both CSX Transportation and Norfolk SouthernRailway, and will soon connect to the Commonwealth Railway. Route 164, the WesternFreeway, connects the terminal to Interstate 664.

Newport News Marine Terminal (NNMT)

The Newport News Marine Terminal, at 140 acres, is the smallest terminal in theHampton Roads area and is used primarily for break-bulk cargoes. It does have containerfacilities in its 3500 feet of pier space, but that is planned to be terminated. CSXTransportation, Inc., provides direct rail service on the facility, and cargo can be moveddirectly from ship to rail. Interstate 664 connects the terminal directly to I64.

Channel

These are the depths at the various container wharfs in the most recent survey;

APM Portsmouth 50 feetNorfolk International Terminal north 48Norfolk International Terminal south 49Portsmouth Marine Terminal 43 Newport News Marine Terminal 40

The channel to the sea is maintained at 50-foot depth. The Virginia Port Authority hasauthority to dredge the channel to 55 feet.


Highways

Sixty-six percent of cargo at the ports operated by the Virginia Port Authority moved toinland destinations or from inland origins by truck in 2009.

All of theterminals haveInterstate connectionsto I64, which connectsto I95 at Richmond.

North Carolinadestinations would bereached by US 58, connecting to I95 atEmporia, Virginia, andcontinuing west tointersect I85 forwestern North Carolinapoints. US 58 is afour-lane dividedhighway, with limitedaccess in somestretches.

Railroads

In 2009, 30% of the cargo moving through the ports operated by the Virginia PortAuthority arrived from inland origins or departed to inland destinations by rail. Both terminalsat Portsmouth and the terminal at Norfolk have connections to the lines of Norfolk SouthernRailway Company and CSX Transportation, Inc., the two major railroads in the East. Theterminal at Newport News is served by CSX Transportation.

The primary rail connection for the ports at Hampton Roads has traditionally beenNorfolk Southern Railway Company, whose lifeblood has long been coal movements fromWest Virginia over the routes of the Norfolk & Western to its docks at Norfolk for export. Since the merger with the Southern Railway and acquisition of the lines of the Pennsylvania


Railroad from Conrail, Norfolk Southern has developed an extensive network for intermodalcontainer movements, and most of that has clearances for double-stack container trains.

The map below shows the core intermodal network of Norfolk Southern, passingthrough Greensboro and Charlotte, North Carolina. Connections are provided to the containerterminals at Hampton Roads, Charleston, and Savannah.

In mid-2010, Norfolk Southern, with the assistance of the Commonwealth of Virginiaand other states, opened its “Heartland Corridor” to provide double-stack intermodal service tothe upper midwest and Chicago over its route through the Appalachians.


This map shows the Norfolk Southern Heartland Corridor.

Norfolk Southern is currently running one train a day from Hampton Roads over thisroute. Substantial capacity for expansion of that service remains.


CSXTransportation, Inc.,the other largerailroad in the East,connects to all of theterminals at HamptonRoads. CSXT alsohas a projectunderway to increaseclearances on itsroutes for double-stack container trains,called the “NationalGateway.” This mapshows the CSXTdouble-stack routeswith its NationalGateway.

CSXT serves all of the container terminals in the Southeast, including Wilmington.

Barge

The remaining 4% of the inland movements through the ports at Hampton Roads are bybarge, primarily to and from Richmond and Baltimore.

Market Area

In connection with the current study for deepening the channel in the Savannah River tothe container terminal at Garden City above Savannah, Gulf Engineering & Consultants, Inc.,prepared a Multiport Analysis for the Savannah District of the US Army Corps of Engineers.The analysis provides estimates of the transportation costs of containers from the containerports in the Southeast to major points in the market area for those ports, from the coast inlandthrough the Midwest as far as Chicago. By comparison of those costs, the consulting firm wasable to show the areas most efficiently served by each of the ports in the Southeast.


For the container terminals in the Hampton Roads area, this map shows in light green the area for which those terminals provide the lowest transportation cost, and also, in darkergreen, the area in which the terminals at Hampton Roads provide a transportation cost no morethan $50 per TEU more than the lowest cost port.

Thisdefines the“hinterland”market ofHampton Roadsas the upperMidwest,although thosecities are alsoserved by thecontainerterminals at PortElizabeth andPort Newark,New Jersey, andthe terminals atBaltimore,Wilmington,Delaware, andPhiladelphiaprovide somecompetition.

Theterminals atHampton Roadsalso providecompetition forports farthersouth, such asCharleston.


Container Traffic and Trends

This chart shows the containermovements through Hampton Roads for theperiod 1990-2009.

The Virginia Ports Authority reportsthat container movements have resumedupward growth in 2010.

Financial Performance

The annual report for fiscal year 2010 shows these results:

FY 2010 FY 2009

Operating Revenues $51,900,000 $53,200,000Operating Expenses 72,300,000 66,900,000 Operating Income (Loss) (20,400,000) (13,700,000) Non-Operating Income (25,100,000) (32,900,000)Port Fund Allocation 32,800,000 32,700,000Capital Contribution 7,000,000 6,200,000 Change in Net Assets (12,000,000) (7,700,000)

The Port Fund Allocation represents amounts received from the Commonwealth ofVirginia through the Transportation Trust Fund, a tax on motor vehicle fuel and sales taxes. The Authority receives 4.2% of such funds. This is a substantial amount, $33 millionannually, and represents a significant portion of revenues of the Port Authority. To the extentthat the ports provide service to other states, Virginia taxpayers (and visitors buying motorfuel) are subsidizing that service.

As in the case of other ports, maintenance dredging is done by the US Army Corps ofEngineers. These are the estimated costs (by calendar year):

2011 2010 2009 2008 2007

$13,946,000 $15,179,000 $13,104,000 $14,591,000 $12,088,000

The figures for 2011 and 2010 are budget. The remaining years are estimates. All figures arefrom the US Army Corps of Engineers.


Not all of the dredging costs are paid by the Federal government. For depths below 45feet (all except the channel in the James River), the Commonwealth of Virginia must pay half.

The operating results for the Virginia Ports Authority are not solely attributable tocontainer operations. The ports move substantial quantities of bulk and breakbulk cargoes. Results for the container operations are not separately reported.

And all of the dredging costs cannot be attributed to the facilities of the Virginia PortsAuthority. Hampton Roads has substantial activity by the US Navy, and Norfolk SouthernRailway has a large terminal for coal exports.

Expansion Plans

The APM terminal at Portsmouth was designed for an annual capacity of 2.5 millionTEU per year, to be achieved in two phases. The first phase was completed for the opening in2007; capacity has been variously reported between one and 1.4 million TEU. The secondphase has not been scheduled.

The Virginia Ports Authority is proceeding with plans to construct a new, very largecontainer terminal on an eastern expansion of Craney Island, an island at the mouth of theElizabeth River created from dredging spoil. About 580 acres would be made available for theterminal. Capacity at full build out would be 2.5 million TEU annually. This facility wouldshare rail and highway connections with the APM terminal.

With improvements planned for the terminals at Norfolk and Portsmouth, these twoprojects would bring theaggregate capacity of thecontainer terminals at HamptonRoads to about 8.6 million TEUannually.

This is an artist’srendering of the Craney Islandterminal.


Charleston Harbor

Terminals and Capacities

The SouthCarolina StatePorts Authorityoperates threecontainer terminalsin the CharlestonHarbor: NorthCharleston on theCooper River,Columbus Street inCharleston, also onthe Cooper River,and Wando Welchon the WandoRiver in MountPleasant.

Theaggregate annualcontainer- handlingcapacity of thesefacilities isapproximately 2.6million TEU. Anadditional 1.3million TEU willbe available oncompletion of anew terminal onthe site of a formerUS Navy base onthe Cooper River,planned for 2016(shown in red).


Wando Welch

The largest container terminal in the harbor is the Wando Welch Terminal at MountPleasant, on the east side of the Wando River. Approximately 242 acres are available forcontainer storage.

Wando Welch does not have on-site rail service. The terminal is about a mile fromInterstate 526; containers can be moved to their destination by truck, or taken to the intermodalrail facilities at North Charleston.

North Charleston

The smaller container terminal at North Charleston has on-site rail facilities leading tothe Norfolk Southern and CSX Transportation intermodal facilities. Interstate 526, whichconnects to I26, is a short distance from the terminal.

Columbus Street

The Columbus Street terminal in Charleston is a combination breakbulk and containerterminal. It has a rail yard on site, and tracks at dockside. Interstate 26 is nearby.

Channel

The entrance channel at Charleston Harbor has a depth of 47 feet, and 45 feet isavailable in the harbor and at the berths of all the terminals.

The lower Cooper River bridge, between Charleston and Mt. Pleasant, has a clearance of 186 feet, which is regarded as sufficient. The upper Cooper River bridge has a clearance of 150 feet, which may restrict some vessels from reaching the terminal at North Charleston.

Container ships of up to 8000 TEU have called at Charleston.


Highways

Interstate 26 provides a connection to Interstate 77 to Charlotte, North Carolina, and toI95 to Fayetteville and I40 to Raleigh. Charlotte is 209 miles from Charleston; travel time isabout three and a quarter hours. This is less than the distance and time from Charlotte to thePort of Wilmington.

Railroads

Charleston is served by both Norfolk Southern Railway Company and CSXTransportation, Inc. The North Charleston terminal and the Columbus Street terminal haverail on the terminal sites; containers to or from the Wando Welch terminal must be carried bytruck to the intermodal terminals in North Charleston.

Maps showing rail routes for double-stack container trains appear in the section onHampton Roads, above. Market Area


This map, prepared by Gulf Engineering & Consultants, Inc., for the Savannah Districtof the US Army Corps of Engineers, shows the areas (light green) for which the containerterminals at Charleston Harbor provide the lowest cost path for imports and exports, and thearea (dark green) for which those terminals provide a transportation cost no more than $50 perTEU more than the lowest cost port.

The area inwhich Charlestonoffers the lowest costis rather narrow. The terminals in theCharleston Harborare obliged tocompete with Savannah to thesouth and HamptonRoads (and to someextent, Wilmington)to the north foradditional traffic.



This chart shows the containermovements through the three containerterminals at Charleston Harbor for the period1990-2009. The reduction in container trafficbegan sooner and has been more severe than atother ports.


The South Carolina State Ports Authority operates the much smaller port at Georgetownand the facility at Port Royal. However, those operations are insignificant relative to theoperations at Charleston. The annual report of the State Ports Authority for fiscal year 2010shows these results:

FY 2010 FY 2009 FY 2008

Operating Revenues $111,744,000 $136,201,000 $165,092,000Operating Expenses 103,372,000 110,517,000 110,399,000 Operating Income 8,372,000 25,684,000 54,693,000 Non-Operating Income 4,711,000 709,000 896,000Contributions to State and County 8,000,000 1,000,000 1,000,000 Capital Contribution (Land) 16,000 23,550,000

Capital Grants (Federal) 2,677,000 3,459,000 639,000Increase in Net Assets 7,760,000 28,868,000 76,986,000

The South Carolina State Ports Authority has been consistently profitable, even duringthe recent downturn in container traffic, and has been able to make contributions to the State ofSouth Carolina and Berkeley County for the Cooper River bridge and interchange.

As in the case of other ports, maintenance dredging is done by the US Army Corps ofEngineers. These are the estimated costs (by calendar year):

2011 2010 2009 2008 2007

$13,065,000 $12,970,000 $13,031,000 $11,218,000 $ 8,605,000



The operating results for the South Carolina State Ports Authority and the dredgingcosts are not solely attributable to container operations. The ports move substantial quantitiesof bulk and breakbulk cargoes. Results for the container operations are not separatelyreported.

Expansion Plans

The South Carolina State Ports Authority is constructing a new container terminal on260 acres of the former US Navy yard on the Cooper River. The first phase is scheduled toopen in 2016. At full buildout, the new facility will have an annual capacity of about 1.3million TEU

The State Ports Authority and the Charleston District of the US Army Corps ofEngineers have initiated studies for a project to increase the depth of the harbor from itscurrent depth of 45 feet.


Savannah River

Terminal and Capacity

The largest container terminal inNorth America is the Garden City terminal onthe Savannah River above Savannah, operatedby the Georgia Port Authority. The facilityoccupies 1200 acres, and includes twointermodal rail transfer facilities withconnections to the lines of both NorfolkSouthern Railway Company and CSXTransportation, Inc. The terminal has anannual capacity of about 3.5 million TEU andhas seen annual movements as high as 2.6million TEU, in 2006 and 2007.

Channel

The channel in the Savannah River is now maintained at the depth of 42 feet. The USArmy Corps of engineers has justreleased a draft report andenvironmental impact statement for aproject to increase that depth to asmuch as 48 feet. The project has beenapproved by Congress and awaitsfunding.

The container terminal on theSavannah River has received onevessel of 8000 TEU, but this requiredfavorable tides.

Highways

The Garden City terminalconnects to I16 for Atlanta and pointswest and I95 for points north andsouth. Charlotte, North Carolina is a252 miles away. The primary marketat Atlanta is 250 miles away.


Railroads

The Garden City terminal has on-site railroad facilities connecting to both NorfolkSouthern Railway and CSX Transportation, Inc. In fiscal year 2009, 19% of containermovements through the terminal arrived or departed by rail.

Maps showing rail routes for double-stack container trains appear in the section onHampton Roads, above.

Market Area

This map,prepared by GulfEngineering &Consultants, Inc.,for the SavannahDistrict of the USArmy Corps ofEngineers, showsthe areas (lightgreen) for which thecontainer terminalon the SavannahRiver provides thelowest cost path forimports and exports,and the area (darkgreen) for whichthat terminalprovides atransportation costno more than $50per TEU more thanthe lowest cost port.

The terminalhas a very largeprimary service areaand can competeeffectively withCharleston.



This chart shows the containermovements through the container terminalat Garden City, Georgia, for the period1990-2009. Growth since 2001 hasexceeded National and regional averages. Alikely factor is growth in the Atlanta area,the primary service area for the terminal.


The last available annual report, forfiscal year 2009, shows these results:

FY 2009 FY 2008 FY 2007

Operating Revenues $227,796,000 $236,898,000 $205,039,000Operating Expenses 168,535,000 171,513,000 141,701,000 Operating Income 59,261,000 65,386,000 63,338,000 Non-Operating Income (4,081,000) 2,876,000 (1,432,000)Capital Contribution 8,891,000 16,810,000 28,417,000 Change in Net Assets 64,071,000 85,072,000 90,323,000

Notable are the consistent (albeit shrinking) positive operating results, with acontribution to net assets in each year. Substantial capital has been contributed by the State ofGeorgia in each year, however.

An additional subsidy to be considered is the channel dredging done by the US ArmyCorps of Engineers and paid by Congressional appropriations. These are the amounts (bycalendar year):

2011 2010 2009 2008 2007

$18,462,000 $13,867,000 $16,050,000 $14,721,000 $11,322,000



Expansion Plans

The Georgia PortAuthority has a capitalimprovement plan to increase theannual capacity of the GardenCity terminal to 6.5 million TEUby 2020.

The States of Georgia andSouth Carolina are cooperating ina project to develop anothercontainer terminal on a 1500-acresite in Jasper County, SouthCarolina, downriver fromSavannah. The project would becalled the South AtlanticInternational Terminal.

The first stage would provide a capacity of about 1.5 million TEU annually, but the sitewould support much greater throughput, as much as 6 million TEU.


Wilmington

Terminal and Capacity

The North Carolina State Ports Authority operates ports for international trade atWilmington on the Cape Fear River and at Morehead City. Both handle bulk and breakbulkcargo; the Port of Wilmington also has a container terminal.

Port of Wilmington Container Terminal

Of the 284 acres at the Port of Wilmington, approximately 100 acres is devoted tocontainers. The port has four cranes for container movements; one berth is so used, andanother is being rebuilt. The cranes can accommodate vessels up to 144 feet wide, which isgreater than the current width of the locks in the Panama Canal.

The capacity of the terminal is approximately 350,000 TEU annually. In its best year,2009, the terminal handled 225,000 TEU.

Channel

The Port of Wilmington is 26 miles upriver from the mouth at the Cape Fear. The USArmy Corps of Engineers maintains the channel in the river to a depth of 42 feet. From themouth to the sea buoy, about seven miles at sea, the channel is maintained at a depth of 44feet. However, rapid shoaling at the river mouth requires the pilots to limit passage of vesselsdrawing 38 feet or more to certain conditions of tide. Maintaining the channel in the area iscomplicated by natural currents which erode area beaches and deposit the sand in the channel. Biannual dredging and replenishment of sand on the beaches is necessary; the average annualcost of maintenance dredging is about $12 million.


A more severe problem is presented by the turns in the channel between Southport andBattery Island. A combination of turns representing a change in course of 95 degrees does notcomply with the standards of the Corps of Engineers for channel turns, nor does it complywith international standards formulated by the International Association of Ports and Harbors.This has been a problem since the channel was deepened to 38 feet in 1972 and larger shipsbegan to navigate the channel. In the study leading to deepening the channel to 42 feet, issuedby the Wilmington District of the Corps of Engineers in 1996, the problem was recognized butnot addressed. In the course of engineering the deeper channel, the Corps arranged a shipsimulation study for the design vessel, a Panamax vessel of 950-foot length and 106-foot beam. In fifteen simulations at different conditions of tide and current, the pilots were unable tonavigate the turns without leaving the marked channel. Notwithstanding this result, theWilmington District went ahead with the project.

The river pilotsnow restrict Panamaxvessels drawing 36.5feet or more to passageat flood tide only. Thispermits use of areasoutside the markedchannel to execute theturn.

In a studyreleased in 2008 for theproposed NorthCarolina InternationalTerminal in the CapeFear River, CH2M Hill,Inc., advised the NorthCarolina State PortsAuthority that, becauseof the turns, the existingchannel to the west ofBattery Island could notbe enlarged practicallyfor larger vessels, andrecommended a new,straight alignmentthough undisturbedareas to the east of theisland.


Highways

The Port ofWilmington is a shortdistance over citystreets to the end ofInterstate 40, whichconnects to Raleighand points north. US74/76 is available forconnections to thewest.

Parts of US74are limited access, but most of the routeto Charlotte,although four-lane,passes through built-up areas, especiallyclose to Charlotte.

The marketsin Charlotte are moreeasily accessible fromthe containerterminals at Charleston.

Railroad

The Port of Wilmington has trackage on site connected via a terminal railroad to thelines of CSX Transportation, Inc., across the Cape Fear River at Leland. Clearances areadequate for double-stack container trains to Charlotte, and the tracks connect with the CSXTNational Gateway. Regular container service to the Port of Wilmington is not now offered byCSXT due to insufficient volume.

A map of the CSXT National Gateway system is in the section on Hampton Roads,above.

Norfolk Southern Railway Company does not serve the port.


Market Area

This map, prepared by Gulf Engineering & Consultants, Inc., for the Savannah Districtof the US Army Corps of Engineers, shows the areas (light green) for which the containerterminal at Wilmington provides the lowest cost path for imports and exports, and the area(dark green) for which that terminal provides a transportation cost no more than $50 per TEUmore than the lowest cost port.

This showsthat the area forwhich the Port ofWilmingtonenjoys a costadvantage is quitenarrow. There issome prospect ofcompeting withthe terminals atHampton Roadsand Charleston for traffic to theupper Midwest,but thoseterminals offerlower cost of landtransportation.

Areas tothe south and westare withinoverlappingservice areas ofCharleston andSavannah, a verycompetitiveenvironment.


The relatively small market for the container terminal at Wilmington determined byGulf Engineering & Consultants has been confirmed by a study by Moffatt & Nichol furnishedto the North Carolina State Ports Authority in connection with an offering of revenue bonds inearly 2010. The firm undertook a thorough inquiry as to just what is the market for the Port ofWilmington, using a least-cost supply chain analysis. The firm established, for the 179Business Economic Areas (BEAs) in the United States, the supply chain costs for all possibleports of entry and exit for 16 regional trade lanes. Each supply chain cost included allcomponents–ocean freight, port fees, trucking costs, and costs of intermodal rail, if themovement would more efficiently involve rail.

Moffatt & Nichol determined that the Port of Wilmington was in the least-cost supplychain only for five BEAs in the United States, all in North Carolina–and only five of the sevenBEAs in North Carolina. The State Ports Authority confirmed that 100% of existing containertraffic through the Port of Wilmington originated in or was destined for North Carolina.


This chart shows the containermovements through tbe Port of Wilmingtonin the period 1990-2009.

From 1990 through 2003, thecontainer terminal at the Port of Wilmingtonexperienced growth at a compound annualrate of less than 1%, with movementshovering around 100,000 TEU per year. Then in 2004, the trend of containermovements abruptly turned up, growing at anaverage annual rate of 22% for the next threeyears. The upturn corresponds to theopening of the channel at a depth of 42 feet; prior to 2004, only 38 feet were available,insufficient for the largest ships able to transit the Panama Canal.

Although container movements have increased substantially in the past six years, the movements in 2009, 225,000 TEU, represent only about 1.4% of container traffic throughAtlantic coast ports–approximately the same share as in 1990. Moffatt & Nichol advised theState Ports Authority in early 2010 that capturing additional market share would provedifficult.

For the period 1990-2009, the compound annual rate of growth of container traffic atthe Port of Wilmington was 4.8%.



The annual reports of the North Carolina State Ports Authority for fiscal years 2010and 2009 shows these results (which include the port at Morehead City):

FY 2010 FY 2009 FY 2008

Operating Revenues $33,318,000 $ 34,559,000 $ 39,731,000Operating Expenses 35,504,000 36,646,000 37,673,000 Operating Income (2,086,000) (2,087,000) 2,058,000 Non-Operating Income (3,644,000) 4,551,000 8,986,000Change in Net Assets (5,730,000) 2,464,000 11, 044,000

The North Carolina State Ports Authority includes capital grants in its non-operatingincome. There were no such grants in fiscal year 2010; in fiscal 2009, the State PortsAuthority received $7,735,000; in fiscal 2008, $10,574,000. Most of that representedappropriations from the North Carolina General Assembly. A private corporation would notreport capital infusions as income and would have shown a loss of $5,271,000 in fiscal 2009and a profit reduced to $470,000 in fiscal 2008

Container operations at Wilmington in fiscal year 2010 produced approximately$10,701,000 in revenues and $3,458.000 in operating income. Debt service is a significantexpense for the State Ports Authority: nearly $3 million per year in recent years.

The North Carolina State Ports Authority does not pay taxes or make payments to hostcommunities in lieu of taxes. North Carolina tax law makes available to North Carolinabusiness taxpayers a credit for payments to the State Ports Authority equal to the full amountof such payments in excess of the average for the preceding three years.

Channel dredging is done by the US Army Corps of Engineers and paid byCongressional appropriations. These are the amounts for the channel in the Cape Fear Riverserving the Port of Wilmington:

2011 2010 2009 2008 2007

$12,247,000 $11,228,000 $13,000,000 $11,200,000 $ 9,400,000


In 2008, 107 deep-draft vessels called at Wilmington. The dredging cost per call was$105,000.


Expansion Plans

The North Carolina State Ports Authority has in progress a project to expand thecontainer terminal facilities at Wilmington to achieve an annual capacity of 600,000 TEU. Although press materials speak of larger than Panamax vessels being accommodated, and thecranes recently installed can span a vessel of 144-foot beam, the channel restrictions,particularly the problem with the turn at Southport, would limit access by such vessels. Theupper reaches of the Cape Fear River where the Port of Wilmington is located are not wide;the width of the river in the vicinity of the port is only about 1200 feet, which limits the sizevessel able to turn to return downriver. The largest size that can be accommodated withoutenlarging the river for turns is the current Panamax size of 965 feet overall length. Shoalingat the edges of the turning basin has caused problems even for vessels of that size.

In early 2006, the State Ports Authority acquired a 600-acre site on the Cape Fear Rivernear Southport, approximately four miles from the mouth of the river, and announced plans fora very large new container terminal, to be called the North Carolina International Terminal.

Preliminary plans released in early 2008 show a terminal with an annual capacity ofthree million TEU, about fifteen times the movements through the terminal at Wilmington inthat year. It would be about the same size, and feature the same automation, as the APMterminal at Portsmouth, Virginia. However, the APM terminal was built for less than $500million, including dredging and highway and rail connections. The estimates of the cost of theNorth Carolina International Terminal with related infrastructure exceed $3 billion.

Much of that cost is due to the need for highway and rail infrastructure improvementsand channel dredging. The majorpart, $1.2 billion, would be fordredging of the lower reaches ofthe Cape Fear River toapproximately 17 miles at sea to adepth sufficient to accommodatethe largest vessels able to transitthe Panama Canal after completionof expansion in 2014.

After failure to obtain Statefunding for a feasibility study forthe dredging, the project was put“on hold” by the State PortsAuthority in July 2010. Theproject has been unanimouslyopposed by nearby municipalities,including the City of Southport.


The Ports Compared–Capacity and Location

Capacity and Expansion

A reason offered by the North Carolina State Ports Authority for expansion of theState’s container handling facilities beyond the Port of Wilmington to the proposed NorthCarolina International Terminal is the shortage of regional container capacity anticipated forthe future. This proposition must be examined.

Capacity

This table shows the annual capacity of the four container ports at the current time andwith planned expansions. The current and expanded capacities are based on statements of therelevant ports authorities, although they are sometimes inconsistent. Potential capacities arefrom a 2008 report by Martin Associates to the Cleveland-Cuyahoga Port Authority, and arebased on implementation of productivity improvements that would increase the rate ofmovements in the existing space, adopted at the busiest world ports.

Container Terminal Capacity (TEU x 1,000,000)

2009 Current Future Potential Capacity Movements Capacity Capacity (Martin Associates)

Hampton Roads 1.7 4.4 8.6 9.0Charleston 1.2 2.6 3.9 4.4Savannah 2.4 3.5 6.5 6.6Wilmington 0.2 0.4 0.6 0.6 ____ ____ ____ ____

Totals 5.5 10.9 19.6 20.6

These figures do not include the proposed North Carolina International Terminal on the CapeFear River or the South Atlantic International Terminal on the Savannah River (Jasper County,S.C). The latter would add six million TEU annually.

Rates of growth

To forecast when each of these ports will reach their capacity for container movements,we must postulate a rate of growth. In recent years, the compound annual rate of growth atcontainer terminals has been as high as 6.3% for short periods. But then in 2008 it turned


down sharply. For a simple extrapolation of trends, we should look back for a period at leastas long as the period of the forecast. We have these annual rates available:

! Container traffic at all US ports, 1990-2009: 4.7%

! Container traffic at Atlantic Coast ports, 1990-2009: 4.7%

! All seaborne freight, worldwide, 1975-2006: 3%

! Gross Domestic Product growth in North Carolina: 2.8%.

! Container traffic at the Port of Wilmington, thirty years: 2.4%

! Container traffic at Atlantic Coast ports, 2000-2009: 2.0%

! Population growth in North Carolina: 1.4%.

The container industry has used a rule of thumb for compound annual rate of growth ofcontainer moves: twice gross domestic product, which in turn is usually about twice the rate ofpopulation growth. That would produce a rate of 5.6%. However, the factors that causegrowth in container movements to exceed gross domestic product by a factor of two, that is,shift of cargoes to containers and consequent reduction in transportation cost, may have runtheir course and future growth may more closely follow growth in GDP. Indeed, it is the useof this rule of thumb that resulted in the over-investment in ships and facilities that now besetsthe industry. We note here that the long-term rate of growth in all seaborne freight has been3%, slightly more than growth in Gross Domestic Product.

Recently prepared estimates of future growth ofcontainer traffic use rates in the range 2% to 5%. Thereappears to be some recognition of factors that suggest thatearlier high rates of growth cannot be sustained:

! increased cost of fuel as large emerging economiesin Asia compete for petroleum;

! the necessity to correct the huge trade deficit theUnited States carries with Asian countries,particularly China;

! a change in balance of US trade to exports, whichcan be absorbed by current excess capacityresulting from a large proportion of emptycontainers now moving out of US ports–as many asone-third of outbound containers.


Capacity Exhaustion

This chart shows the increases in capacity planned for the next two decades at the fourSoutheast regional ports (without the six million TEU at Jasper County), along with growth incontainer traffic at two rates–5% and 3%:

Using various compound annual rates of growth in container traffic from calendar year2009 figures, these are the dates at which the capacity of the existing terminals would bereached, taking into account expansion projects underway or firmly planned (not includingJasper County, South Carolina): 5% 4% 3%

Hampton Roads 2041 2049 2051Charleston 2034 2039 2049Savannah 2029 2034 2043Wilmington 2029 2034 2041

Aggregate of all ports 2035 2041 2051

The last row of figures assumes that as one or more ports reach capacity traffic wouldbe shifted to other ports in the region.


If the six million TEU capacity at Jasper County is added, the year of capacitysaturation at 5% rate of growth would be extended to 2040.

The table below presents the same forecast, but using the Martin Associates estimatesof capacity instead of the capacity figures published by the various state ports authorities.

5% 4% 3%

Hampton Roads 2043 2052 2056Charleston 2036 2042 2053Savannah 2030 2035 2044Wilmington 2029 2034 2041

Aggregate of all ports 2036 2043 2054

This chart shows the relationship of annual rate of growth to the year of capacitysaturation (using the capacity figures provided by the state ports authorities)

These data suggest that there will not be any shortage of container terminal capacity atports serving North Carolina for the foreseeable future.


Channel Depth

The locks in the Panama Canal currently are approximately 40 feet deep, and canaccommodate ships of 39-foot draft. A project now underway and planned for completion in2014 would add a parallel channel with locks 50 feet deep. A channel depth of 42 feet isusually thought sufficient to accommodate the largest vessels now able to transit the canal,Panamax ships with a capacity slightly more than 4000 TEU. Fifty feet would be required fornew Panamax ships, but 48 feet would serve for slightly smaller vessels of 8000 TEU. Someports authorities are contemplating deeper channels to accommodate ships reaching the EastCoast via the Suez Canal, as industrialization expands in south Asia.

These are current and planned depths for the four ports:

Hampton Roads 50 feet with plans for increase to 55 feetCharleston 45 feet with planning commencing for greater depth Savannah 42 feet with planning for depths to 48 feet in the late stage.Wilmington 42 feet

The plans for a new North Carolina International terminal downriver from Wilmingtoninclude dredging a channel to 52.5 feet deep.

The plans for increasing the depth of the channel and harbor at Hampton Roads to 55feet are driven as much by the requirements of colliers calling to receive coal from the railroaddocks at Norfolk as container ships.


Market Areas

This mapshows the areawithin 400 miles ofeach of thecontainer portsserving NorthCarolina. Fourhundred miles isgenerally regardedas the most efficientrange of trucks–greater distanceswould be servedmore efficiently byrail.

The bluearcs describe adistance of 400miles from each ofthe ports atHampton Roads,Charleston, andSavannah. The redarc describes adistance of 400miles from theproposed NorthCarolinaInternationalTerminal. This arcis also valid for thePort of Wilmington. These arcs definethe trucking serviceareas of those ports.

The triangle on the map describes the area for which the proposed North CarolinaInternational Terminal (and the Port of Wilmington) would be the closest container terminal. Outside of the triangle, another port would be closer.


All of the State of North Carolina is within the service area of at least two ports inother states, and almost all of the State is served by three such ports.

The service area of the proposed North Carolina International Terminal is completelywithin the service area of other ports–as many as three such competing ports in most places.

This table, compiled by Moffatt & Nichol for the North Carolina State Ports Authority,shows the distance in miles from major North Carolina Cities to the various ports:

Raleigh Charlotte Greensboro

Hampton Roads 154 283 207

Charleston 223 173 228

Savannah 298 220 290

Wilmington 119 179 168


Cost to Serve Markets

This chart, prepared by Gulf Engineering & Consultants, Inc., for the SavannahDistrict of the US Army Corps of Engineers, identifies the ports in the Southeast providing thelowest cost of land transportation (yellow highlights) for various inland points, and thedifference in cost that would be incurred by using other ports:

For Charlotte, North Carolina, the lowest cost port would be Wilmington, but the costto the port at Charleston is only an additional $3.23, and use of the port at Savannah involvesan additional cost of only $43.52.

The chart also shows that Wilmington is the lowest-cost port only for Charlotte. Forother cities, including those in the “hinterlands” of the Midwest, use of the ports at Norfolk(Hampton Roads), Charleston, and Savannah would cost less. This is illustrated by the mapsof lowest cost service areas shown in the sections on each port. The Port of Wilmington, andperforce, the proposed container terminal at Southport on the Cape Fear River, can offer thelowest cost of access in only a very narrow area, entirely within North Carolina.


The Ports Compared–Operating Results

Regional Container Traffic

This chart shows theannual container movements at thefour container ports providing thebulk of the service to NorthCarolina. Data are stacked, sothat the top of the curve representsthe aggregate movements throughthe four ports.

The chart below shows container ship calls at the fourports in 2008 (The HamptonRoads bar does not include APMPortsmouth).

The Port of Wilmingtonreported 112 container ship callsin 2008.

It is evident that the container terminal at the Port of Wilmington participates to aninsignificant extent in the container traffic in the region.


Container Traffic in North Carolina

Importers and exporters are indifferent to state borders. Distance, availability of originsand destinations, frequency of service, and costs determine the choice of port. In the recentWestern North Carolina Inland Port Feasibility Study, which involved analysis of containermovements in North Carolina, particularly western North Carolina, the author observed:

For Western North Carolina, the nearest and most utilized sea ports for manufacturers

within the region are the Port of Savannah, Georgia and the Port of Charleston, South

Carolina. Based on feedback from area manufacturers and analysis of freight and travel

time data, the transportation and freight networks connecting Western North Carolina to

these seaports, as well as the ports themselves, are very reliable in terms of their service

and responsiveness and are a vital part of various supply chains in the region.

The study collected data from the Port Import Export Reporting Service (PIERS), aprivate service, and presented this table of the ports of choice for exports for various sections ofthe State:


The table (and the charts which illustrate)present some interesting anomalies. The exportsfrom the Charlotte area favored Savannah andJacksonville, Florida over the closer ports atCharleston. The Port of Wilmington handled only18.5% of State exports and participated not at all inexports from the Raleigh-Durham area, where itwould seem to enjoy a geographical advantage. Most of the Raleigh-Durham area exports movedthrough the ports at Norfolk. A very large portionmoved through Jacksonville. Clearly, factors otherthan distance are very significant in the choice ofport.

The study did not present a similar table for imports, the authors observing that use ofdistribution centers tended to mask the ultimate destinations for imports. The study did presentthe chart of import movements included in the introduction to this document, showing the Portof Wilmington with a 22% share of imports moving into North Carolina.

The Effects of Size

Container terminals with substantial traffic are able to provide frequent service and avariety of origins and destinations. Large terminals have many shipping lines calling and manyinland carriers available, providing a competitive environment. Shipments are more easilyaggregated to obtain favorable rates. Bargain rates may be available for backhauls. Shippersand consignees with just-in-time logistics strategies require the frequent service only a large andbusy port can provide.


There is also a certain minimum traffic necessary to sustain regular intermodal railservice, due to the need of the railroads to consolidate shipments to run longer and moreefficient trains. The Port of Wilmington has been unable to arrange regular intermodal railservice even after State participation in CSXT’s National Gateway project to provide clearancefor double-stack trains between Wilmington and Charlotte. Since the railroad already servesother ports, it does not have any incentive to add service to Wilmington to divert traffic italready carries at those other ports.

These factors favor the competitive position of the established, busier ports. HamptonRoads, Charleston, and Savannah all have container traffic measured in the millions of TEUsannually, while the Port of Wilmington is an order of magnitude less, at 225,000 TEU (2009).

Rates

In its 2008 Pro Forma Business Plan prepared for the North Carolina State PortsAuthority for the proposed North Carolina International Terminal, CH2M Hill, Inc., reportedthese charges for container moves at at East Coast container terminals:

New York and New Jersey $300Hampton Roads 280Charleston 250Savannah 200Wilmington 150

In the Pro Forma Business Plan, CH2M Hill, Inc., advised that adequate return oninvestment would require charges be set at approximately $220 per container move; the firmrecommended setting rates equal to those at other ports.

Since 2008, charges at those ports have been cut due to competition for shrinkingbusiness. These current rates have been reported:

Hampton Roads $170 to $210Savannah $110 to $120.


The Port of Wilmington has reduced its charges to the lowest in the region. These arethe average charges for container movements at the Port of Wilmington in the last three fiscalyears (ending June 30 in the year shown):

Fiscal Year Average Charge

2008 $822009 812010 78

North Carolina tax law offers a tax credit to North Carolina business taxpayers using theState Ports, which can reduce the charge per container substantially.

Thus the Port of Wilmington’s market share of container traffic reflects the lowest ratesavailable to importers and exporters in North Carolina and out.

The Port of Wilmington has been able to show a surplus of revenues over costs forcontainer operations even with these rates. However, taking into account other operations andoverhead and fixed charges, the North Carolina State Ports Authority lost nearly $6 million infiscal 2010 and fiscal 2009. At the same time, ports authorities in Georgia and South Carolinawere able to deliver net profits. The Virginia Port Authority did not, however. Details areshown below.

Financial Results

The following have been reported for fiscal year 2010 by the ports authorities inVirginia, South Carolina, and North Carolina, and for fiscal year 2009 for the Georgia PortAuthority. All figures in thousands.

Virginia South Carolina Georgia North Carolina

Operating Revenues $203,485 $111, 744 $227,796 $33,318Operating Income (47,718) 8,372 59,261 (2,086)Capital Contribution 32,663 (5,323) 8,891 0Change in Net Assets (15,055) 7,760 64,071 (5,730)

Total Assets 952,736 796,965 1,066,004 221,723

Long-term Debt 533,053 95,561 107,003 102,684

Total Liabilities 583,280 136,499 150,391 109,559


The Georgia Port Authority is at the head of the pack, with positive operating resultsand a reasonable relationship of debt to revenues and assets. The South Carolina State PortsAuthority, despite declining revenues, has been able to show an operating surplus and remitfunds to the State and local governments. The Virginia Port Authority, although large in termsof revenues, depends heavily on a subsidy from state fuel and motor vehicle taxes, and carries asubstantial debt burden.

The North Carolina State Ports Authority is clearly the runt of the litter, in terms ofrevenues and assets. The State Ports Authority also has a substantial debt burden relative torevenues, a result of its appetite for a grand project–the North Carolina InternationalTerminal–which accounts for approximately $40 million of its debt. But for that, the financialreport would be more presentable.

The financial reports of the various ports authorities present an incomplete picture of thefinancial burden of these ports on the taxpayers, both state and Federal. All ports authoritiesrely on appropriations from their respective state governments for major infusions of capital. And unlike private enterprise, these capital infusions are reported on the income statements asrevenues, so the bottom line overstates profits and may seem to reflect profits, when it does not.

A major missing element of the cost picture is channel dredging–both maintenance ofchannels and initial construction of new channels and deeper channels. These are the figuresfor maintenance budgeted by the Corps of Engineers for fiscal year 2011:

Virginia South Carolina Georgia North Carolina

$13,946,000 $16,065,000 $18,462,000 $12,247,000

The costs of maintenance dredging and construction of navigation improvements, suchas wider and deeper channels, are shared between Federal and state governments according toformulae based on depth: Federal Share State ShareConstruction

Less than 20 feet deep 80% 20%45 feet deep or less 65% 35%More than 45 feet deep 40% 60%

Maintenance45 feet deep or less 100% 0More than 45 feet deep 50% 50%

Channel dredging is a major expense. The current project to deepen the channel in theCape Fear River from 38 to 42 feet, authorized in 1998 at a cost of $250,000,000, now has an


estimated cost to completion of $533 million. This equates to an annual cost of $33,800,000,amortized over 50 years. Here are some other examples:

! The proposed deepening of the Savannah River to the container terminal at Garden Cityfrom 42 to 48 feet is estimated to cost $552 million.

! The deepening of the Charleston Harbor to 45 feet in 1999-2004 cost $127 million. Maintenance in fiscal year 2011 is estimated to cost $16 million. The State of SouthCarolina is seeking a Federal appropriation of $400,000 to advance a Corps ofEngineers study of further deepening the harbor. A very preliminary estimate for theproject is $300 million.

! The Craney Island eastward expansion project, to create a new area for a containerterminal at Hampton Roads from dredging spoil, is estimated to cost $712 million, to besplit 50/50 between the Commonwealth of Virginia and Federal governments. This doesnot include the cost of the terminal itself. The Norfolk District of the Corps ofEngineers and the Virginia Port Authority have plans to deepen the channel, now 50 feetdeep, to 55 feet.

Such costs overwhelm any surplus of revenues over expenses from port operations,particularly when one takes into account the cost of the capital invested in port facilities.

State ports cannot be said to produce net revenues for a State. State ports represent ataxpayer subsidy for imports and exports. Benefits, if any, must be found from aspects otherthan revenue.

There is also a hidden subsidy by the host communities for the port facilities. The portsauthorities do not pay local taxes, but do require services. The Virginia Port Authority doesmake payments in lieu of taxes to host communities, but the North Carolina State PortsAuthority does not.

A common element of all these facilities is that container operations do generate asurplus of revenues over operating costs. This creates an atmosphere of intense competition asports authorities seek profits by expanding this business to validate the capital investment. Butalthough there may be marginal profits with each additional container handled, on a fully-allocated basis, container port operations are subsidized.

And the taxpayers who provide that subsidy are not always the beneficiaries of theservice. There is a mismatch when the subsidy supports exports from and imports toneighboring states. Thus the taxpayers of the Commonwealth of Virginia contribute, throughfuel and sales taxes, to the cost of moving containers in and out such neighboring states as Ohio and Indiana. And even North Carolina.


North Carolina is unique in that container traffic through the State Port at Wilmingtonoriginates in or is destined only for points within the State. The subsidy, whether appropriationsfor capital projects or reduced tax revenues due to the tax credit for using the ports, is returnedto State shippers and consignees. It also establishes a benchmark rate for services against whichports in other States must compete. Yet about 80% of North Carolina’s container traffic movesthrough ports in other states.

The Demand for Deep Water

The vision of all the state ports authorities, including the North Carolina State PortsAuthority, is focused on the project underway by the Panama Canal Authority to construct athird set of locks at the canal, parallel to the existing locks, to accommodate longer, wider, anddeeper draft vessels than can now pass through the canal. The current limit is about 965 feetlong, 106 feet in beam, with a draft of less than 40 feet–ships at those limits are called“Panamax.” Even those ships have very little clearance; they are designed right to the limit.

The new locks in the Panama Canal are scheduled to open in 2014.

The new size limits will be about 1265 feet in overall length, 160 feet in beam, anddrafts of less than 50 feet. A “new Panamax” vessel would have those dimensions. Some shipsare even larger than new Panamax, and would be used in single-ocean service or through theSuez Canal, which is less restrictive than the Panama Canal.

The traditional service areas of the container terminals on the Atlantic coast have beenthe heavily-populated areas around the ports and about 400 miles inland. Areas farther westtypically are served by a combination of rail and truck movements from West Coast ports. Those ports include ports in Canada (Prince Rupert and Vancouver) with connections by rail tothe American midwest, and ports in Mexico, such as the new port at Lazaro Cardenas that isconnected to the American South by the Kansas City Southern Railroad. The cross-country railconnection is sometimes called the land bridge.

With the coming enlargement of the Panama Canal permitting passage of larger ships, Ports authorities on the Atlantic coast hope to expand their market area by establishing a“reverse land bridge,” whereby containers from Asia are shipped to Atlantic coast ports inlarger and more efficient vessels than are now used, and then moved to Midwest markets byrail. Norfolk Southern’s Heartland Corridor and CSXT’s National Gateway are part of thatplan.

An additional factor is the expansion of industrial capacity in south Asia–India and Indo-china–which would make more attractive the route through the Suez Canal. The Suez Canal issea level, without locks, and is wide and deep.


The economies of scale of using larger vessels for containers are shown on this chart:

The starting point is a modernPanamax vessel, which would have acapacity of 4500 TEU and draw less than40 feet. At the other end are vessels of12,000 TEU, which would be able totransit the Panama Canal after expansion.

There is a slight kink in the curveat 8000 TEU, the point at which theeffect of larger size begins to diminish. Industry sources suggest that 8000 TEUis likely to be the largest size vessel incommon use for service to the USAtlantic coast

An 8000 TEU vessel, dependingon design, may draw 48 feet when fully loaded. However, they rarely carry the design weight,because the consumer goods making up much of the cargo are not dense, and return cargo has alarge proportion of empty containers. Such vessels usually arrive at US ports with fuel bunkerspartly drawn down; this combination of factors yields a draft of much less than the design draftand permits the use of harbors such as Charleston, with its depth of 45 feet, and even Savannah,at 42 feet, under the right conditions. Indeed, 8000 TEU vessels using the Suez Canal havebeen calling at Charleston as well asHampton Roads, and one such vessel hascalled at Savannah.

But these large vessels can only bejustified for routes with high concentrationsof traffic between busy ports. Manycircumstances suggest continued use ofsmaller vessels: frequency of service, serviceto smaller ports and smaller markets,flexibility in origins and destinations, or eventhe fact that the fleet has a substantialnumber of those vessels that have a longservice life. Such vessels, called Handy Sizeor sub-Panamax, are common in servicebetween the US East Coast and LatinAmerica. They would also be useful for


cargoes transhipped at Caribbean terminals from larger ships from Asia.

This chart shows the distributionof vessels drafts in the world fleet in2008.

This chart shows vessel draftdistribution at the Port of Long Beach,California, in 2008. This port has achannel 50 feet deep, and is accessible tothe largest container ships in service andreceives the heaviest traffic in the US. This mix of vessels represents the choiceof the market for vessel size and draft.

It is evident that other factorsdictate choice of ship size of less than thelargest. By far the greatest number ofvessels draw 38 feet or less; those have acapacity of 4500 TEU or less.

As the world becomes more industrialized and nations in Africa and South Americaparticipate more in international trade, we may see a reduction in concentration of traffic, whichnow is heaviest on routes from Asia to Europe and North America. Dispersal of containermovements to a greater variety of origin-destination pairs suggests that smaller vessels wouldcontinue to serve an important function.

The Panama Canal expansion may also induce some changes in vessel design. Panamaxvessels are not the optimal shape–they are limited in beam to 106 feet. The new locks canaccommodate vessels of up to 160 feet in beam. This will permit marine architects to increasecontainer ship load capacity considerably without increasing draft. Thus it may become morepractical to design the ships for the depth of the harbors and not design the harbors for theships.

In any event, the market will decide.


Conclusions

1. All of North Carolina is within economical trucking distance of at least two large containerterminals outside of the State, and almost all of North Carolina is within economical truckingdistance of three such out-of-state terminals. In most parts of the State, such out-of stateterminals are closer than the container terminal at Wilmington.

2. Container terminals within and outside of North Carolina aggressively compete for businessand have sufficient capacity for the foreseeable future.

3. Shippers and importers are indifferent to state borders. Only about 22% of North Carolina’simports arrive through the Port of Wilmington and 18% of exports are shipped through thatport. The bulk of imports and exports move through ports in Virginia, South Carolina, andGeorgia. Service is regarded as quite satisfactory.

4. The container terminal at Wilmington is much smaller than container terminals inneighboring states, and although charges for container moves are lower than those in out-ofstate ports, the frequency of service and range of origins and destinations available are not asbroad as at larger ports.

5. The existing distribution of container movements through ports is determined partly bygeography, but to a substantial extent by the advantages of larger ports with more frequent andcompetitive service to a greater variety of origins and destinations.

6. The expansion of the Panama Canal will permit transit by larger and more efficient containerships, which will tend to favor the ports with deeper harbors. However, much of the containertraffic will continue to move in smaller vessels, and the Port of Wilmington should continue toenjoy a small portion of the market.

7. The revenues received by state ports from container handling charges exceed operatingcosts, but are not adequate to offset capital costs, particularly the cost of channel dredging. Allports serving North Carolina, in-state and out, are heavily subsidized by state and Federalfunding of capital improvements.

8. It is difficult to find any need of North Carolina importers and exporters that would be metby additional investment in port facilities in North Carolina other than incrementalimprovements to increase efficiency.

9. A project for a deepwater port in North Carolina to compete with the ports in neighboringstates would serve only State vanity. Such a port would offer no competitive advantages andwould be unlikely to wrest any business away from existing ports. Even if such a project weresuccessful in creating a State presence in the market, the cost, taking into account the dredgingcost, cannot be recovered from income.


Sources

CH2M Hill, Inc., Conceptual Dredging Study, North Carolina State Ports Authority (2008).

CH2M Hill, Inc., Pro Forma Business Plan, North Carolina State Ports Authority (2008).

Kevin Knight, The Implications of Panama Canal Expansion to U.S. Ports and CoastalNavigation Economic Analysis, Institute for Water Resources ( 2008).

George List, Robert Foyle, Henry Canipe, John Cameron & Erik Stromberg, StatewideLogistics Plan for North Carolina (2008).

Gulf Engineering & Consultants, Inc., Multiport Analysis for the Savannah Harbor ExpansionProject (2006).

Martin Associates, Analysis of Port of Cleveland Container Market, Cleveland-Cuyahoga PortAuthority ( 2008).

Moffatt & Nichol, Ports of Wilmington & Morehead City Feasibility Study, North CarolinaState Ports Authority (2010).

Moffatt & Nichol, The Virginia Port Authority 2040 Master Plan (draft 2008).

Beverly Perdue, Executive Order Number 32, Governor’s Logistics Task Force (2009).

Risingwater Associates, The Proposed North Carolina International Terminal, A Perspective(2010).

Michael E. Smith, Western North Carolina Inland Port Feasibility Study (undated).

The Tioga Group, Inc., Improving Marine Container Terminal Productivity: Development ofProductivity Measures, Proposed Sources of Data, and Initial Collection of Data from ProposedSources (2010).

United States Army Corps of Engineers, Savannah District, Economics Appendix, SavannahHarbor Expansion Project (2010)

United States Army Corps of Engineers, Wilmington District, Record of Decision, CapeFear–Northeast Cape Fear Rivers Comprehensive Study, Appendix D, Engineering and Design(1996)

United States Army Corps of Engineers, Wilmington District, Wilmington Harbor InitialAppraisal (2010).

a look at container ports available to north carolina...

Documents