ATLANTA–There’s a lot at play on the regulatory front that’s sure to impact the US shipping business, some good, some not so much. But, according to Craig Viergever, EVP and principal of Lee & Associates’ Atlanta office, that mixed bag of regulation is set against a promising outlook for the Southeastern industrial market.
In fact, he reports, the Port of Savannah—the largest single container terminal in the US—has been on a growth streak. “Savannah is one of the fastest growing ports in the US, measured by TEU volume,” he explains, noting that 2017 TEU volume topped the prior year by 11 percent. Year-over-year increases in excess of 10 percent were also recorded in 2015 and 2014. The only anomaly was 2016, which delivered a meager two-percent uptick. Small, but still in the right direction.
“Atlanta’s continued population growth, coupled with its proximity to the Port of Savannah, makes Metro Atlanta an ideal location for distribution centers for imported goods,” Viergever states. “The abundance of rural land in outlying areas and a very competitive construction market facilitates continued growth at lower occupancy rates than other major markets in the United States.”
The Atlanta suburb of McDonough is one of the prime example of that dynamic. There’s 27 million square feet of product in the McDonough area, he reports, “with a 12 percent vacancy due to some new construction.” Average net rental rates run about a $3.28 a foot, “which is lower than the rest of the city.”
Investment in industrial in the Southeast doesn’t stop at new distribution assets. “The projections for future growth in Savannah are significant, given the infrastructure investments the Port is making,” says Viergever. That includes new cranes and an expanded onsite rail yard. In addition, plans are currently being shaped for an additional Georgia intermodal facility.
While growth is the land-based watchword, new governmental regulations aimed at seafaring shipping carriers are sure to impact growth, some for the good, some presenting serious challenges.
Prime among these, says Viergever, are recently passed standards for sulfur emissions. According to Reuters, the United Nations in 2016 set limits on emissions that are due to kick in by 2020. “Currently,” says Viergever, “ocean-going ships are allowed to burn up to 3.5 percent sulfur content in their fuel. The new cap will be at half a percent of sulfur.”
The choices are clear: “Either purchase cleaner fuel or install scrubbers onboard to clean the emissions before they’re released into the atmosphere. And both of those represent significant cost increases to the shipping industry, which as we all know has been less profitable over the past five years.”
As just an example of what shipping firms are up against, one passenger-ship company has opted for the scrubbers. “They invested $400 million for 102 ships,” says Viergever, “which breaks down to just under $4 million per ship.”
The Lee executive calls such charges the “icing on the cake” for the struggling industry, topping such other issues as “potential restrictions on trade, higher interest rates and inflation. Overseas shipping costs have to increase to absorb these additional expenses over the next couple of years.”
Not all the regulatory news is as dire. And in fact, the above-mentioned threats to the market might “be the straw that breaks the camel’s back and drives manufacturing back to the US,” says Viergever. “Having those manufacturing jobs re-patronized to the US, and in particular in rural areas of the US, would be a huge plus for us.” Another driver is recent changes to the tax code allowing corporations the opportunity to “depreciate your equipment 100 percent over a two-year period.”
But then, what of the Port of Savannah and its growth trajectory? “We’re never going to stop importing goods from China,” the EVP says. “Savannah is already the number 2 export port in the US. If manufacturing grows in the US, exports could tick up. Savannah’s position as the westernmost port on the Atlantic Coast provides shorter transit times and greater efficiency for American exports destined for markets overseas.”
And no amount of regulation can change that.