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SC Ports Chief Provides Testimony to Congress on Modernizing Seaports

Supports Sound Investments, Language Proposed by Sen. Graham

Charleston, SC - In testimony submitted to a Congressional committee that oversees both maritime and inland transportation, the head of the South Carolina Ports Authority (SCPA) said the nation must make sound decisions on modernizing the nation’s seaports.

On Wednesday, the U.S. House Transportation and Infrastructure Committee heard from industry professionals regarding the future of the nation’s seaports and their economic benefits for the country.

SCPA President and CEO Jim Newsome outlined the demand for a national port strategy. He encouraged the committee to adopt language proposed by Sen. Lindsey Graham (R-SC) to include additional funding provisions for ongoing port studies and to empower the Corps of Engineers to evaluate port-related infrastructure projects, such as harbor deepening, and make funding priorities.

“Deepening projects should be viewed no differently than investment decisions in the private sector that have limited capital budgets or funds,” Newsome stated in the testimony. “They should be prioritized on rigorous cost/benefit criteria that take into account the most benefit to a region for the least cost, most expedient timeframe, and most environmental compatibility for our nation.”  

He also highlighted the trends and opportunities related to U.S. East Coast ports, including the expansion of the Panama Canal, the deployment of even larger ships to utilize the expanded Canal, and the related national need for a post-Panamax capable port to handle expanding exports from the commodity-rich Southeast region.

Newsome’s testimony is available in its entirety below:

House Transportation and Infrastructure Committee: "The Economic Importance of Seaports: Is the United States Prepared for 21st Century Trade Realities?"

To the esteemed members of the House Transportation and Infrastructure Committee, I thank you for the opportunity to submit written testimony for your consideration. My name is James I. Newsome III, and I am the CEO of the South Carolina Ports Authority in Charleston, South Carolina. Given the nature of my responsibilities, my comments will focus mainly on US East Coast ports and the significant issues they are facing.  My comments are based on my experience in my current role, as well as my previous role as the North American CEO of one of the major global container shipping lines where I accrued over 20 years of experience in the industry.

To appropriately address this subject, I must first identify the major trade realities facing East Coast ports. These are: 

The expansion of the Panama Canal in 2014 will increase the number of large container ships traveling between Asia and the US East Coast. In fact, the Panama Canal Authority is investing $5.25 billion in the belief that the US East Coast route from Asia has further growth potential. Today, only 28 percent of the cargo from Asia travels to the US East Coast via the Panama Canal. Meanwhile, 70 percent of the US population lives east of the Mississippi River. Import cargo from Asia moves to where people live. 

Global logistics is a cost game, and we share the belief that the expansion of the Panama Canal will lead to the further growth of cargo share to the US East Coast, in addition to normal market growth. Ocean carriers are already responding to the expansion and the general fact that costs can be reduced through larger units of production by ordering larger ships. The amount and size of vessels ordered in the last two years have exceeded any expectation held in industry circles. Most notably, Maersk Line, the world’s largest container shipping company, ordered 20 18,000 TEU ships, including an option for 10 more. Competing lines responded by ordering a number of ships over 10,000 TEUs, in many cases replacing previous orders for 8,000 TEU ships to achieve further scale economies. 

In our customer visits, we have learned that lines who have not yet acted are, almost without exception, planning orders for 13,000 to 16,000 TEU ships. While the largest ships may well serve the Asia-Europe trade, such deployment of new, large ships will drive a cascading effect which, in our view, will mean that 8,000 to10,000 TEU ships will become the workhorses of the East Coast within a few years. We already see 8,000 to 9,000 TEU ships today in Charleston. These come and go via the Suez Canal. The ships have a draft (the amount of depth below the water line) of 48 feet when fully loaded with export cargo, which we can only currently accommodate two hours a day. With the requisite under-keel clearance, this translates into a harbor requirement of 50 to 52 feet to handle such ships without restriction. 

The ports of New York, Baltimore, Norfolk and Miami are either at or are authorized to achieve 50-feet harbors today. South Atlantic ports are regional ports and at least one South Atlantic port needs to be authorized to handle 8,000 to 10,000 TEU ships without tidal restriction. This is important as the Panama Canal works on an appointment system and container ships need to leave the last harbor prior to Panama Canal passage (typically a South Atlantic port on the East Coast) without restriction in order to make their appointment.

It is generally accepted that export cargo will be the new growth area for ports. Our national economy is forecasted to experience modest growth in the foreseeable future, while emerging markets, especially China and Vietnam, will see much faster growth through the emergence of a burgeoning middle class with an appetite for “rising standard of living” products, such as US agriculture. The Obama administration has promoted doubling US exports over the next five years as a way to drive our country’s economic growth.  

This is a proper strategy given the relatively small share of GDP (less than 15 percent) exported by the United States. Export cargo is significantly heavier than import cargo, as it is predominantly raw materials and basic finished products. This is particularly the case in the Southeast, which has one of the most robust manufacturing areas in the country and is responsible for a large amount of export cargo to emerging markets. Heavy cargo further exacerbates the deadweight dilemma for shipping lines and the harbor depth dilemma for ports as this heavy cargo requires deeper harbor depth to fill ships. This is not so much of an issue today as the Panama Canal is restricted to 40 feet of draft, which is less than most East Coast ports; however, it will be a huge issue when the Panama Canal achieves 50 feet or more of draft capability in 2014.  

No South Atlantic port will be able to achieve a Post 45-Ft. harbor in time for the Panama Canal expansion and there are seriously different fundamentals in the capability and cost-effectiveness of South Atlantic ports to accomplish this depth. Any ship calling the East Coast in the future must, almost by definition, leave a South Atlantic load port as the last port prior to the Panama Canal passage given the rich export base in the Southeast. This underscores the need for deeper harbors at these ports in order to ensure that ships headed back to the Panama Canal are at full capacity.

Finally, and perhaps most importantly, every port wants a deep water harbor; however, it is not in the national interest to make this a reality due to the scarce resources at hand for the federal government. 

Deepening projects should be viewed no differently than investment decisions in the private sector that have limited capital budgets or funds. They should be prioritized on rigorous cost/benefit criteria that take into account the most benefit to a region for the least cost, most expedient timeframe, and most environmental compatibility for our nation.  

Unlike West Coast ports, where ships may call at maximum one or two ports, ships serving East Coast ports will call a North Atlantic port, as well as a Mid-Atlantic port and a South Atlantic port on an Asia-US East Coast itinerary. Therefore, one South Atlantic port must quickly achieve the same or even slightly greater depth parameters as ports in the North Atlantic and Mid-Atlantic to allow shipping lines and their cargo customers to maximize the economic advantage of full ships. Choices have to be made along with a commitment to a fast track deepening process by the US Army Corps of Engineers, which allows the realization of these capabilities. It should not take longer to deepen a harbor in our country than it does to accomplish a major civil works project like the Panama Canal expansion. The US Army Corps of Engineers is prepared to move faster if empowered and, in fact, directed to develop clear priorities as to regional interests.

I would like to thank the committee for the opportunity to submit our viewpoint and am available to answer any questions.

Additionally, I ask that Committee members carefully consider supporting the following provisions in the Senate Energy & Water appropriations bill described below, as the first step toward addressing the modernization of ports and creating a national port vision:

$10.5 million for Coastal and Deep Draft Navigation (new account) under General Investigations and supporting report language:
Additional Funding for Ongoing Work - The Committee recommendation includes  additional funds above the budget request to continue ongoing studies. The Committee recommends that these funds be used to accelerate high-priority flood control, storm damage reduction, navigation, and environmental restoration studies. The Committee recommends that priority in allocating these funds should be towards completing on-going studies or for accelerating studies which will enhance the Nation's economic development, job growth and international competitiveness or for areas that have suffered recent natural disasters.

$45 million in Operations and Maintenance

And supporting report language:
Additional Funding for Ongoing Work - The Committee recommendation includes additional funds above the budget request to continue ongoing projects and activities. The Committee is concerned that the administration criteria for navigation maintenance, does not allow small, remote, or subsistence harbors to properly compete for scarce navigation maintenance funds. The Committee urges the Corps to revise the criteria used for determining which navigation maintenance projects are funded to account for the economic impact that these projects provide to local and regional economies. The Committee recommends that priority in allocating these funds should be towards completing ongoing work maintaining harbors and shipping channels, particularly where there is a US Coast Guard presence, or that will enhance national, regional, or local economic development, and promote job growth and international competitiveness or for critical backlog maintenance activities.

Report language: National Port Planning
Institute for Water Resources - This institute performs studies and analyses, and develops planning techniques for the management and development of the Nation's water resources. Within the funds provided, the Institute for Water Resources is directed to submit to the Senate Appropriations Committee within 180 days of enactment of this act, a vision on how the Nation should address the critical need for port and inland waterway modernization to accommodate the post-Panamax vessels that currently transit the Suez Canal and will soon take advantage of the Panama Canal Expansion. Factors for consideration within the vision include the costs associated with deepening and widening deep-draft harbors; the ability of the waterways and ports to enhance the Nation's export initiatives benefitting the agricultural and manufacturing sectors; the current and projected population trends that distinguish regional ports and ports which are immediately adjacent to large population centers; and the environmental impacts resulting from the modernization of inland waterways and deep-draft ports.