Monday , December 18, 2017

Charlotte’s Major Selling Point: Access to Baskets

John Galles Featured In Issue:
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Charlotte Douglas International Airport (CLT) is as large as it is primarily because of our partnership with US Airways, now American Airlines, and its need for a hub in the southeast region of the United States. About 44 million people will use our airport this year. Of that number, fewer than 20 percent originate and depart from Charlotte. So, our asset is “at risk” if ever American Airlines determines that using CLT is no longer in their best interest.

Since deregulation of the airline industry in 1978 and the ensuing consolidation of airlines, the top four airlines—American, Delta, United and Southwest—now control more than 80 percent of passenger traffic. They each use “hub and spoke” strategies. Currently, CLT is the second largest hub for American Airlines and is recognized as a “fortress hub.” Together, CLT and American Airlines make CLT the eighth largest airport in the U.S. and 24th in the world.

The disruption of 9/11 caused airlines to rethink their strategies. For US Airways, that meant a restructuring of their routes, effectively dehubbing Pittsburgh. US Airways flights sank from 500+ per day down to an average of about 40 per day. CLT presently operates over 700 flights per day. To lose this hub would be tragic. We need to make sure it is not at-risk.

It turns out that the same industry shifts and consolidation in the shipping industry can have a similar impact on ports. This spring, both Hanjin Shipping Co. and Hapag-Lloyd withdrew service to the Port of Portland, Oregon, because of poor productivity and conflicts with the International Longshore and Warehouse Union (ILWU).

These two lines accounted for 99 percent of Portland’s container volume. The immediate impact was the elimination of 650 trade and transportation jobs, but long term they take with them hundreds of jobs and a loss of stability for other businesses in the region. Additionally, other ports will become more expensive to ship out of, without Portland competing for the same business.

Our container port, the Port of Wilmington (in this issue) , under the very capable leadership of Paul Cozza, has been improving access and service in an attempt to develop a niche market that appreciates a smaller port with a targeted mission that performs well.

It is equally important to acknowledge the significant changes occurring in the shipping industry itself that affect the future of business in the Carolinas. The most dramatic change is the expansion of the Panama Canal scheduled for completion in 2016, increasing shipping traffic using much larger ships. Current ships traversing the Panama Canal carry about 5,000 twenty-foot equivalent units (TEUs); the larger ships carry 10,000 to 12,000 TEUs.

In a recent Seaport Outlook 2015 by JLL (formerly known as Jones, Lang, LaSalle), they show that overall growth in TEU container volume is growing at 3.3 percent higher in 2013 than in 2007. Significantly, the West Coast volume is 6.8 percent below their 2007 peak levels, while East Coast is up by 19.1 percent. The percentage split between West and East Coast volumes has changed from 61-39 percent in 2007 to 55-45 in 2013, with East Coast volume only expected to increase.

JLL also reports that the Southeast has lagged other U.S. regions in its recovery from the recession, but this outlook is changing given the absorption gains in Atlanta which it credits to a specifically targeted strategy by the Georgia Department of Commerce and the GA Ports.

One lesson that is being learned by supply chain executives as trade routes worldwide change, shipping companies consolidate, and labor strikes and other disruptions are a factor, is the value of being able to shift their flow of goods strategies toward multiple ports, putting their “eggs in multiple baskets.”

JLL also notes that, “Charlotte is evolving as a hub market thanks to a new inland port (NS Intermodal)” with connections to Charleston and Savannah. They also point out that CSX has built a new near-dock intermodal in Baltimore as part of its National Gateway double-stack network.

A consequence of this increased traffic was discussed in a The Wall Street Journal piece entitled “Bigger Ships Snarl U.S. Ports,” describing the dilemma of bigger ships and ports that cannot offload and reload ships quickly enough, and truckers delivering loads only able to make one or two runs per day when they need at least three to make a living.

With transportation costs being approximately 50 percent of a distributor’s overhead according to JLL, they are ideally seeking space within a 15-mile radius of the primary ports. JLL indicates that vacancy rates are down and lease rates are up for space near ports.

All of these facts lead to the conclusion that the new NS Intermodal facility at the airport will become increasingly valuable to our economic development opportunities. Since this facility opened over one year ago, little has been done to create a logistics and distribution center plan for the open acreage around the combined facilities. Yet its central location with ready access to not one but two major railroads, and not one but four container ports, virtually screams out for attention.

CLT airport has a detailed plan for further expansion of passenger traffic, but no apparent plan for expansion of air cargo, commercial and freight traffic. CLT is ranked 33rd in the nation for air cargo. It would be prudent to get on that now, given the expanding international trade activity.

By working to expand both CLT and NS Intermodal transportation facilities in a unified and cohesive plan, we will diversify and protect our economic base from disruptions like Portland and  Pittsburgh and occupy an important space for an ever-expanding future. We are the perfect location for access to many baskets!

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Thank you, John Paul Galles