Savannah and Prince Rupert Improve Their Ports - At the Wrong Time
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It is easy to pick on economic development officers, especially in a down economy.
Savannah built 4 million square feet of storage space to house a projected boom in container freight through its port (Uchitelle); its shipments have "flattened".
The Port of Prince Rupert wanted to deliver 250,000 forty foot containers through the Port in 2008; its at about 50,000 (Penner).
Both these ports invested heavily in capacity hoping the boon in in-bound containers, mainly from Asia, would continue. Things haven't worked out that way.
The evolution of the inter-continental container freight business has caused many ports to invest in facility to handle the freight. Now, freight can be a good business, especially in an up market. This is a down market.
What's the message?
We're talking about capacity utilization in a capital intense, cyclic, businesses. Ports and container ships and all the things that go with them like trains and trucks, cost a lot of money. Business, including import/export business, is cyclical. If you are going to invest in your capital intense business, make sure your projections are accurate. Otherwise, under-utilization will be a big problem.
Prince Rupert seems happy with their volume even though it is not meeting expectations. That works, but only up to a point. Most of their improvements were probably paid for with some sort of bond. The next time they go to market with a new round of bond financing, investors are likely to have a closer look. Maybe they won't be interested. Everyone does a cost/benefit analysis. The trick is to make sure your projections are accurate. How to do that?
CEOs need to push harder. When presented with a projection, drill down to verify that the projections have customers attached to them. "We'll get ten percent growth next year" isn't good enough. Tell which customers are all ready on board and which ones are close before you approve that expansion.
These ports didn't I'll bet, and they are going to pay the price for the omission. If you are going to speculate, make sure you have deep pockets. My bet is, cheery faces aside, both Prince Rupert and Savannah both wish they had examined their investments more closely.
References
Penner, Derrick. Prince Rupert Optimistic. Vancouver Sun. 5 November 2008. http://www.canada.com/vancouversun/news/business/story.html?id=150a085a-3f89-4b57-b0b9-ad2cc30bf75b
Uchitelle, Louis. When the Downturn Sailed Into Savannah.New York Times. 30 November 2008. http://www.nytimes.com/2008/11/30/business/economy/30econ.html?_r=1&hp