The engineering firm of Moffat & Nichol said it could be 15 years before it made sense to construct the new port in Jasper County, SC.   In their recent report, the company cited slowing demand and increasing capacities at existing facilities as reasons for the delays.  In addition, M&N estimated that the permitting phase could take in excess of 12 years.

The Jasper Port, which would be operated by a joint Georgia and South Carolina port authority is in a unique position.  Lawmakers want the port up and operational as soon as possible.  They believe that it will be a huge economic driver for the region.  With the slowing in consumer spending and the resultant reduction in TEU volume, the individual states are concerned about cannibalizing business from Charleston and Savannah ports (both of which are increasing capacities).  Although, with a 12 year permitting process, demand will have certainly picked up by 2020.

Union Pacific Corp (UPC), the rail line operator, recently announced that they would likely be increasing their rates on intermodal traffic in 2009.  Despite a 19% reduction in shipping volumes, and operating at 75% capacity, the Company is targeting “only” a 5-9% increase in rates.  Rob Knight, CFO at the railroad, said that lower costs for fuel and increasing competition for available freight loads will hold down rate increases in 2009.  He went on to say that trucking companies have stepped up pricing pressure in the intermodal business as companies lower their rates just to keep truck fleets in action during the economic downturn.  However, UP remains committed to maintaining their profit margins and returns on their business.

I may have missed the day they covered this in Econ 101, but this doesn’t sound like a great strategy to me.  Basically, the company has said they would rather lose business to the trucking companies than lower their return targets.  So, a larger % of nothing is better than a smaller % of something?  That just doesn’t add up.  In fact, UP has idled 400 locomotives and furloughed about 3,000 employees already.  If your competition can move product from point A to point B for a lower rate (while still making a profit margin that is acceptable to them) then that’s the route your customers will use.