MOODY'S INVESTORS SERVICE INFRASTRUCTURE AND PROJECT FINANCE We view Charleston as the most viable direct competitor to Savannah in the Southeast, and Charleston’s future 52-foot deep harbor will provide a physical advantage for exports or heavier vessel loadings. While cargo has shifted between the two ports before, Charleston presently does not have the importer presence and cargo demand (Savannah has twice the volume of TEUs), industrial real estate base, interstate connectivity or on-dock rail that Savannah has. We expect these factors, along with comparable terminal costs and practical capacity constraints, will likely temper any meaningful volume shift. Retail users provide consistent import demand Growth has been driven by the adoption of Savannah as a regional hub for distribution and logistics operations by nearly all major retailers and third-party logistics providers. This is the direct result of a strategy by state and local economic development entities to attract import distribution operations in order to develop local import demand that did not otherwise exist due to the modest population base in the port area. This also served to diversify the agricultural/industrial export orientation of the cargo base and provide exposure to the dominant driver of import cargo (i.e., retail) in the broader US port market. The strategy has been highly successful, and Savannah now hosts the largest retail import distribution and logistics cluster in the Southeast, which is a key competitive advantage in attracting and retaining import volume versus regional ports like Charleston. Competitive port charges and productivity As distinct from many US ports, all major equipment is operated by non-union authority employees. Many terminal operators on the East Coast are either integrated with or rely on stevedores that use ILA labor hired on a daily, temporary basis, for the majority of their operations. However, Georgia (and South Carolina), employs non-union state workers on a full-time basis to operate container cranes and yard equipment (primarily rubber tired gantry cranes). While this model increases the ratio of fixed costs relative to terminal operators with more variable labor hiring, the use of non-union employees allows the authority greater staffing flexibility and lower commercial rates for these employees, which it is able to pass through to customers in the form of high productivity and low port charges. Growing regional market will drive long-term cargo demand Savannah has grown roughly twice as fast as the sector for the last decade, and we expect growth will continue above the sector average going forward. This will be driven by 1) favorable demographics in the regional market – population is growing in the Southeast at a rate almost twice the US average – and 2) incremental coastal market share shift and penetration of new inland markets as Savannah brings a series of infrastructure improvements online in the coming years. The ability to competitively serve more inland locations will be facilitated by a deeper harbor and significant new on-dock rail capacity, both of which will come online in the next 12 months. Specific improvements include 1) a 5-foot deeper harbor with a wider tidal window, 2) a doubling of on-terminal rail lift capacity, to 1 million containers, along with the ability to build unit trains at Garden City Terminal, and 3) a near doubling of marine terminal capacity over the next decade. Water depth and bridge height not expected to constrain growth GPA has less water depth than Charleston and Norfolk, which could limit its ability to serve ultra large ships. This is a notable difference in infrastructure, but it is unclear how this will manifest and Savannah has grown substantially despite the same differential existing. Savannah will be able to handle 18,000 TEU ships, which are larger than the vessels capable of transiting the Panama Canal and are unlikely to be deployed on Suez services in the next 10 years. The Savannah River provides 7 feet of tidal lift or 54 feet of depth at high water, which allows the port to handle large ships using tidal windows. Further, 80% of Savannah’s volume is transported to/from the port by truck, which can’t economically be routed through Norfolk and could discourage routing through Charleston. The State of Georgia is evaluating options for increasing the vertical clearance of the Talmadge Bridge, currently 185 feet, and we expect the risk of overhead restriction will be resolved in the next decade. Financial Operations and Position 4 14 October 2021 Georgia Ports Authority: New rating for $420 million of bonds
