Virginia’s Next Economic Boom?

Virginia’s economic developers expect a wave of manufacturing and logistical investment when the Panama Canal expansion is complete. Opportunities this big, they say, come along only once in a generation.

by James A. Bacon

From peanut fields....

New mega-industrial parks and a proposed $1.8 billion highway could help create a world-class economic development asset in an unlikely corner of Virginia: the sparsely populated peanut country between Petersburg and Suffolk. Traversing farms, woodlands and hamlets, the 55-mile corridor has the potential to become one of the major sources of economic growth for Virginia in the decade ahead.

That assessment comes from Liz Povar, director-business development for the Virginia Economic Development Partnership. “We see this as the future of Virginia,” she says. “That’s a big statement — and I’m serious about it.”

The completion of the Panama Canal expansion by 2014 or 2015 represents a historic opportunity for Virginia, according to Povar, an economic development professional whose career spans a half-dozen or more Virginia governors. A third, wider lock in the canal will allow massive vessels holding 18,000 TEUs – four times the capacity of existing ships – to traverse Panama, diverting significant traffic from West Coast Ports. At present, Hampton Roads is the only East Coast port with channels deep enough to receive those deep-draft ships, giving Virginia a first-mover advantage in capturing the anticipated surge in traffic before other ports can make needed investments.

…to Rolls Royce-scale OEMs?

The growth in container shipments will be a boon to the Port of Virginia, of course. But the McDonnell administration hopes to leverage the traffic into massive new investment in logistics facilities and advanced-manufacturing complexes whose supply chains run through the ports. Economic developers are gunning for economic game-changers that bring a network of suppliers in their wake — like aerospace giant Rolls Royce, which in 2007 announced investments potentially reaching $500 million in Prince George County.

The VEDP, the port and local industrial development authorities have seen this opportunity coming for some time. But not until the McDonnell administration have all the stakeholders coordinated efforts, plotted a cohesive strategy and backed it up with substantial state funding, says Povar. The state has committed $500 million in public dollars to build the new U.S. 460 connector, created tax incentives to stimulate port activity and, awaiting the governor’s signature, enacted tens of millions in tax credits for companies investing in a new development zone. Meanwhile, state officials across agencies and secretariats are partnering to “reach out to selected companies that can utilize the assets of a strong logistics network,” she says. Sussex, Southampton and Isle of Wight counties are creating giant industrial parks that will provide enough acreage for the biggest facilities.

This emerging vision for the future of downstate economic development has yet to spread beyond the stakeholders involved. The only piece of the plan to occasion much debate is the U.S. 460 connector, which is said to provide a critically needed alternative to the overloaded Interstate 64 out of Hampton Roads. Smart Growth advocates question the economics of a highway project that requires such a massive public investment, while some Hampton Roads officials would prefer to see the $500 million steered to transportation priorities closer to the urban core. But no no one has yet disputed the premise that an economic boom could be in the offing.

If the mega-sites succeed in attracting OEM manufacturers, they potentially could account for $5.26 billion in direct, indirect and inducted economic output accounting for 8,300 jobs, according to a recent report by Chmura Economics & Analytics.

Liz Povar

And that’s just on the manufacturing side. Between Virginia’s ports, double-stacked CSX and Norfolk Southern rail service extending to the Midwest and Southeast, and connections to Interstates 95 and 85, Povar says that southeastern Virginia has what it takes to become a world-class logistical center. She sees the region growing into a warehouse-distribution node comparable to a half dozen clusters around the country like Alliance Park near Fort Worth, Tex., the FedEx complex in Memphis, Tenn., and the port and logistics activities around Long Beach, Calif.

The economic boon will extend beyond the Petersburg-Suffolk corridor. Industrial sites on I-95, I-85 and U.S. 58 could come into play. “We’ve got under public control more than 5,000 acres and 2.5 million square feet of existing buildings that could be used for advanced manufacturing and logistics/distribution,” says Povar. “We have over 22 publicly controlled industrial parks with water, fiber, sewer and zoning. … All of those combined, once they are packaged and marketed in an aggressive and sustained way, can help make Virginia a world-class logistics headquarters.” Read more.

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0 responses to “Virginia’s Next Economic Boom?

  1. Gee,
    Doesn’t this sound so familiar. About a decade ago, Southeastern Virginia was crawling with big warehouses owned by Target and Wal-Mart to handle the explosion of Asian imports. That was in the waning days of the Clinton boom before 9/11.
    What happened? The 2007-08 crash dropped those imports to a trickle. QVC just laid off scores of workers as technology shifts buyers from phones to the Net.
    So, we’re supposed to believe the VEDP and McDonnell in this gushy press release. Just where is the money going to come from to buy for all these cheap goods from China via the Panama Canal? Won’t this lead to “mass over-consumption?” in the words of former blogger here E.M. Risse. Why do we want all this crap?
    “Game changer?” Give me a break.

  2. Peter, in your usual rush to trash the McDonnell administration (and my reporting), you miss the point. You ask, “Just where is the money going to come from to buy all these cheap goods from China via the Panama Canal?”

    Economic developers are not basing their arguments on continued growth in imports — they anticipate a *shift* in imports from the West Coast to the East Coast, thanks to the Panama Canal. There are reasons to think their forecasts might be excessively optimistic, as I have hammered away in previous blog posts, but it would be foolish to ignore the potential impact of the Canal.

    In previous posts, I explored the U.S. 460 Connector story from the perspective of the ports. This time, I explored it from the point of view of economic developers, which, to my knowledge, no one else has done. And it turns out that there are a lot of people in the economic development profession who see a tremendous economic opportunity. That’s a fact. They might be wrong, but they believe it to be so. It’s not just McDonnell saying this, and it’s not just the ports saying this. It’s many in the economic development profession as well. Omitting this perspective from my ongoing coverage of the issue would do a disservice to readers.

    One final point: I’m going to run a follow-up post tomorrow. This post was an article, straight reporting, not injecting my point of view. Tomorrow, I’ll run an analysis/commentary. It will be a very different spin.

  3. there are two parts to Panamax.

    coming
    going

    we know what is coming…. anything/everything from Iphones to hockey gloves.

    what’s going?

    what is it that we do manufacture in the US that we can export and is access to a port with Panamax ships a leg up on the competition?

    I can see a ton of additional big box distribution centers but manufacturing …and enough of it to fill PanaMax ships?

    let’s be convinced.

  4. Not more “imports” but a “shift” in imports? Huh?

    If your logic is clear, what you mean is that imports from China and other Asian spots like South Korea (Hyundais, table clothes, Chinese-assembled IPhones, etc.) will not go through Long Beach but Hampton Roads? Presumably to the U.S. Midwestern market?

    A few other questions for you:

    What “imports” are you talking about? How will they be paid for without screwing out trade deficit?

    As others have asked, what “exports” are we shipping? If you note recent trends, it is more paper goods through Hampton R. Not exactly something to be proud of, since the paper is mashed up recycled stuff.

    Who will pay for this?

    Whatever happened to “mass over consumption?” You used to be a disciple of Risse.You used to cite this all the time.

    Why should we care what economic development officials say? Haven’t see a hell of a track record recently.

    • Peter I’m not staking out a position in this article as to whether this shift in trade is a good thing or a bad thing. I’m simply describing the fact that a lot of Virginia economic developers think this represents a historic opportunity for Virginia. End of story.

      Mass over consumption? Yeah, that’s still a problem. I’m still skeptical that U.S. imports from Asia will continue increasing in a straight line like they have done for the past 20 years. But that doesn’t have anything to do with this story, which simply describes the perceptions of the economic developers.

      Why should we care what economic developers say? Because one of the big justifications the politicians are subsidizing the 460 connector to the tune of $500 million and granting the tax breaks is that there’s going to be a big boom in manufacturing and logistical investment. One way to conduct a reality check is to see if the economic developers agree. In this case, they do. That adds a modicum of credibility to the McDonnell administration strategy. That doesn’t mean we swallow everything they say. But it’s important to document their views as part of the ongoing debate.

      I guess you’d prefer to make the decision about U.S. 460 without referencing the opinions of the economic development community at all.

      Who will pay for this? That’s a very important question. As I shall argue tomorrow, if this economic boom is as big as everybody says it’s going to be, and if the 460 Connector is so integral to that boom, why can’t it be paid for with tolls?

  5. You know, some where way back in the blog archives there are posts I typed concerning the 460 corridor. I explained then that the whole idea of third crossings etc was about the ports, not the congestion. It was why I advocated the state paying for the improvements instead of just this area toting the load. The whole reason for all this was to build the heck out of the 460 corridor. Which includes a new bigger better airport and a coal fired electric plant, and golly gee, passenger capable rail. But everyone seems to think traffic congestion and tolls and all that rot is why the politicians and developers are pushing so hard. Well, at least you all are slowly catching up to the future of Tidewater. You might want to read how LA got to be LA, and then realize Hampton Roads is going to be the East Coast version of Los Angeles.

  6. well how do the trucks get from 460 to the Ports? Is that part already ready?

    serious question.

  7. I certainly hope that all this optimistic thinking turns out to be true. However, I am somewhat dubious.

    Long Beach currently has a 36.5% market share among American ports. The good people of California have been spending like drunken sailors to help keep it that way … http://www.lbpost.com/news/ryan/10507.

    I guess I’d like to know why their plans will fail while Virginia’s plans succeed.

    Ditto for Jacksonville, New Orleans, Baltimore, New York, etc.

    The theory is that we’ll have a “first mover advantage”. Nice corporate babble-speak. Here’s another – fixed costs (by dint of being fixed) are irrelevant. In other words, Long Beach can’t “unspend” what they have already spent on infrastructure. So, after covering variable costs they should be motivated to take contracts that contribute anything to the fixed costs. Ditto for every other East Coast port pouring money into their port system in an effort to take market share away from other ports.

    This is step one in the race to the bottom.

    Step two is that these ships carry four times as much cargo as existing ships. Fewer ships, fewer sailors, fewer meals sold to sailors, more automation for bigger ships, fewer jobs unloading the quadruple sized ships, etc.

    Ports can be bubbles just like dot com companies and low rate mortgages. All it takes is for someone to invest too much and build / sell more than the market demands. Add up ALL the infrastructure being spent across ALL the ports fighting for Panama Canal market share. It seems like someone is going to be left holding a big empty bag. Is it us?

  8. For the record, I share all of these concerns. I have raised most of these issues in previous posts, although I will say that the article in the Long Beach Post adds a fresh perspective. Clearly, the West Coast ports aren’t going to take this lying down.

    The “first mover” advantage gives Norfolk-Portsmouth an edge only over other East Coast ports, not the West Coast ports. I don’t think anyone would assert otherwise.

    • The trouble with a “first mover” advantage is that ships move. If Virginia gets its act together first, that’s great. The ships will come to Norfolk. Then, when Jacksonville gets their act together, the ships will go there instead.

      • Sure, ships move. But supply chains are not infinitely flexible. When Wal-Mart spends $100 million (to pick a number out of the hat) to build a warehouse-distribution center in Virginia, it will continue to serve that center through the ports in Norfolk and Portsmouth. It won’t start bringing in containers from Savannah. That’s why it’s important to strike while the iron is hot and nail down as many big manufacturers and warehouse-distribution operations as possible before Savannah, Charleston, New York, etc. can compete for the giant post-Panamax ships.

        • Maybe. But, as you say, supply chains take time to change. The ships going through the Panama Canal are not post-Panamax today. So, I guess, the shippers have big ships that go to the West Coast and smaller ships that go through the canal. Will they buy post-Panamax ships and keep them in dry-dock until the day the wider canal opens? Or, will they wait and see how the construction project goes then slowly retire the smaller ships in favor of the bigger ships?

          I think it takes three years for the canal to be widened and then another three years (let’s say) for the ship conversion to occur.

          Why do you think the other ports will take so long to deepen their channels? I’ve read a lot of articles from other ports and nobody is talking about channel depth as a problem.

          I am kind of bullish on this project. However, I have yet to see any analysis as to why Virginia will have a sustainable advantage. To hear Virginia tell it, we have a huge head start based on channel depth. Then you don’t see the other ports putting any particular emphasis on channel depth.

          Is it really possible that these other ports have just missed the fact that their channels are too shallow?

          • You sound like you’re disagreeing, but I’m not sure with what. I haven’t talked to anyone who thinks that Virginia will have a sustainable advantage over other East Coast ports. Virginia ports will get a head start thanks to its deep channels, but no more than that. Virginia has to assume that other ports will make the investments needed to eliminate their bottlenecks. Likewise, Virginia has its own bottleneck — highway capacity out of Hampton Roads. If the US 460 connector isn’t built, that bottleneck will put the Virginia ports at a severe disadvantage.

            The question is, how much money is the commonwealth willing to spend, given competing transportation needs around the state and the inherent uncertainties of projecting economic trends into the future, to get US 460 built?

  9. there’s a world of what we don’t know … just one thing… it’s not just how many containers are on a ship – it’s how fast you can unload them.

    If you can’t unload them any faster than containers on a smaller ship, the bigger ship will take longer to unload.

    then you have the issue of what you will do with all those containers until they can be loaded on trucks or rail… again… unless your unloading and reloading are faster – all you have is a bigger ship that takes longer to unload and the only real “savings” is the time it takes to un-dock an emptied ship and move another one into position to unload.

    so visions of a steady stream of trucks and rail leaving the port heading for 460 and points west is not exactly a done deal.

    so the ‘savings’ basically accrues to the folks who own the ship that moves the containers – the port loading and unloading is not necessarily twice as fast if the ship is twice as big and if the port does not unload faster then the result will be panamax ships waiting to unload. That, in turn will encourage them to go to other ports to unload if they can unload faster without waiting.

    By the way, my reading says there are already Panamax ships plying the oceans.

    but let me ask here.. is this the legitimate business of govt and is this sufficient justification to take additional taxes from citizens?

    if there is opportunity here then why is the govt getting in the way of investors and spending tax dollars on things that only professionals in the shipping industry understand are wise investments?

    • LarryG, You make a good point about the need to be able to unload these giant ships faster and to deal with any bottlenecks when loading containers onto trucks and rail cars. My understanding is that the Virginia Port Authority has already made those investments. They have state-of-the-art cranes that were manufactured in China and floated all the way over to the East Coast.

  10. there are lots of pieces and parts to this. What parts belong to investors and what parts should the state taxpayers do?

    Is this something that the Gov and his economic advisers just tell us or is there an actual report that identifies the various pieces and parts and justifies public investment?

    It seems like in many different areas ranging from land development, to attracting jobs and investment – the common thread is the supposed need for the public to pay for the mobility infrastructure without a whole heck of lot of justification other than we are “told”.

    In this case… if the port folks have “already” done the necessary upgrades but we are what..years behind on the 460 project because it’s not likely to get started for a while and probably will take years to do… why so late?

    Oh.. and if this project is so motivated by the Ports…why not give them their own MWAA authority to build and operate a toll US 460 – ala MWAA/DTR?

    :-0

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