APM’s Case for Port Privatization

Photo credit: APM Terminals in Portsmouth

Privately owned APM Terminals provides Virginia’s ports something that the state cannot: super-efficient container yards and the ability to expand capacity without incurring $2 billion in debt.

by James A. Bacon

It’s easy to get crane envy when you’re in the port business. The bigger and more modern the crane, the faster it can unload cargo containers from ships at dock. The hoists are huge, they’re painted bright colors and they are highly visible. But there’s more to creating a quick turn-around time in a port than installing the latest, greatest cranes. It is just as critical to sort the containers inside the terminal in order to load them expeditiously, whether onto trucks, trains or ships.

That’s a task at which APM Terminals excels. The patented processes that make APM’s Portsmouth facility hyper-efficient are invisible to the untrained eye — the container yard, where containers are stacked four and five high, looks much like that of any other port. What sets the yard apart is the way in which the computer-guided gantries re-stack the RFID-tagged containers so that the first to be loaded is the first to be accessed.

The company’s Portsmouth complex is a “one-of-a-kind operation in the Western Hemisphere,” says John Crowley, senior vice president for law and regulatory affairs for APM Terminal’s America Region. “It’s so much more than the cranes. It’s the ability to handle a densified container yard.”

It is difficult to fully understand the controversy swirling around APM Terminals’ proposal to consolidate and lease Virginia’s public and private ports without grasping the key role of that unsung workhorse of modern-day ports, the container yard.

In 2010 APM Terminals entered into a deal to lease its Portsmouth operation, completed three years before at a cost of $540 million, to the state. The VPA had long-term contracts that guaranteed a strong flow of business through its Portsmouth terminal but APM, slammed by the recession, was operating at 40% capacity. By absorbing APM into its system, Crowley explains, the port authority was able to shift much of its container traffic to the more efficient terminal — a win-win arrangement.

That lease lasts until 2030. Now, with the economy recovering and the prospect for a surge in container traffic from a Panama Canal expansion scheduled for 2015, the Netherlands-based APM Terminals proposes a different arrangement: It wants to give its state-of-the-art terminal to the state, and then lease back the whole kit and kaboodle for 48 years.

Under that proposal, APM Terminals would pay fixed concession payments totaling between $1.1 billion and $1.3 billion (adjusted for net present value). The company would pay the state an additional $380-$600 million in revenue sharing contingent upon cargo growth, commit to making $650-$830 million in capital investments, and pay $300-$450 million in state and local taxes. All told, the company contends, the package has a net present value to Virginia and Hampton Roads localities of between $3.1 billion and $3.9 billion.

Upon receiving APM’s unsolicited proposal in April, the McDonnell administration sought alternatives. It received three: from Deutsche Bank/RREEF Intrastructure, Virginia International Terminals (the operating arm of the Virginia Port Authority) and the Carlyle Group, which has since withdrawn its offer. The Office of Public Private Partnerships, under the Secretary of Transportation, will evaluate the three remaining proposals.

Many members of the Hampton Roads maritime community are skeptical of the APM deal. What could a private owner do, they wonder, to stimulate growth and investment in the port that the state-owned Virginia Port Authority couldn’t? What efficiencies could APM Terminals bring to bear that would offset the private-sector need to generate a profit? And what assurances do Virginians have the APM Terminals, an affiliate of the Maersk shipping line and operator of 63 ports around the world, won’t shift cargo to other ports, if it proves advantageous to do so?

In an extended interview with Bacon’s Rebellion, John Crowley and Adam Beauchamp, the executive in charge of strategy and corporate development for APM’s America operations, laid out their vision for the future of Virginia’s maritime ports and why they think their proposal is the best one. Read more.

16 Responses to APM’s Case for Port Privatization

  1. This was the most interesting part of a very good article:

    “Koch did not try to calculate the value of economic development stimulated by the new model, which, in Crowley’s vision, would allow the state to concentrate on “investing outside the gate”: building logistics parks, warehouse distribution centers and other infrastructure to capture corporate logistical and industrial development.”.

    So, The Imperial Clown Show in Richmond has run the port of Virginia into the ground. However, that same crew will be able to effectively build “logistics parks, warehouse distribution centers and other infrastructure”.

    Are the ports in New York, Savannah and Charleston privatized? Is that why they are beating up dear old Virginia?

  2. there was a news story about ships bound for NY diverting to Hampton because NY was still not open.

    at the end of the article it said that the cargo was going to be loaded on trucks and then sent to NY.

    which got me to thinking that it’s not the port – it where the cargo is headed that determines what goes through that port.

    you can have the most advanced port operation in the free world but you gotta have a destination for the cargo (and vice versa).

    Makes me wonder what cargo on I-85 would be going to/coming from Hampton.

    I think this is why you want business making such calculations and not govt.

  3. Seems like a lot of folks are gunning for this Business, if there is any to be had. Wilmington NC, for example.

    Seems like local folks need to have some very distinct, perhaps unique, advantages to win big, rather than lose big. If so, they better not play unless they a big experienced player comes along who is willing to risk a lot of their own cash, rather than play with the money of those who have no idea what they are doing.

  4. re: risking your own money – verses using others money – like govt taxpayers money.

    DJ seems to like this idea, even castigates the Va GA for not doing enough of it!

    :-)

  5. Outside the gate? Building logistics parks? That’s exactly what the VPA HAS done over the years — based on the model at the time — getting ready for a ton of goods from China. This was a decade or more ago.

    So, what, exactly, is APM offering? More gizmos like RFID for better data collection?

    I still fail to see what the great advantage is.

    The article and issue require more study, but I am not sure i understand yet why this privatized approach is so much better.

    As far as the canard about the “Richmond Clown Show,” they really didn’t have much to do with the VPA, which is a quasi-state agency that operated with considerable autonomy.. As Jim Bacon knows well, for years, it was run in a rather imperialistic fashion by “Bobby” Bray in Norfolk. Jim may remember from Virginia Business days how Bray’s marketing henchwoman pulled four expensive pages of color ads from the magazine when she learned we were not putting her lord and master on the cover. The VPA for years defied oversight by declining FOIA requests from the media as well. When convenient, the VPA morphed between being “public” and then “private.”

    It didn’t have much to do with the “Richmond Clown Show.” Richmond-based politicians weren’t all that much involved. McDonnell and Connaughton fired all but one of the previous board while offering very little in explanation. Having said, that, I am not sure how I see a big European private firm doing much better with transparency. As far as the other ports:
    New York is way to big to compare. Wilmington, N.C. can steal business form tiny Richmond but not from Hampton Roads. The real competitors are Savannah and Charleston but they have land and channel depth issues.

    So, let’s ditch the “Clown Show” argument as irrelevant and try to strip away the happy talk about APM that assumes automatically that they are so much better.

    There’s a lot here that doesn’t smell right — especially the details of the proposed deal. Jim’s article is good, but it pretty much gives APM’s side only, is typically overly gushy about “private” enterprise and doesn’t do much comparative shopping. The issues need a lot more digging.

    • I will readily concede that the article tells APM’s side of the story, as is made clear by the headline, “APM’s Case for Port Privatization.” I hope that the article moves the ball down the field, so to speak, by clarifying the key elements of APM’s case. Now, as Peter suggests, good journalists will subject APM’s claims to close scrutiny. I wish I had time to do that kind of digging but I don’t. Hopefully, the Virginian-Pilot and/or Daily Press will follow up on those issues.

    • I will readily concede that the article tells APM’s side of the story, as is made clear by the headline, “APM’s Case for Port Privatization.” I hope that the article moves the ball down the field, so to speak, by clarifying the key elements of APM’s case. Now, as Peter suggests, good journalists will subject APM’s claims to close scrutiny. I wish I had time to do that kind of digging but I don’t. Hopefully, the Virginian-Pilot and/or Daily Press will follow up on those issues.

    • Who decides how the VPA is run? Who decides whether it is a quasi-state agency? Who put Bobby Bray in charge? Who allows the VPA to ignore FOIA requests?

      In Virginia, the Port Authority is considered an autonomous “political subdivision” of the Commonwealth. The Georgia Port Authority is an agency of the Georgia state government. The Maryland Port Authority is a unit of the Maryland Department of Transportation.

      The Virginia Port Authority is a creation of the Virginia General Assembly. The General Assembly passes much enabling legislation to allow the port to do what it wants. Here is one example:

      http://lis.virginia.gov/cgi-bin/legp604.exe?121+sum+SB578

      Meanwhile, Bosun has a good point:

      “Virginia has a great port, but it needed to begin upgrading the supporting highway network a decade ago. Now we are playing catch up by renting assets to the private sector to pay for past neglect. “.

      Now, Peter – who do you suppose should have been upgrading that highway network.

      In Virginia, the General Assembly is essentially omnipotent. They pass legislation regarding the VPA, they decide how to raise taxes for highway improvements, they define the VPA as a “political subdivision” instead of an agency.

  6. re: RFID – it’s a big deal. it’s one of those technologies that is not well understood by the general public but it’s revolutionizing logistics and the further trend of less and less workers and more and more robot-like machines to move cargo/freight.

    Imagine going grocery shopping and not having to “scan” the items because they are automatically scanned as pass a nearby reader.

    but this whole area of shipping is one that is complex and involves decisions like – do you ship from China to New York via LA then on a freight train or do you go through the panama canal and unload in Mobile then on a train to NY or do you go all the way around to NY – the entire trip never on a train?

    It has to do with dozens of details ranging from what the cargo is, how it is packed, how does it get from the ship to it’s final destination, etc, etc.

    Take a home generator made in Japan and bound for a Home Depot in Frankfort, Kentucky. it’s packed with 100 others just like it.

    Now change the item to a Kia bound for Billings, Mont.

    Unless a State has someone on staff who is active in the shipping business itself, trying to decide what the state should do or use tax money for – is folly IMHO.

    I’m quite sure the port interests in Hampton have made their case to the Gov – but the perspective the gov needs is much bigger than any self-serving business might provide.

    I still think the most important thing that any Gov could do for Virginia is to invest in education and I say that with serious reservations because we already spend gobs on money on education but it’s not spent smart. It’s like education is it’s own industry with it’s own self-interests. We spend 10K per kid in K12 and rank no better than 15th in the world and it gets even worse with higher Ed.

  7. Lasrry,
    RFID has been around for a while in logistics. I remember doing a story for a business magazine about how the Army put up special transmitters as they took highways leading to Baghdad. The transmitters kept track using RFID of vital supplies like ammo and water.

  8. Peter – the military often gets and uses top-end technology first… like radar and GPS but then it filters into the private economy with dramatic impacts.

    Think of how we now take GPS for granted… even on our cell phones and just a few years ago, we had no clue about how a “military” tool could be useful to civilians.

    I predict that RFID will have an equivalent impact – as it plays out.

    I predict that RFID may well play a role in mileage-based taxing, albeit a back-door way of tracking a vehicle but one simple change to autos – to have a self-broadcasting VIN to complement the physical one already embedded in cars).. that VIN could be read everytime a car goes to a gas station.

    RFID is used to keep track of cattle herds… elderly folks, airport luggage, etc, etc.

    and will also revolutionize ports and any/all cargo, pallets, containers, trucks, etc).

    but I don’t think RFID is what makes Hampton a competitive port or not – a lot of other things do – and the people who know it best are
    the people who are actually in the shipping industry – not govt.

    I’m not at all convinced that Bob McDonnell and company really know the answers and may well be gullible when talking to business interests that are advocating for their own benefit – not the state.

    but GOP-types are suckers for this kind of thing…. they think if they talk to a real businessman that that guy knows what is best for the state … and we know how that often works out.

  9. In this instance, I agree with one of larryg’s point that has been echoed by Jim. We can have the best port in the world, but if you cannot move the cargo to where it needs to go once it lands, then it really does not matter who runs it.

    The main highways into, out of and within Hampton Roads are clogged and I am not sure how much the third crossing and new tubes will help. Pity the poor truck driver who tries to get from the port on the Norfolk side to I-64 [or even to US 460] any time during evening rush hour, which because of flex schedules at the military bases begins around 3 p.m. Heck, it isn’t even an easy trip from the Newport News port to I-64 at the same time.

    If and when the new toll 460 is built, things may improve, but if the cargo is headed to the northeast from Hampton Roads, has anyone done a cost/benefit/time saved analysis to truckers of taking toll 460 to I-95 vs. enduring I-64?

    Virginia has a great port, but it needed to begin upgrading the supporting highway network a decade ago. Now we are playing catch up by renting assets to the private sector to pay for past neglect. Bosun

  10. well I agree with Bosun save for one detail. I do not trust the state to determine what the port needs.

    I’d be more supportive if the private company doing 460 – also owned the port.

    that way we’d know what the port really needed.

    I still think this is not a job for government types.

    US 460 is no different than any other “developer” highway until I see a lot more from the private sector.

    everyone always has wonderful ideas for taxpayer money and we’ve seen too many boondoggles.

    convince me that 460 is not a port version of the Pocahontas Parkway.

  11. Your EZ Pass device is a battery operated RFID transponder.

    The question isn’t about RFID, it’s about the systems, databases, controllers and other kit that is required to do something useful with RFID.

  12. RFID is a core technology though and all the rest is related infrastructure.

    what I am saying is that RFID is ultimately going to be as pervasive and important as the internet, grocery scanning, GPS, cell phones, etc.

    It’s precisely these other parts that are in play in multi-disciplinary ways that is moving ahead even as the rest of us are largely oblivious.

    smartphones – are phones that integrate with the internet and GPS in powerful ways – in ways that gives the US job advantages if we had enough educated workers instead of too many getting high school diplomas or generic college degrees and finding they are woefully
    out classed on 21st century jobs requirements.

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