Tag Archives: ports

Virginia Ports to Stay Public

New dawn for Virginia ports?

After 18 months of review, the board of commissioners of the Virginia Port Authority has decided to drop all bids for port privatization.

“We are transforming The Port of Virginia to meet a changing and increasingly competitive environment,” said William Fralin, chairman of the VPA board in a prepared statement. “We will move forward as a stronger, leaner organization that is better-positioned to serve the ocean carriers and port customers, attract cargo to Virginia and be more accountable to Virginia taxpayers.

Keeping the ports public will provide better cash flow to the commonwealth than either of the two private sector proposals, the VPA said. Moreover, cargo volumes are picking up after the recession and the port is likely to benefit from changes in shipping patterns resulting from of the Panama Canal expansion.

Instead of privatizing the port, the board decided it was possible to maintain a strong competitive posture under a public ownership structure. The board will convert Virginia International Terminals (VIT) from a non-stock corporation to a single member Virginia limited liability corporation under more direct control by the VPA. “The new structure will eliminate duplications, increase efficiencies and reduce costs,” the VPA states.

Next steps include hiring a permanent executive director and chief commercial officer, and overhauling the strategic plan with an eye to making major capital improvements, reducing debt levels and attracting new distribution centers and manufacturers “to help drive increased cargo and economic development across the Commonwealth of Virginia.”

Bacon’s bottom line: Governor Bob McDonnell initiated the move to explore port privatization and replaced every member of the previous board but one. If a new board consisting of McDonnell’s hand-picked appointees decided that maintaining public ownership represents a better deal for the commonwealth, I am not inclined to disagree.

Update: McDonnell has issued a statement: “In the coming days, the Secretary of Transportation and I intend to review the letter and materials sent to me by VPA Chairman Fralin regarding the board’s action. After that review is completed, I will issue a statement regarding my position on the board’s actions.” Hmmm. This may not be over yet.

– JAB

Why Virginia ♥ Panama

by James A. Bacon

West Coast ports import 70% of the Asian trade, and half of that cargo moves to the Midwest and East Coast by means of trains. In effect, that means 35% of the  Asian trade will be up for grabs by Hampton Roads and competing ports, when the Panama Canal opens up to larger ships and doubles its capacity in 2015.

That’s a lot of business but there will be a lot of competition for it, as Sara E. Russell, a professor of maritime and supply-chain management at Old Dominion University, makes clear in the latest edition of The Virginia News Letter. Not only are ports along the U.S. East Coast and Gulf Coast gearing up to capture a piece of the action so are ports in the Caribbean, which are positioning themselves as logistical load centers where cargo can be redistributed by smaller feeder ships.

Russell is optimistic that Virginia port, which has the advantage of the East Coast’s deepest channels and some of its best rail connections, has a major growth opportunity. But Virginia can’t take anything for granted, as many other states are moving aggressively to capture business, too. “The Virginia Port, in partnership with the state’s economic development groups,” she writes, “must proactively work to attract the shippers.”

The fantasy scenario for Virginia is for Hampton Roads to become a load center, acting as a hub for Asian-bound exports and the redistribution of cargo from the deep-draft ships to shallow-draft ports and inland facilities. Russell says that the “more realistic” scenario is that several key ports with well-developed infrastructure will receive smaller portions of the increased tonnage. To guard against disruptions from everything from labor disputes to hurricanes, it makes sense for shippers to cover their bets by pursuing dual East Coast/West Coast shipping strategies. Even so, she says, the opportunities are large. She concludes:

It is realistic to assume that because the magnificent deep water Port of Virginia can clearly handle significant cargo volume increases, the impact of the Panama Canal expansion on the state could mean considerable economic growth through shipping manufacturing, distribution, and infrastructure development with corollary job creation. As a result of far-sighted infrastructure projects in place and under way both seaside and landside in Virginia, the state is poised and prepared for higher volumes of cargo when the larger vessels begin moving through the Panama Canal in 2015.

Bacon’s bottom line: Russell provides a solid overview of the economic issues surrounding the Panama Canal expansion but she avoids addressing the tough public policy issues. For example, she does not discuss the state’s billion-dollar public investment in U.S. 460, which the McDonnell administration justifies by the expectation of increased volume of cargo from Panama Canal expansion. How much of the cargo will move by truck, as opposed to railroad? Is it realistic to expect a new industrial development corridor to emerge? How dependent will new economic activity be upon a host of special tax breaks enacted in recent years by the General Assembly? She doesn’t answer those questions. She doesn’t have much to say about the pros and cons of port privatization either, nor does she even tell us how economic developers ought to be collaborating with the port.

In sum, Russell makes a strong case that the Panama Canal expansion represents an opportunity worth pursuing but she doesn’t offer much guidance on how.

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.

Virginia Ports “Financially Unsustainable”

If you wonder why the McDonnell administration official are giving serious consideration selling the Virginia Port Authority to private interests, there may be more to their thinking than a fetish for privatization. As Transportation Secretary Sean Connaughton the Virginia House Appropriations Committee yesterday, port operations are “financially unsustainable” under its current setup.

The commonwealth is subsidizing port operations by $60 million to $70 million a year, Connaughton said. Meanwhile, Virginia ports have been losing market share to other East Coast ports since the end of the recession. “If we go the way we are, we will see slow, steady growth” in port traffic, he said, “but we will be eclipsed by the ports to the north and south.”

The administration had been entertaining proposals from four groups to take over operation of the report. However, one of them, the Carlyle Group, has dropped out of the competition. APM Terminals, a global port operator, has proposed a 48-year agreement to operate the state ports in a deal that it says could be worth $3 billion to $4 billion over the life of the agreement. Peter Bacque reports on the committee hearing for the Times-Dispatch here.

Bacon’s bottom line: Many local interests in Hampton Roads oppose port privatization, but here’s how the administration could make the deal palatable. Take that $3 billion to $4 billion and use it to fund the transportation improvements like the U.S. 460 Connector and the Third Crossing, both of which are said to be justified on the basis of projected container traffic from the ports. Committing to the improvements would make the ports more competitive, which, presumably, would help fetch a higher price.

– JAB

Panama Canal a Long-Term, not Short-Term, Game Changer

Virginia ports rock! But let's not get carried away.

by James A. Bacon

The Virginian-Pilot has published a piece on the “cargo bonanza” potentially awaiting the port of Virginia when the Panama Canal opens its bigger locks, enabling monster container ships to cut their travel times between Asia and the East Coast of the United States. Much of the article recounts background information that will be familiar to readers of this blog. But writer Robert McCabe expands the ongoing conversation in one very important way: West Coast ports and railroads, he notes, know they have a lot to lose, and they are fighting back.

While Virginia’s ports have distinct geographical advantages that give them a shot at winning an outsized share of the increased East Coast container cargo — most notably the deepest channels on the Atlantic — the boon to the state’s maritime industry may be less than meets the eye. McCabe provides a number of  reasons to be cautious.

First, Virginia can’t go it alone. Writes McCabe:

Shipping lines generally call on a series of ports, discharging and taking on cargo at one site after another as part of a “rotation.” So being able to handle the biggest ships might not help one East Coast port if the others aren’t ready.

Peter Tirschwell, senior vice president for strategy at UBM Global Trade, wrote in The Journal of Commerce this month that he doesn’t see a way for Hampton Roads to solve this problem by making itself a sole East Coast cargo destination.

“Given a population base dispersed throughout the mid-Atlantic and a modern inland-rail network that’s still chasing customers rather than the other way around, Virginia isn’t there yet,” he wrote. “It essentially has to wait for the other ports to catch up.”

Second, it will take time to alter deep-rooted trade patterns. Not only will West Coast ports maintain a competitive advantage for time-sensitive products — the oceanic transit takes 11 or 12 days to the West Coast compared to 24 to 26 days to the East Coast — ports and railroads can defend their business by cutting rates. McCabe quotes Tom Finkbiner, former chief of Norfolk Southern’s intermodal operations who now chairs the Intermodal Transportation Institute’s board of directors at the University of Denver. The canal, said Finkbiner, “is not going to divert a lot of West Coast traffic to the East Coast because of all the supply chains set up already. It’s not in the cards.”

It’s perfectly understandable for Virginia port officials to salivate over the growth prospects created by the Panama Canal widening. It’s perfectly appropriate for the McDonnell administration to try to leverage the once-in-a-generation economic-development opportunity. But it’s also important for the state not to get swept up in boosterism.

Of greatest concern to me is the $500 million the administration has allocated to a public-private partnership, still under negotiation, for building an upgraded U.S. 460 that will improve Hampton Roads’ access to Interstates 95 and 85. If so much container traffic is destined to materialize, why can’t financing be structured so that shippers pay for the improvement? If the project is not financially viable without a half-billion dollar public contribution, is the project economically justified?

Don’t mistake my questions as hardened opposition to the U.S. 460 project. I would love to see the Tidewater economy blossom from increased trade. Let’s just say, though, that, based on what I know at this point, I remain unconvinced. The McDonnell administration has hinted at economic-development prospects that might change public perceptions when they come to light. I eagerly await the news.