Privatize the Ports, Fund the Roads

The General Assembly will form a subcommittee to study the pros and cons of privatizing Virginia’s state-owned ports. As the Virginian-Pilot observes, the private sector has demonstrated its willingness to invest in expanding and upgrading port facilities. There is good reason to believe that Virginia’s superb ports could operate just as efficiently and raise capital just as easily as a private entity.

The subcommittee also will examine whether the state’s road and rail network is adequate to serve the ports’ long-term needs.

The two questions are interrelated. Clearly, the highway network is not adequate to serve the ports’ long-term needs. Regional transportation planners desperately want to to build a Third Crossing across the James River and to upgrade U.S. 460. Trouble is, the ports have demonstrated no interest in paying for the multibillion-dollar upgrades themselves. All proposals on the table would shift most of the burden to motorists.

I have no idea what the ports of Virginia would sell for, but let’s hazard a guess. The ports generate roughly $4.5 billion a year in revenue. Assuming a valuation in the ballpark of $1 of value per $1 in revenue, the ports could sell for as much as $5 billion. How about investing a portion of that sum in upgrading the highways and track needed to keep the ports more competitive? Not only would that solve the political problem of taxing unwilling citizens, a promise to invest the proceeds in transportation infrastructure actually would increase the value of the ports to any bidder.

I don’t know if the authors of the General Assembly study intend to explore that specific idea, but I wouldn’t be surprised if they do. Such elegant solutions to otherwise intractable problems don’t come along very often.

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  1. Anonymous Avatar

    Gee, I’d think for an asset like that it would have to be more like 20 times projected net operating income. At least.


  2. Jim Wamsley Avatar
    Jim Wamsley

    Average P/E for the sector is 13.5.

    What earning is possible for each $1.00 in sales?

    Anything less then $50 billion is a give a way.

  3. Anonymous Avatar

    Sales and revenue aren’t earnings nor operating income. You need to know if that $4.5B in revenue is on $3B or $4.4B in expenses. Makes a big difference.

    The average P/E of 13.5 is for public companies. Private is more like 6-10x EBIT.


  4. Jim Wamsley Avatar
    Jim Wamsley

    Seriously, $4.6 billion in Revenue with an industry average 12% return on sales would be an income of $552 million.

    At a P/E ration of 13.5 equals $7.42 billion.

    That is a 32% discount from industrial averages. The Port is not an average. It should transfer to private ownership by a public corporation at a premium.

    Another alternative is to operate the port as an income generator and reinvest the money to make even more money.

  5. Anonymous Avatar

    Different ways of estmating the same thing. I think we agree that a port like norfolk is a rare commodity and if it is sold, should go with a very high premium.


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