PortsÆ ship comes in
U.S. terminal privatization plans buoyant despite sinking economy. Panama Canal expansion key.
The slump in world trade and shipping has not squelched interest by ports or investors in privatizing port infrastructure. Consider:
‘ In March, Ports America and an affiliate of Mediterranean Shipping Co. were awarded a 50-year concession on berths 20-24 in Oakland. They’ll spend $150 million on improvements in the near term and up to $500 million over the life of the concession upgrading the facility.
‘ A month later Ports America purchased land for a roll-on/roll-off terminal in Bayonne, N.J., after the Port Authority of New York and New Jersey dropped a lawsuit in which it was trying to enforce an earlier promise by Bayonne to sell the same parcel to it. Ports America is already handling used car exports at the facility, and its auto processing arm, Amports, is speaking to car manufacturers about incorporating a processing operation for new automobiles there.
‘ Also in March, CenterPoint Properties, the big Chicago-based warehouse company, made an unsolicited proposal to take over the Virginia Port Authority’s three marine facilities in Hampton Roads for 60 years, with the right to develop a fourth terminal at Craney Island, and operate the inland terminal in Front Royal, to boot.
CenterPoint said its proposal, which was submitted under Virginia’s Public Private Transportation Act, would provide $8.9 billion in total value over its life, or $3.5 billion in today’s dollars. VPA has since thrown open the process to invite competing bids from other companies.
‘ In early April, Maryland was poised to issue a request to companies interested in expanding its Seagirt marine terminal and operate it for at least 30 years. The current operator is Ports America, whose president Stephen Edwards said, ‘We absolutely intend to be a bidder or a qualified party for the Seagirt process.’
Might Ports America have any interest in making a bid in Virginia? ‘The proposal has only just come out,’ Edwards said. ‘We are following it with interest.’
And there’s more. In March, Mobile, Ala., issued a call for expressions of private sector interest in developing an intermodal container transfer facility at Choctaw Point, close to a new container terminal built by Maersk affiliate APM Terminals, and CMA CGM’s Terminal Link division, which opened a facility last year.
Pennsylvania is continuing to evaluate proposals from four different bidders to develop a new container terminal, the so-called Southport project, along the Delaware River.
North Carolina continues to work on plans for a new terminal downriver from its existing docks in Wilmington; and South Carolina and Georgia continue work on a proposed new container terminal in Jasper County, downriver from the Port of Savannah.
All In The Timing? ‘We are hopefully, somewhere near the bottom of the current container shipping cycle,’ said Bill Ralph, a consultant with R.K. Johns & Associates. The continuing work on development of new projects ‘is a good sign that people recognize it is a cycle and not the end of the world. They are looking to the longer term future, and expect business will come back.’
| Ralph |
‘There is a lull right now, and people who have money can make good deals,’ said John C. Martin, president of Lancaster, Pa.-based consulting firm Martin Associates, though he said that does not necessarily mean developers are ‘low balling’ proposals.
Another factor spurring interest in facilities on the East and Gulf coasts is expansion of the Panama Canal, which progresses according to schedule, and could result in ports seeing increasing cargo volumes after 2014, Ralph said.
Hampton Roads and Baltimore, because of their long history in handling cape-size ships for the bulk trades, are both well positioned to handle the bigger ships that will be capable of transiting the Panama Canal. A term sheet prepared by Maryland said one of the objectives is a 50-foot berth that will be able to handle the new Panamax-size ships.
John G. Milliken, chairman of VPA’s board, said the state will give other companies 120 days to make competing proposals for privatization of the Hampton Roads facilities. He said there is ‘a lot of interest and chatter in the industry’ about the CenterPoint deal, but he did not know if there would be other proposals.
He said the proposals do not have to be as all-encompassing as CenterPoint is. For example, a firm may bid to operate just one or two terminals, or propose a different time concession.
The CenterPoint proposal, and any others that would be submitted in the next 120 days, are just in the conceptual stage, and the port would ask for further details later this year if it is interested. And Milliken noted that as an unsolicited proposal, the port is under no obligation to accept any of the bids.
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| The Panama Canal’s expansion will eliminate the bottleneck that kept larger vessels from calling U.S. East Coast ports on transpacific services. |
Even before the CenterPoint offer, Virginia’s legislature had set up a commission to study port privatization. Milliken was unsure if their work will continue, now that CenterPoint has thrown open the port to privatization bids.
Privatization is not being investigated because of any unhappiness with the performance of the current terminal operator, a state-owned company called Virginia International Terminals, Milliken said.
‘Rather than get lease payments, we get whatever profits it generates,’ he said. ‘The people who created it either had a great deal of insight or a lot of luck, because it has worked out very well. It has given us a flexibility in operating that sometimes you don’t have if you are a state agency.’
Instead, what’s driving interest in privatization in Virginia is the need for capital beyond what the state or federal government would provide for future port development, particularly for the Craney Island facility, Milliken said.
As an attorney with Venable LLC, he has worked on other public-private partnership deals, and said he is not surprised by the continuing interest in such projects in the midst of the recession.
Far Horizon. ‘These things take a long time,’ Milliken said. ‘You start a process now and the end of the day when money would be available and the deal could be struck and the project begun, is probably two, three years away, and the expectation is that we will have worked our way through the current economic problems and the international marketplace that has been such a hallmark of the last 20 years and the growth associated with it will resume.’
Martin said one driver of interest in port privatization is the shift in freight from the West Coast to East Coast ports.
Landlord ports are the norm on the West Coast, where many carriers operate their own terminals or work closely with stevedores who are tenants on port properties. As more cargo moves to the East Coast, some carriers would prefer to have more say in how terminals are operated, he said. Despite the fact that some of the best container crane productivity is found at state-operated terminals in the South Atlantic, some carriers may want to have more control over what goes on at terminals and feel that is possible at a landlord port.
Virginia and Baltimore may be particularly attractive to some carriers, he said, because of their 50-foot shipping channel, which will allow carriers to use them as first ports of call when the newly expanded Panama Canal is opened in 2014.
The ports may also seek to exploit a weakness in New York, which dominates shipping on the East Coast. While the Big Apple will remain a key destination because of the region’s huge number of consumers, it may be crimped in its ability to serve the largest ships that will transit the Panama Canal because of air draft restrictions imposed by the Bayonne Bridge over the Kill van Kull, the waterway that leads to all but one of New York’s major container terminals.
The Army Corps of Engineers is studying how the current Bayonne Bridge might be replaced or raised, but it could take years before a new crossing could be constructed ‘ up to a decade according to one consultant.
Virginia and Baltimore would also benefit from rail projects ‘ Norfolk Southern’s Heartland Corridor and CSX’s National Gateway, which are aimed at improving movement of double-stack trains from the ports to inland terminals in the Midwest.
‘You don’t have to stop at another port to lighten your ship, so your transit time into the Midwest is better and that is why Virginia will become very competitive,’ Martin said.
The growth in all-water services to the East Coast has been linked to the growth of distribution centers in the region, notably near ports such as Savannah; Jacksonville, Fla.; and around Front Royal, Virginia’s inland port.
‘All these factors are sort of welding together ocean carrier services and distribution center activity,’ Martin said. ‘You can see the pullback in distribution center activity in the San Pedro area because of the increasing cost of doing business out of the West Coast. The East Coast represents a virgin area as does the Gulf Coast, the Houston-Galveston area, for warehouse development.’
CenterPoint may be particularly attentive to shifts in the logistics business because of its ownership. CenterPoint is 97-percent owned by CalEast Global logistics, a real estate operating subsidiary of the California Public Employees’ Retirement System (CalPERS).
‘Because of their familiarity with the West Coast, I’m sure that they are aware of this growth in all-water services to the East Coast since 2002, because of many factors: the high cost of doing business in the San Pedro area, environmental restrictions, and that they are at the beck and call of the railroads in terms of intermodal pricing for discretionary cargo,’ Martin said.