Va. port to lease APM terminal for $800 million
The Virginia Port Authority has reached an agreement in principle to lease the privately held APM Terminal in Portsmouth after more than a year of talks, Virginia Gov. Bob McDonnell announced Thursday on his Web site.
Later that evening, in an address to the Virginia Maritime Association's annual banquet in Norfolk, McDonnell said the state would receive $40 million in annual payments over 20 years.
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| McDonnell |
The deal effectively doubles the ports container capacity and unifies the ultra-modern APMT facility and three other terminals under a common operator able to optimize ship handling and landside connections. The port authority expects better coordination and customer service by controlling all four terminals in the Hampton Roads area.
The move is a coup for the port because it provides additional capacity ahead of an anticipated rebound in import-export traffic, access to a highly automated and efficient terminal, connections to the CSX rail network from an on-dock rail yard, and a test bed for any future automated terminals as it competes with other ports for more ship calls ahead of the Panama Canal expansion in 2014.
It also adds to the port's value as the state considers bids from three private investment groups for the right to operate the entire port through a combination of upfront payments, infrastructure investments and annual payments.
The Port of Virginia, the third-largest on the East Coast, is one of a handful of U.S. ports in which the state operates marine terminals instead of leasing them for annual rent payments to private companies.
'Combining this technologically advanced facility with our existing port assets will substantially increase the marketability of this port and position Virginia to become the leading port on the U.S. East Coast faster than we anticipated,' McDonnell said in a written statement.
The governor squarely set his sights on knocking the Port of New York-New Jersey off its perch as the largest eastern port, with the combination of an integrated terminal structure and new double-stack rail corridors soon to be completed by CSX and Norfolk Southern between the port and the Midwest via new intermodal terminals in Ohio.
The lease 'restores Virginia to an offensive strategy ' to capture cargo that is currently moving through some other East Coast ports,' he said in his speech, citing air draft restrictions for the Bayonne Bridge in New Jersey and shallow shipping channels in most other ports as factors limiting their ability to handle the next generation of mega-ships that ocean carriers are beginning to deploy.
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The port authority essentially outflanked APM Terminal by locking up long-term contracts with all but one major ocean carrier serving the port after the Danish shipping conglomerate invested more than $450 million to develop the most modern terminal in the United States.
APMT opened the Portsmouth terminal in 2007 near the state-owned facilities, but never realized anticipated volumes due to VPA's stranglehold on customers and the onset of the global recession that severely depressed trade. The terminal handled 427,000 TEUs in 2009, which was flat compared to 2008, even though the terminal added an Evergreen service in mid-2008. The APM terminal has annual capacity of 1 million TEUs and can be expanded to handle more than 2 million TEUs per year.
Container traffic at the Port of Virginia in Hampton Roads fell to 1.75 million TEUs last year, down from the 2007 high of 2.1 million TEU and less than half the port's capacity of about 2.5 million TEUs.
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VPA's philosophy the past three decades has been to control all the terminals in the area so it can rationalize ocean services and put the ship lines where they can best be served. That approach allows VPA's non-profit operating arm, Virginia International Terminals, to move ships to terminals that are not busy, have newer equipment or better road and rail connections, depending on the circumstances. Big ships can be dispatched to more modern wharves where they can be worked faster, and smaller ships can be loaded and unloaded at other port facilities.
'We now have the right mix of access, and deepwater and technology that makes our port second to none,' McDonnell said to rousing applause from hundreds of maritime industry representatives and supporters.
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| Bridges |
'It allows us to really market the port on a unified basis and we don't have to put ourselves at risk in terms of cross promotion' against APMT, said Jerry Bridges, VPA's executive director, during a briefing with reporters in his office.
In addition to giving the port a sales advantage, the deal also provides the opportunity for significant cost saving, officials said.
'APM is the most technologically advanced terminal in the world right now and we think that as far as efficiency it sets us up for years of productive work,' Bridges said.
Another advantage, according to officials, is that the extra capacity gives the state time and flexibility to create the best development and financing plan for its proposed eastward expansion to Craney Island, a $2.2 billion project to reclaim land that is now expected to be pushed back to sometime next decade.
'With this transaction we can prolong or delay the need for additional capacity development at our Craney Island facility. That is real money that we don't need to spend in the immediate future,' Bridges said.
McDonnell added the state wants to keep the project on track, but won't be forced to make major near-term investments because of the available capacity at the APM facility.
The preliminary deal must still be approved by the Virginia Port Authority Board of Commissioners and APM headquarters in The Netherlands. The agreement will be presented for the board's review at its May 25 meeting with the intent of finalizing the deal by the end of the month, Bridges said.
Port and APMT officials said they expect Virginia International Terminals, the port's operating arm, to take over by June or July and begin shifting container lines that call at VPA's Portsmouth International Terminal to the new facility. The timing of each carrier's transition to the new location will be dictated by operational issues.
Carriers that utilize Portsmouth International Terminal include Mediterranean Shipping Co., CMA CGM, China Shipping and Evergreen in a slot charter arrangement, and Atlantic Container Line.
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| Sisco |
Many of the carriers already berth at the APM terminal under various vessel sharing arrangements, 'so operationally this will be a very positive development for those stakeholders,' said Eric Sisco, president of APM Terminals (Americas).
The APM workforce at the marine cargo facility will become employees of Virginia International Terminals under the agreement, Bridges said.
The VPA will begin to explore options for converting Portsmouth International Terminal into a breakbulk, bulk or roll-on/roll-off terminal, Bridges said. Newport News Marine Terminal is the port's main breakbulk terminal.
The port director expressed confidence that container volumes will rebound from the recession and continue to grow, but insisted the port didn't require growth to make the rent payments because 'the book of business that would transfer from Portsmouth International Terminal will more than earn enough revenue to pay the note.'
Norfolk Southern currently provides on-dock rail service to Norfolk International Terminal, the port's primary container terminal. CSX does not directly serve NIT. Containers destined for the CSX network are trucked from each of the three terminals to the CSX facility outside the Portsmouth terminal. The agreement now gives the port on-dock rail access to both railroads. Port officials covet the ability to provide on-dock rail access to both Class I railroads to eliminate truck trips around the city and attract shippers.
The McDonnell administration is still reviewing the port privatization bids from CenterPoint Properties, a real estate industrial trust; the Carlyle Group; and a partnership between the parent company of SSA Marine and Goldman Sachs. State officials have left the impression that the bids may be low because they were presented during last year's depressed market.
Officials demurred when pressed about whether the APM lease makes the port a more attractive investment that should be reflected in higher offers, but asserted that the port's value had markedly increased.
'A transaction of this magnitude would clearly improve the value of the asset,' Bridges said.
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| Connaughton |
'Obviously, this is a fairly large and dramatic change to the portfolio of the port,' and a very positive increase to the port's value, Virginia Secretary of Transportation Sean Connaughton, the former head of the U.S. Maritime Administration, told AmericanShipper.com.
Sisco dismissed characterizations that APMT is abandoning its flagship terminal in the Americas less than three years after its much-ballyhooed opening, saying the company will be an active owner.
'We still have the excitement and enthusiasm for the asset. We continue to own it. We plan to be involved in the development of the Port of Hampton Roads for many, many years,' he said.
'The U.S. economy and container market didn't unfold post-2007 as anticipated. So we look at it as one of the finest assets in the world, but underutilized. And as an operator and developer of terminals, we see a ready solution that provides value to all stakeholders — our shareholders, the commonwealth and our customers. So to us it's a natural way to manage our portfolio,' he said.
APMT, a part of the A.P. Moller – Maersk shipping group, operates 50 terminals around the world.
(To read more about how the Port of Virginia stacks up with other East Coast ports in the competition for future all-water traffic, see 'Contender or Pretender?' May American Shipper, pages 70-75). ' Eric Kulisch