Port of Virginia has new leadership focused on correcting service problems that plague importers and exporters.
The Port of Virginia has not received as much attention over congestion problems as larger maritime hubs in the Los Angeles basin and New York-New Jersey, but poor terminal productivity that has caused financial harm to motor carriers and cargo delays for shippers during the past 18 months is just as real.
The Virginia Port Authority and its operating arm, Virginia International Terminals, were ill-prepared for container lines’ transition to much larger vessels and industry consolidation through alliances that have changed cargo patterns. Instead of relatively even spacing of vessel calls and container volumes each week, ships arrive less frequently and potentially load and unload hundreds, if not thousands, more containers at one time, straining ports’ ability to process the volume in a timely manner. Bad weather last winter also wreaked havoc with the operational tempo.
At the same time, the Hampton Roads port complex has enjoyed a growth spurt in container volumes without any land or infrastructure expansion to maintain the flow of cargo. Virginia was slower than other ports recovering volumes after the recession, but has bounced back to become one of the fastest growing on the East Coast. The port has averaged 6.5 percent volume growth since 2010. Put another way, container throughput has grown 25 percent to 30 percent in a short period. The port’s two primary container terminals have gone from 70 percent utilization to more than 90 percent during that time.
The Port of Virginia moved 221,105 TEUs during October, setting an all-time record for container volume in a month. Box throughput grew 7 percent, or 14,508 TEUs, compared to the same month the prior year.
The port has exceeded 200,000 standard shipping units in six of the last seven months.
And year-to-date container growth is 7.1 percent ahead of 2013, which was a record year with 2.2 million TEUs handled. The Port of Virginia has already handled 1.98 million TEUs this year. Some of the recent growth is due to shippers diverting cargo from West Coast gateways out of concern that the unresolved collective bargaining between the longshoremen’s union and maritime employers could lead to port disruptions.
All the new business has come with a downside: poor service for truck drivers and railroads due to inadequate equipment, technology, staffing levels and processes. Shippers say their warehousing and drayage costs have gone up as result and that they are losing sales opportunities because of shipping and receiving difficulties.
Weak finances and inattention were factors in the VPA’s inability to deploy more resources at truck gates, rail ramps and container yards, to process cargo faster.
But a new leader, acting much like corporate turnaround specialists hired to rescue distressed companies, has taken aim at old ways of doing business and instituted a restructuring plan that appears to be paying dividends for the port’s bottom line and its stakeholders.
John Reinhart took the helm of the state port agency last February after heading Maersk Line Ltd., the U.S.-flag transportation and maritime services subsidiary of Danish shipping conglomerate A.P. Moller-Maersk, for 13 years. Maersk Line Ltd. is also headquartered in Norfolk, so Reinhart had an upfront view of the port’s activities.
In 10 months, he has turned the VPA’s red ink to black and taken a series of steps to improve port productivity while his staff aggressively works to identify and implement further solutions over the short, medium and long term.
Members of the port community have split opinions on the progress so far, with some satisfied that things are headed in the right direction and others saying there should be more tangible results in terms of better service.
Better Financial Footing. The port authority’s operating profit in the four months since the start of fiscal year 2015 is $4.6 million, compared with an operating loss of $4.8 million in the same period the prior year—more than a $9 million swing. The $314,000 operating income in October was $1.8 million better than in October 2013 and the port has generated an operating profit in seven of the last eight months.
Operating profits for a port the size of Virginia—it’s the nation’s sixth largest container port—are still small, but consider the agency’s financial situation a short time ago: Between 2011 and 2013, the VPA had operating losses of $63.7 million. If not for annual contributions of about $35 million from the state transportation trust fund, the port authority’s net income would have been in the red during that period.
Operating profits have been dampened by expensive emergency measures to relieve congestion as well as lower per-box revenue as annual volume incentives for ocean carriers kicked in.
Generating profits is critical to supporting capital projects because investors are not likely to buy revenue bonds without signs of a strong revenue stream that will allow them to be paid back with interest.
Despite the improvement in profitability, Reinhart is the first to admit that there is a long way to go before the Port of Virginia is operating like a well-oiled assembly line.
“We are still not where we want to be in terms of delivery of service,” especially to motor carriers, the chief executive officer said in a recent statement. “We are stabilizing the port and have a long, hard road ahead of us to revitalize the port and invest in critical infrastructure to deliver superior service and sustainability.”
As cargo volumes surged, inefficient cargo handling forced truckers to wait as much as two to five hours to pick up a load during peak periods.
“We did not invest heavily enough, soon enough to keep pace. It was a failure of our vision to invest in the port infrastructure,” Reinhart said Oct. 1 in Baltimore at a Federal Maritime Commission hearing on port congestion. The Port of Virginia is now playing catchup with process and infrastructure improvements aimed at truck turn-times and rail velocity.
Although questionable management by previous administrations likely contributed to the situation, the port authority could also be excused for being distracted by nearly four years of intense political debate over its future. In 2010, state officials ended a year-long consideration of three unsolicited private-sector bids to take control of the port. Then-Gov. Bob McDonnell, in an unprecedented move, replaced the entire Board of Commissioners in July 2011, on the grounds that members lacked sufficient business experience at a time when the port was having more trouble than others recapturing business. McDonnell administration officials complained the port authority was focused on capital expansion projects, such as development of a new terminal, rather than focusing on basic blocking and tackling to make existing terminals efficient and profitable.
The new board launched a top-to-bottom review of port operations and in 2012 the state received another round of privatization offers that set off more introspection and legislative action. Ultimately, port and state officials rejected the offers in March 2013, instead opting for an ambitious restructuring of the VPA and Virginia International Terminals (VIT). The interim port director and his staff were preoccupied with helping manage the review process, providing documentation to decision-makers and trying to fix organizational problems that were identified.
After taking office in early 2014, new Gov. Terry McAuliffe expressed anger that the port’s losses were actually greater than previously reported. A state audit found that cash deficits were actually $120 million over the past five years, $34 million than the port authority had previously reported. The governor blamed part of the financial problem on the VPA’s 2010 lease of APM Terminals’ private terminal in the port district, saying the $40 million in annual payments over 20 years was an expensive mistake. The intent was to consolidate Norfolk International Terminal and APMT (since sold to an investor group and now called Virginia International Gateway) under one roof to give the port operational flexibility and power to market services to liner carriers and shippers.
“How can you make an investment to improve your capital infrastructure when you’re losing money?” the port director told the FMC.
Low-Hanging Fruit. Reinhart started out by gathering a baseline reading of the port’s capability to handle increased volumes.
“One of the first steps we put in place when I arrived was a facility optimization review to look at the hard assets that are at our disposal [and how they can be put to their best and highest use] so we could sequence prudent investments and keep gaining some efficiency across the current facilities while we prepare and plan for long-term infrastructure investments in the Port of Virginia,” he told American Shipper in a telephone interview.
The port authority has spent $7.5 million in a series of steps to gain more operational flexibility, including the purchase or lease of 54 shuttle rigs for the rail yards; repaving sections of wharf; installing more lighting; extending weekend gate hours; and reopening the idle Portsmouth Marine Terminal.
Rebuilding mothballed straddle carriers, increasing maintenance frequency, adding more labor and pulling equipment from other terminal activities enabled VIT to knock 3.5 days off of rail-yard dwell-times. The extra rail velocity has increased capacity and allowed more boxes to be diverted to intermodal, thereby reducing some of the traffic at truck gates.
A previously planned replacement of the legacy terminal operating system at Norfolk International Terminal with the latest system from Navis began last summer and is already improving equipment and labor utilization, gate efficiency and activity monitoring, according to port officials. A differential GPS system will soon be integrated with the N4 system to better locate and track containers, which should enable better dispatching and eliminate wasted motion. N4 also will serve as the platform for a port-wide truck appointment system that is scheduled to be phased in soon.
In September, Reinhart appointed Joe Ruddy chief innovation officer and replaced him as chief operating officer with Shawn Tibbets, vice president of operations for VIT.
It’s noteworthy that the port has become profitable at the same time it is facing extra overhead for expanded operating hours, overtime for longshoremen, and fueling and repairing more cargo-handling equipment to relieve cargo backlogs. In fact, labor costs are up 17.9 percent on a compound annual growth of 11 percent in hours worked, while volume is only up 6.5 percent, according to Reinhart.
Port trucking companies and drivers still complain they can spend several hours waiting to make a double move because of inadequate labor, equipment and capacity to unload and load trailer frames, although fluidity and delays vary by day and time. Some outspoken ones say a Motor Carrier Task Force set up in April has yet to produce any viable solutions to improve turn-times for truck drivers. A common gripe is that cargo-handling equipment breaks down too frequently or that there is not enough skilled labor.
“We need enough straddle carriers to work the ships, rail and trucks at the same time,” Shirley Roebuck, president of Gilco Trucking, testified before the FMC. “Many are not operational and need maintenance. They are old and the tires are bald and have cords showing. . . . We will continue to see this congestion until we purchase and receive the equipment and labor required to operate them.”
She said there are more than 200 trucks in line at the gate by 6 a.m. and that turn-times are more than two or three hours, which only allows truckers to make one or 1.5 shuttle trips per day.
Some drivers and shippers complain the decision to move the transfer zone for empty returns away from the loading zones adds delay by requiring stops at two locations, but officials insist the move was necessary to free up capacity for loaded boxes.
Port officials said they also plan to add 300 chassis to the port’s pool to address widespread concerns that drayage drivers have difficulty finding a roadworthy trailer frame.
Year-to-date, containers moved by truck have increased 8.6 percent. September’s truck volume, for example, increased 21.9 percent to 76,782 moves, up 13,359 from last September.
Turn-times, as measured in-gate-to-out-gate, at the Virginia International Gateway averaged about 78 to 80 minutes during a three-week period in late October and November, Reinhart said. At Norfolk International Terminal, truckers averaged 75 minutes to conduct their transactions.
Last year, by comparison, drayage drivers averaged at least 85 to 90 minutes to cycle through a terminal.
“I’m not proud of that yet, but I can tell you if we hadn’t done all those things we had done this year with the record volumes we’re handling, we would be having a real meltdown,” he said. “Just in October, without any new gates, with just some of the process changes we’ve done, our truck moves were up by 6,500, or 8.7 percent, year-on-year.”
The port moved 81,375 containers by truck in October.
Reinhart said the VPA’s target is to get truckers through the terminals within 60 minutes.
At the FMC meeting, he apologized for the seven-minute delay it took for a straddle carrier to arrive at a Norfolk International Terminal transfer zone to service drayage driver George Berry, who documented the event in a widely viewed YouTube posting.
Web cams often show light traffic at terminal gates, but “an empty gate doesn’t mean all your problems are solved,” Arthur Moye Jr., executive vice president of the Virginia Maritime Association, said. The industry group is striving to foster collaboration between the port community and VPA to address the ongoing challenges. In October, VPA officials held a summit with area stakeholders to solicit ideas on quick-action items that can incrementally improve service for motor carriers and overall efficiency.
Truckers noted the averages don’t reflect the length of wait-times when traffic is heavy, which is why port and industry officials encourage shippers and their drayage providers to spread out deliveries to less busy periods at the port.
New radio-frequency identification technology to identify trucks by onboard transponders and magnetic stripe card readers for drivers’ Transportation Worker Identification Cards are being phased in to automate some of the gate transaction process for motor carriers at NIT.
The port authority also plans to break ground on a new 22-lane gate complex on the north end of NIT in late spring or early summer. Construction is expected to take 12 to 14 months and will more than double the existing gate capacity, according to port officials.
The $29 million intermodal gate complex is supported by a $15 million TIGER grant awarded last fall by the U.S. Department of Transportation. The gates will link to the planned Interstate-564 Intermodal Connector, which is designed to reduce truck traffic on local roads and increase the terminal’s efficiency.
The Port of Virginia has one of the highest rail-to-truck ratios of any port in the country. Thirty-four percent of cargo is transported to and from the docks by rail, 62 percent by truck and 4 percent by barge.
Rail import dwell-times are now consistently below 40 hours, down from five days waiting to be loaded on a train several months ago. NIT is averaging 5,500 rail moves per week now with less than a 24/7 schedule. VIT also added some straddle carriers at the Virginia Inland Port in Front Royal because the facility experienced double-digit volume growth in the past year after years of relatively flat activity.
On the export side, railroads are in control and deliver boxes 80 to 100 hours before vessel loading, but Reinhart said that window could narrow as people gain more confidence in the ability of the two on-dock intermodal facilities to stage cargo.
Reinhart said rail efficiency will be improved further once CSX Transportation gains the ability to haul double-stack containers through the Washington, D.C., corridor to the Midwest. The railroad’s $850 million project to remove height obstructions on its Mid-Atlantic network has been delayed by slower-than-expected regulatory approval for a wider, taller tunnel in Washington. Construction is not expected to be completed until 2017 or 2018.
Norfolk Southern, the other Class I railroad serving the port, already has the capability to carry two containers per well car.
Reinhart’s staff is also focused on building volume at the Port of Richmond through better marketing and capital investments.
In 2011, the City of Richmond leased its river port to the VPA for $375,000 over five years in an effort to resuscitate the moribund facility. The port rests between I-95, the main north-south highway on the East Coast, and I-64, a major east-west corridor. The CSX rail line also runs by the port.
The strategy was to create a second intermodal hub in the center of the state similar to its truck-rail transfer station to the west in Front Royal. The VPA has used its international connections and resources to drive more traffic to the under-utilized facility by supporting more barge service to and from its marine terminals in the Hampton Roads area.
One of the few successful container-on-barge services in the United States is the James River Barge Line’s 64 Express. The service, organized by the VPA, runs three times a week in both directions between Norfolk and Richmond. Reinhart said demand from manufacturing and agricultural interests is strong enough that officials are considering adding a fourth sailing every other week. The barges, which currently are subsidized through a U.S. Maritime Administration grant, can handle between 80 to 100 boxes.
Barge activity is up 12.3 percent so far this year and more and more ocean bills of lading directly list Richmond as the origin or destination, which means carriers increasingly are taking responsibility for arranging the inland move, he said. Customers include packaging company Mead Westvaco, grain and feed supplier Scoular, and logistics services provider Expeditors.
(Barge figures include containers carried by Columbia Coastal between Norfolk, Baltimore and Philadelphia on the Chesapeake Bay. In fiscal year 2014, barges on both tributaries moved 45,190 containers, up from 40,225 the prior year).
The VPA has ordered a new mobile crane and three shuttle carriers, installed new sprinkler systems in warehouses and repaved sections of the property to increase Richmond’s viability as a logistics center for shippers. Reinhart said maintenance dredging in the James River is also needed and rail investments are being studied.
The port authority is keen on signing a long-term lease with the city.
Between Richmond and the Front Royal intermodal facility “we really are trying to develop our inland reach so we can get the velocity out of the port,” Reinhart said.
Overflow Capacity. The partial reopening in mid-September of Portsmouth Marine Terminal nearly four years after it was shuttered is serving as a relief valve for NIT and Virginia International Gateway.
A 30-acre section of the 287-acre facility is being used for upland storage of containers directly on chassis. No containers are stacked except those in the empty yard. Only one of the three berths is available. With a 43-foot draft and post-Panamax gantry cranes, the terminal will focus on niche services carrying general cargo on small-to-midsized vessels.
Port officials estimate they will process about 100,000 TEUs per year there.
“Opening up another berth gives us an opportunity to bring services in when there was no berth availability at our other facilities,” while freeing up space at truck gates and container yards, Reinhart said. It also allows NIT, which previously handled some breakbulk and roll-on/roll-off cargo, to function as a pure container facility.
The port director revealed that a large retail shipper recently arranged with an ocean carrier to make a special inducement call in Portsmouth to drop about 1,500 TEUs of cargo it needed to get to distribution centers for the holiday shopping season. The event underscores the fact that, despite its congestion issues, the Port of Virginia is gaining business as cargo owners recognize the port’s advantages and the improvements underway, he said.
The decision to close Portsmouth was made after container operations were consolidated at the more sophisticated APM Terminal/Virginia International Gateway, which had excess capacity at the time. The VPA tried without success to lease all or part of the Portsmouth terminal for breakbulk, bulk, ro/ro or project cargo operations.
The Portsmouth terminal, which first opened in 1967, was a drain on the port’s operating budget without a tenant.
The VPA is still trying to develop Portsmouth as a mixed-use facility.
Pasha Automotive Services used the terminal for two months last spring to export more than 6,000 Chrysler-Jeep vehicles to the Asia-Pacific region.
Modernizing NIT and increasing utilization of Portsmouth Marine Terminal are short-term solutions for new capacity.
In the near future, Reinhart said port officials want to move ahead with the full build-out of the Virginia International Gateway, which would double capacity to more than 1.2 million TEUs and create 800 more feet of berth space. Developing the 60 additional acres could be done in three years.
Expansion discussions are underway with the new owners of the facility—a United Kingdom pension fund and a U.S. infrastructure investment fund—Reinhart said in the interview.
“We’re looking at that as the next big opportunity for growth,” he said.
Long term, VPA expects to invest more than $1 billion in new infrastructure. The port authority is moving ahead with legacy plans to build a new container terminal late next decade at Craney Island by gradually reclaiming land along the Elizabeth River using dredge disposal material. The concept is for a 5 million-TEU, automated terminal with deep berths, super post-Panamax cranes and the ability to handle up to half its total volume by rail.
The facility is estimated to cost $3 billion. Some retaining walls are already in place, but further progress depends in large measure on whether Congress will appropriate money for the federal share of dredging.
Holly Pearce, director of international logistics at Lumber Liquidators, said she is encouraged by Reinhart’s initial efforts to tackle the productivity problems, but that glitches remain.
“I think he’s done a great job” gathering feedback from industry stakeholders and outlining an action plan, she said in an interview. “There have definitely been changes. He made it clear that it’s a fresh start.”
There could have been better communication about the rollout of the N4 system so shippers and truckers could better assimilate its requirements in their systems, she said.
She also expressed concern that the appointment system could lead to increased storage costs, because if there are only a set number of appointment windows and the terminals can only handle a certain amount of boxes per hour they may never be able to catch up within the free-time window allowed by the carriers before penalties kick in.
Lumber Liquidators takes advantage of evening and weekend hours, when offered, but would much prefer extended hours that are permanent, Pearce said. A few big box retailers moving freight at night would reduce the workload at terminals during regular hours. The company is receiving about 75 to 80 boxes on weekends during the peak season and, she said, draymen are able to pull four to five containers a day.
This article was published in the January 2015 issue of American Shipper.
