Port commissioners have scheduled meetings to discuss the termination of the Outer Harbor Terminal lease agreement and potential plans by port terminal operator TraPac to expand into the vacated facility.
Port of Oakland commissioners are scheduled to continue discussions Thursday afternoon about plans by the operator of its Outer Harbor Terminal to cease operations on March 31.
Outer Harbor Terminal, LLC (OHT), a joint venture of Ports America and Terminal Investment Ltd., the stevedoring affiliate of MSC, said last Tuesday they would end operations in Oakland, an abrupt turnaround after signing in 2009 a 50-year lease for the facility, which encompasses berths 20-26 at the Port of Oakland.
OHT, which changed its name from Ports America Outer Harbor Terminal LLC or PAOH earlier in January, is a major contributor to the Port of Oakland’s maritime revenues.
In the fiscal year that ended June 30, 2015 PAOH contributed $37.9 million, or a quarter of the Port of Oakland’s $149.2 million in maritime revenues (excluding utility revenues).
In the current 2015-16 fiscal year, about $35.7 million of the $140.6 million in maritime revenues were expected to come from OHT, but the port’s staff said in a report prepared for an Oakland Board of Commissioners that if a termination agreement and guaranty were “fully executed” there would be “minimal impacts to FY 2015-16 budgeted Maritime revenues due to the timing of the PAOH Terminal closure and receipt of termination payment.”
In the fiscal year that begins this July, however, the staff said it expected maritime revenue would drop to “an approximate range of $125-130 million,” but added the port “is anticipated to manage its expenses to reflect lower maritime revenues, and will develop a FY 2016-17 budget that prudently balances revenues, operating expenses, debt service payments and capital expenses, consistent with prior years.”
It would take several years to build maritime revenues back up, according to the the report, which said maritime revenues are “anticipated to return to levels consistent with FY 2015-16 budgeted revenues in approximately FY 2021-22.”
OHT said last week it planned a rapid exit in two months. It anticipates continuing to service vessels for another 30 days and then taking an additional 30 days to “complete the delivery of import and empty containers and transition out of the terminal.”
Chris Lytle, the executive director of the port, said at the end of last Friday’s board meeting that Oakland was continuing negotiations with OHT, and expressed some concern about their plans for such a sudden departure.
The port has worked with other terminals to find homes for carriers that currently call at OHT. Lytle said it had already found home for 90 percent of OHT’s current cargo business and was well on its way toward finding a home in Oakland for the other 10 percent of customers.
But he noted that in order for a smooth transition to occur, carriers will, among other things, need to switch electronic data about cargo shipments to the systems of different terminals.
According to an agenda report prepared for the Port of Oakland Commission, OHT “has requested the port enter into an agreement to terminate operations; it is also contemplated that the port would enter into a guaranty agreement guaranteeing some of the obligations contained in the termination agreement as further described below.”
In their report to the commission the staff said it “believes that entering into a termination agreement and related guaranty is preferable to the uncertainties of having OHT cease its operations without entering into a termination agreement and related guaranty, thereby leaving the Port to pursue its remedies under its current agreements.”
The report explained that the Port of Oakland staff made its determination, “After analyzing (a) the likelihood of more favorable terms for the Port through alternative remedies, as well as the impact of the anticipated loss of revenue to the port from OHT, (b) the risk of cargo diversion from the Port, and (c) the potential gains in revenue from other current tenants as a result of intra-Port cargo shifts.”
If OHT ceases operations without a termination agreement, “there are a number of potential adverse consequences that would not be beneficial to either OHT or the port,” the staff wrote in the report.
The port says it could pursue remedies against OHT for breaking its leases but adds “since OHT is a limited liability company with apparently extremely limited assets, even if the port were successful in pursuing a judgment against OHT, the port may likely not be able to collect on it. In addition, pursuing breach of contract remedies against OHT would likely delay the Port’s ability to regain possession of either terminal in a timely manner and begin its efforts to replace the loss of OHT revenues.”
The port staff said it also anticipated there could be “medium and long-term benefits resulting from the closure of the PAOH Terminal.” Lytle said, for example, the port might be able to handle automobiles and other sorts of roll-on/roll-off cargo or project cargo at the Outer Harbor berths.
The staff is expected to update the Port of Oakland commissioners today on its negotiations with OHT as well as with TraPac, a current port tenant that is looking to expand into a portion of the former Outer Harbor Terminal, berths 25-26.
Founded in 1987, TraPac is a subsidiary of the Japanese shipping company Mitsui O.S.K. Lines. In 2014, Toronto-based Brookfield Asset Management Inc. acquired a 49 percent stake in TraPac’s operations in the ports of Los Angeles and Oakland. (The investment does not include other TraPac assets, such as its terminal operations in Jacksonville, Fla.)
In Los Angeles, TraPac has begun operating one of the most sophisticated and automated container terminals in the world. It uses rail-mounted automated stacking cranes (ASCs) to store import and export containers and load and discharge trucks. Unmanned, automated straddle carriers, or “autostrads,” shuttle containers around the container yard — to and from the ASCs, ship cranes, and the terminal’s on-dock rail yard.
In Oakland, TraPac has increased in size from an original footprint of 30 acres to 66 acres, which today is considered too small to serve the growing size of containerships. It currently occupies berths 32-30, adjacent to OHT
Last year in an interview with American Shipper, Frank Pisano, the president of TraPac, said the company was reviewing operations in Oakland and that “it’s either we get all-in, or all-out” at the Northern California port.
Port of Oakland to take financial hit from Ports America, TIL exit
