VPA offers $1 per year for Richmond port
The Virginia Port Authority has proposed leasing the underutilized Port of Richmond for $1 per year for five years, with three five-year option periods, according to a non-binding letter of intent sent to city officials on June 29.
The offer essentially amounts to a long-term concession that would give the VPA complete control of the port's business functions.
As previously reported by American Shipper, the VPA, at the direction of Virginia Transportation Secretary Sean Connaughton, this year expressed interest in integrating the city-owned port with the state-operated port in Hampton Roads to help expand an existing tug-barge container service on the James River and reduce truck traffic to and from the Norfolk area on major highways.
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| Connaughton |
State officials want to develop Richmond into a river intermodal hub along the lines of the VPA's inland port in Front Royal, where containers are transferred between trucks and rail 220 miles from the container terminals in Norfolk and Portsmouth.
The VPA provided a copy of the letter from Executive Director Jerry Bridges outlining its plan for Richmond after The Virginian-Pilot first obtained the document from the city and broke the story through the use of a Virginia Freedom of Information Act request.
The state agency is still waiting for a response from Richmond officials, spokesman Joe Harris said.
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| Bridges |
The Port of Richmond lies 100 miles east of the Port of Virginia, with direct access to Interstate 95 and the CSX rail network, as well as indirect connections to the Norfolk Southern railroad. The James River container service on Tuesday was awarded a $1.1 million grant by the U.S. Department of Transportation as part of its initiative to promote marine highways. The VPA plans to use the money to increase the frequency of the service to three times per week and start an inter-terminal barge service in the Hampton Roads port.
In July, the city of Richmond issued a request for proposals from companies interested in operating the river port. The port is operated by Port Contractors Inc. (PCI), a New Castle, Del.-based company that loads and unloads vessels and provides other logistics services. Its short-term contract expires at the end of November. The 30-day RFP closed on Aug. 4.
The city asked for bids shortly after receiving the VPA's offer, but the looming expiration of the PCI contract meant that a solicitation was already in the works.
Mike Wallace, a spokesman for Mayor Dwight C. Jones, said the administration, city council and port commission are still reviewing the submitted bids and the VPA's solicitation. David McNeel, the Port of Richmond's executive director, said city officials are running a parallel process for the 70-year-old port to decide whether to continue with the existing stevedore business model or lease the facility to the state.
The representatives from the mayor's office, city council and port met Sept. 7 in a closed-door session to discuss the port's situation.
Other than the weekly, state-subsidized barge service, called the James River Express, the Port of Richmond has little regular business. The barge service only moves 100 to 160 containers per week, hardly enough to sustain the 121-acre facility. The big blow came early last year when International Container Line, a small transatlantic carrier, pulled out and switched its port of call to Charleston, S.C., taking with it Richmond's only regularly scheduled container service and three-quarters of its business. The port's other main tenant, Eimskip Shipping Line, cut back its bi-monthly Iceland/Canada service to once a month. Then the port's previous stevedore, Federal Maritime Terminals (Richmond), ceased operations in June 2009, after 12 years, when its Montreal-based parent company Fednav Group, said ICL's departure scuttled any hope for making money.
City officials want to first study the bids to see if a prospective operator can be found at a lower price. The city is losing $100,000 per month under the PCI contract, according to the Richmond Times-Dispatch.
'Our major concern was making sure that the port stayed operational. We did not want to see the port shut down,' City Councilman Bruce Tyler said in an interview regarding the port commission's decision to hire PCI despite its expensive contract. The port also tapped its reserves to purchase $3.5 million worth of equipment from Federal Maritime Terminals to keep the facility running.
The PCI contract is disadvantageous because of its temporary nature, and the company's need to protect itself from risk with higher fees, Port Commission Chairman John Hekman said.
The stevedoring situation has acted as a double-hit to Richmond, he said, because shippers and carriers that have expressed interest in the port are waiting to deal with a permanent cargo handler.
'They want a long-term rate proposal and a long-term relationship, which makes it difficult for the port to be profitable during this period. We also had some opportunities that didn't materialize because the business for the companies also went flat because of the economy,' Hekman said.
Eimskip, for example, has a significant amount of cargo from Iceland but not enough export cargo from the United States to activate a second ship. Eimskip's major customer is Icelandic Glacial, a bottled water producer that relies on a U.S partner for nationwide distribution. Its other major cargo is frozen fish.
The downturn in business over the past two years, which was exacerbated by the global recession, has also left the port authority will little working capital, forcing it to defer needed investment in infrastructure maintenance such as storage roofs and asphalt.
Meanwhile, the city has dipped into its own coffers to pay port bills and sustain operations. In June, the city council appropriated $1 million in general funds to cover port expenses and authorized another $500,000 of in-kind or cash equivalents to address maintenance issues. City administrators so far have provided about a quarter of the $1 million appropriation to pay obligations and say they expect to tap the funds again to pay for operating expenses during the month of August and beyond.
In fiscal year 2008-2009, ended June 30, the Port of Richmond experienced a $445,757 operating loss, compared to $398,931 the previous year and $524,977 in 2006-07. Non-operating revenue from interest income, and a contribution from a state fund for aid to local ports, pushed Richmond back into the black by $154,476 in 2007-2008, and narrowed the gap in the other years, according to port financial results.
From 2000 to 2009, the port's average annual cash generation was about $450,000 before depreciation, including the grants from the fund administered by the Virginia Port Authority, Hekman said. The money was reinvested in the port.
Richmond was in a negative financial position for all of fiscal year 2009-10, Hekman said, but the specific figures won't be available for several more weeks until the city completes its audit of the results.
Officials characterized the city aid as a loan, saying the port eventually intends to pay it back. It's the first time in more than 25 years that the city has subsidized the port with any funding, they said.
The port planned to borrow the $1.5 million from the private lending market under a 20-year repayment plan until the city stepped in with financial assistance, Tyler said. It treated the city's offer as a loan to be repaid with interest and only accepted the money because it came at a lower interest rate, he said.
Tyler, who is also a member of the port commission, said getting a long-term operator is critical for the port to get out of its deficit situation.
The port's distance from the open water and shallow draft, however, discourage most international vessel operators from calling on Richmond, making a shuttle-barge service a more viable option.
The VPA, with its experience running a major international port, is offering to take on all expenses associated with running the Richmond port, make any necessary infrastructure improvements, and handle marketing. Richmond, according to the strategy, stands to gain by being linked to a broader freight network that can attract shippers and increase its international container volume rather than trying to function as a standalone entity.
'We would incur the operating costs. It would remove that cost from the city books,' Harris said, explaining the reasoning behind the $1 lease offer.
In exchange, the city would cede all operating control to the VPA and dissolve the Richmond Port Commission. The VPA would assume all responsibility for the commercial success or failure of the port.
The VPA said it wants to finalize an agreement so that it could take control of the Richmond port on Dec. 1, when the PCI contract ends.
Mayor Jones questioned the port's economic benefit to the city in a Sept. 7 news release, saying 'it is not in the best interest of the city to have an asset that is designed to be self-sustaining to consume general fund resources over the long term.'
The mayor and city council instructed the Richmond Port Commission to report regularly to them on its business operations and future outlook, and provide a detailed plan for returning the port to economic health.
The mayor's press release hinted at potential dysfunction within the city government that has hindered progress at the port.
'While the administration and city council have made substantial efforts to enable the port's success during this difficult transitional period, at this point the port has provided limited information concerning its business outline,' Jones said. 'This condition of the memorandum of understanding between the port and the administration is the key condition of the provision of funds. Moreover, without a comprehensive business development and marketing plan, it is extremely difficult, if not impossible, for the port and the city to evaluate the multiple options concerning future port operations that are currently being discussed.'
But McNeel said it takes time to draft a comprehensive business plan and that one will be delivered to the city council by Oct. 1.
The existing five-year strategic plan that runs through 2012 calls for deepening and widening the James River turning basin, developing the port as a multimodal hub, increasing rail access and aligning with regional transportation and economic development planning efforts.
It is unclear whether the port's financial hardship will force officials to consider alternatives. Councilmember Tyler sounded optimistic about the port's future and signaled that some city officials don't see a need to accept the VPA's offer to lease the port for $1 per year.
'The VPA thing provides many avenues for opportunity, but at the same time we can't give it away. It has to be a fair and equitable deal. I don't think the city council will approve anything that will cost the taxpayer's of Richmond city money,' he said. The state might assume the port's operating costs, but its offer doesn't help the port repay the $1 million note to the city or reimburse it for the $3.5 million in equipment it recently purchased, he added.
'Based on all the projections I'm seeing, next year the port will be operating in the black,' Tyler said. He expressed confidence that more shippers will be attracted to use the Port of Richmond once a permanent solution is in place because of its strategic location near the intersection of I-64 and I-95, and its ability to handle double-stack containers on barges. More business is expected with an upturn in the economy and the expansion of the Panama Canal in 2015, which will result in larger container vessels calling at the Port of Virginia, he said.
Other city council members have indicated their patience is limited and that they are not willing to subsidize the port indefinitely if its finances don't improve, according to the Richmond Times-Dispatch.
(To read more about Virginia's desire to enhance its intermodal freight infrastructure that connects the state to its international gateway in Hampton Roads, see the feature story, 'Virginia is for freight', in the September American Shipper.) ' Eric Kulisch