Up for sale four years ago, Virginia's port posting year-over-year profits and growth
Monday, May 15, 2017
The Office of Governor McAuliffe has issued the following.
Up for sale four years ago, Virginia's port posting year-over-year profits and growth
By Robert Zullo
May 14, 2017
In March 2013, the Port of Virginia’s board of commissioners turned down a pair of offers worth billions of dollars from companies looking to lease and operate its terminals for decades, a move that would have privatized a major state asset.
A little more than a year later, new Gov. Terry McAuliffe replaced five members of the board after a review of the port’s finances found the operation had lost $120 million over the prior five years.
Those days were fading fast into the rearview mirror last week in a conference room at the Virginia International Gateway’s administration building in Portsmouth, where an exuberant assemblage of state and local officials, business leaders and others were celebrating the arrival of the COSCO Development, a behemoth container ship that had just passed through the Panama Canal and became the largest ship ever to call on the East Coast.
“Don’t you love it when a plan finally comes together?” said Port Authority Board Chairman John G. Milliken, a Northern Virginia attorney and former Virginia secretary of transportation who was restored to the board by McAuliffe after being removed by former Gov. Bob McDonnell. “This has been in the works, talked about, for a long time.”
For McAuliffe and others in the conference room, which looked out over the port’s cranes and a sea of cargo containers, the ship’s arrival marked a turning point for a crucial economic-development engine that could have slipped out of the state’s hands.
“One of the worst decisions I think ever made here in Virginia was to put this port up for sale,” the governor said. “We took that off the table Day 1 and said, ‘Our port’s not for sale.’”
Virginia Transportation Secretary Aubrey L. Layne Jr., who took office in 2014, said privatization was the “holy grail” under McDonnell.
“They thought they were going to sell the port and get money for other transportation projects,” he said. “We never said it had to make a bunch of money. We said it had to be sustainable.”
During the fiscal year that ended June 30, 2015, the port posted about $454.8 million in operating revenue over about $450 million in operating expenses, netting about $4.8 million in operating income.
The operating profit was the second year in a row. Prior to the fiscal year that ended in June 2015, the port had not seen an operating profit since 2008, according to its 2015 annual report.
But more important than the revenue is the economic activity the port makes possible from Hampton Roads to Richmond, where barge service from the Port of Virginia to the Richmond Marine Terminal is steadily growing, and to Front Royal, where the Virginia Inland Port’s container transfer facility has sparked new distribution centers in the area, officials say.
There were 39 port-related economic development announcements that generated $733 million in business investments and 3,600 new jobs across the state in the fiscal year that ended in June, according to the port’s annual report.
“As we expand, the accompanying economic benefits — jobs, investment and taxable revenue — to the region and the state expand in parallel,” said John F. Reinhart, CEO and executive director of the Virginia Port Authority, in the report. “The things that are making us sustainable include reinvestment with a long-term view and understanding the benefits that will be created throughout the commonwealth as a result.”
Container volumes have steadily grown since 2010 after taking a hit following the 2008 recession. Volume has increased from 1.27 million containers in 2013 to 1.5 million containers in the 2016 calendar year.
April was the port’s busiest month to date, with the facility handling 225,196 of 20-foot equivalent units, up 4.6 percent from the same month in 2016.
And the state is putting more than $670 million into the port, including work to double capacity at the Virginia International Gateway container terminal and expand volume at the nearby Norfolk International Terminals, with the overarching goal to expand the number of containers that pass through the port’s facilities by 1 million by 2020.
The Richmond Marine Terminal, which went under a long-term lease by the Port of Virginia last year, has also seen upgrades, including a $2 million barge added in February and a $4.2 million mobile harbor crane added last year.
The upgrades are intended to keep up with a shipping industry that is consolidating and ships that are growing ever larger.
Jackie Wang, the executive vice president of COSCO Shipping, said the company plans a series of ships of similar size to the massive Development freighter that made its first call in Virginia last week.
The cargo ship is four football fields long — and 100 feet longer than the U.S. Navy’s latest aircraft carrier, the Gerald R. Ford.
“We are ordering a lot of big ships,” Wang told the audience at the Virginia International Gateway last week. “I’m so excited, to be honest, for the future. I believe all those economies of scale as well as the new operational efficiencies ... will allow us to provide better service to our customers.”
Freight costs are up and there has been more “reshoring,” meaning some manufacturing has returned to the U.S. or Mexico to cut transportation costs, squeezing shippers that are consolidating to protect themselves, said James Breeze, a national director of industrial research at real estate brokerage Colliers International, which released an outlook last week for U.S. industrial seaports.
“To get products to consumers quicker and more efficiently, ship sizes are growing at a faster rate than ever before,” the report says. “These shifts have put ports in catch-up mode, with capital improvement projects underway or recently completed at nearly all locations to better service larger vessels.
“While West Coast ports are naturally better-suited for this trend thanks to deeper harbors, the recent expansion of the Panama Canal has created an opportunity for more cargo to shift to ports along the East Coast and the Gulf Coast.”
Virginia’s port enjoys unique advantages in both its deep waters, central location and access to rail. Virginia is the only East Coast port with congressional approval for 55-foot-deep channels.
“Those are just huge advantages in today’s world of e-commerce and getting things to customers as quickly as possible,” Breeze said.
The port’s deepest channels are now 50 feet deep, and the port is working with the U.S. Army Corps of Engineers to secure approval for dredging the main channel to 55 feet to accommodate the largest vessels.
But Reinhart, the port authority executive director and CEO, has not been content to rely on Virginia’s natural advantages.
Earlier this year, the ports of Virginia and Georgia entered into an information-sharing pact that was endorsed in April by the U.S. Federal Maritime Commission, which regulates American international ocean transportation.
Facing an increasingly consolidated shipping industry, one in which ocean carriers have centralized from four large alliances into three that handle close to 90 percent of global container capacity, Reinhart said, it made sense for Virginia and Georgia to form an alliance of their own, one that aimed to make the ports the East Coast’s “leading gateways for containerized cargo.”
The agreement between Georgia, where the East Coast’s second-largest port is, and Virginia, with the third-largest, poses a competitive threat to other facilities for discretionary cargo, meaning goods that can go through multiple ports to reach their final destination, said Peter Tirschwell, senior director for editorial content and a shipping specialist at the Journal of Commerce, a trade publication.
“Most of these ports when they get together, it’s for PR purposes really. It’s really meaningless,” he said.
The arrangement between Hampton Roads and Savannah, however, has the potential to offer major benefits to big-box businesses, such as Home Depot, Lowe’s and Walmart, by coordinating berth windows and other logistical arrangements to help them get products to their distribution centers.
“It’s actually giving the importing company a bigger picture of their supply chain upon arrival into the East Coast,” Tirschwell said. “They’re very much partnering up with the idea of being able to have a more robust conversation with the Home Depots of the world.”
The simple aim is better customer service.
“That’s a route to generating more volumes,” he said.
Office of Governor Terence R. McAuliffe