The Virginia Port Authority Board of Commissioners voted today to restructure the state-owned operating company, Virginia International Terminals, instead of outsourcing cargo and vessel-handling operations at the Port of Virginia to private terminal management firms, the VPA said in a statement issued this afternoon.
State officials spent almost a year evaluating two competing bids to manage and invest in the port for almost five decades. APM Terminals made an unsolicited offer to consolidate operations under its umbrella for about $3.1 billion to $3.9 billion in cash, taxes, annual payments and new infrastructure. A consortium of JP Morgan Chase, Maher Terminals and Spanish port operator Noatum bid about $3.1 billion to retain control over the port complex.
The VPA said the two bids undervalued the current port assets and its revenue potential, the same reasoning Secretary of Transportation Sean Connaughton gave in September 2010 for rejecting three unsolicited proposals from real estate developers and investors to operate three container terminals in the port
Gov. Bob McDonnell threw out the previous board in mid-2011 and replaced it with handpicked members after expressing dissatisfaction with the Port of Virginia's performance in attracting container cargo and turning a profit. The unsolicited bid allowed by the state's Public Private Partnership Act was made by APMT in the midst of an extensive review by the board on how to reduce costs and operate the port more like a business than simply an economic development arm of the government. Concurrent with the bid-review process, state and port officials continued developing structural and leadership reforms, some of which are mandated by recent legislation.
“We are transforming the Port of Virginia to meet a changing and increasingly competitive environment,” Board Chairman William Fralin said in a statement. “We will move forward as a stronger, leaner organization that is better-positioned to serve the ocean carriers and port customers, attract cargo to Virginia and be more accountable to Virginia taxpayers."
The board will convert Virginia International Terminals from a non-stock corporation to a single-member Virginia limited liability corporation under more direct control of the VPA. The new structure will eliminate duplication, such as having dual marketing departments, and increase efficiency, the VPA statement said.
The board will begin the process of recruiting a permanent executive director and chief commercial officer and expects to have hired new leadership by the fall. The VPA has been managed by Interim Executive Director Rodney Oliver since Jerry Bridges stepped down in September.
“Moving forward, it is imperative that we empower and hold accountable a strong leadership team that can successfully continue our drive toward greater efficiency and reduced costs,” Fralin said. “We want leadership who can deliver premiere port service and sustained cargo and economic growth to Virginia.”
The board will also overhaul its strategic plan to determine ways to ensure the port remains competitive over the long-term. The strategic plan will focus on advancing major capital improvements, reducing debt levels and attracting new distribution centers and manufacturers to help drive increased cargo and economic development across the state, the VPA said.
The board agreed with opponents that the port was too valuable an asset to relinquish and improving the public sector operator would provide greater benefits to the state. In making its determination, the board said it took into account a number of factors, including:
- The state could generate greater cash flow by using a public sector operator with a new business model than by accepting the deals from APMT and Virginia Port Partners.
- Virginia International Terminals could generate comparable revenues and cargo volumes as a private concession.
- Virginia International Terminals has the ability to generate sufficient revenue over time to allow the VPA to service its existing debt and fund the capital expenditures described in the VPA’s updated 2040 master plan.
- While the private proposals present an opportunity for the VPA to acquire APMT’s marine terminal in Portsmouth, the VPA already has control of this facility until 2030 through a lease between the VPA and APMT.
- Cargo volumes at the Port of Virginia are beginning to show improvement following several years of slow growth. Calendar year 2012 was the port’s second best year on record in terms of cargo volume and the port is off to a strong start in 2013. Given the port’s improving market outlook, the Board does not believe it is beneficial to implement a concession at this time.
"Given the port’s natural and infrastructure advantages and position on the East Coast, combined with the future prospects of significant changes in shipping trends as a result of the Panama Canal Expansion, the increased use of the Suez Canal, and the move to substantially larger cargo vessels, now is not the optimal time to concession operations at the Port of Virginia," the board said. - Eric Kulisch