The commissioners of the Port of Portland, Ore., will consider a program to spend up to $4 million on incentives to keep container carriers calling the port when they meet on Wednesday.
for the meeting details what the port is calling a one-year “Weighted Volume Container Carrier Incentive Program" that would "support the continuation of container carrier services to the Port of Portland, as well as create an attractive environment for growing container volume and services calling Terminal 6.”
The port is proposing a per-container incentive payment available to calling carriers that is weighted by the proportion of the throughput volume they carry, with a minimum set at $20 per container and a maximum set at $45 per container. The Port has established a not-to-exceed program budget of $4 million.
The port said the second component of the program, “to increase the long-term viability of the container franchise in Portland,” involves the current initiative by the Governor of Oregon "to bring parties together to address the labor jurisdictional issues as well as to seek remedies to ensure sustained productivity gains.”
The port has been offering incentives to carriers since June 2012 when it said reduced productivity at Terminal 6 caused some shipping companies to bypass Portland.
“Hanjin, the largest carrier calling Portland, omitted the Portland call for a five-to-six-week period at great cost to local shippers, the CKYH carrier alliance and to ICTSI" — the company that operates Terminal 6 — the port said. The port also noted that a Hapag-Lloyd service passed several calls.
In order to induce the carriers to both maintain and return to their regularly scheduled service calls, the port adopted a short-term, carrier-support program in 2012 that paid $175,000 to carriers. In August 2012, the port entered into a cost-sharing program with ICTSI under which the port agreed to share half of certain increased operating costs and lost revenues sustained by ICTSI. The 2012 ICTSI cost-sharing program expired at the end of the calendar year. Over the term of this program, the port paid out approximately $2.7 million to ICTSI.
“The funds for these two programs came from revenue that the port received from ICTSI under the Terminal 6 long-term lease. ICTSI’s annual rent under the lease is currently $4.7 million (with annual Consumer Price Index increases).
“Although port management was hopeful that productivity at Terminal 6 would improve over the course of 2012, the result did not prove to be the case. As a consequence, when ICTSI sought to negotiate new terminal use agreements with carriers for 2013, ICTSI proposed rates to carriers that, in part, reflected the reduced productivity and resulting increased costs of operations," said the port in a note included in this Wednesday's agenda.
Carriers advised the Port of Portland that productivity remained low; that the new rates were not competitive in the market place; and that they were considering bypassing or reducing their calls at Terminal 6.
“To ensure that carriers continued to call at Terminal 6 at historic levels, in early 2013, the Port Commission approved two new programs. In January 2013, in an effort to incentivize carriers to continue calling while negotiating new rates with ICTSI, the commission authorized a 12-month carrier incentive payment to each calling carrier of $10 per container moved (import or export, load or empty). The total 2013 Carrier Program expenditures were capped at $1 million,” the port said.
“In February 2013, the Port Commission approved a companion program designed to assist ICTSI in managing the incremental expenses associated with terminal operations. This program established a base monthly rent rebate to ICTSI that could be adjusted downward if productivity at the terminal improved or if the level of carrier service declined. To date, the port has paid out $3.4 million to ICTSI under this program, which expired at the end of the 2013 calendar year. The source of funds for the two programs came directly from revenue received from ICTSI under the Terminal 6 lease. In 2013, ICTSI paid $4.73 million in annual rent. While the 2013 programs have been successful in maintaining the level of carrier calls, the productivity levels at the terminal have not returned to historic levels," the port said.
Hanjin, which cited rising costs stemming from productivity issues at the terminal, said it would stop calling the port in early 2014. "The Hanjin/transpacific calls currently account for about 78 percent of the container volume at the port," the port said. "Following Hanjin’s announcement, Gov. Kitzhaber invited all the interested parties to meet with him to work on a resolution to the labor issues at Terminal 6. The parties have met with him in confidence, and his work to mediate a resolution to the dispute has resulted in an agreement whereby the port will temporarily assign the disputed work to the ILWU.
“If productivity improves to historic levels, and the improvement is sustained over time," it continued, "the port has the permission of the District Council of Trade Unions/International Brotherhood of Electrical Workers to remove the disputed work from port control (and their jurisdiction) and to assign the work to ICTSI to control under the Terminal 6 Lease. As part of the work assignment agreement, the port has assured the IBEW that none of the electricians affected by any work reassignment will lose any employment hours."
Program payments to carriers could be reduced or eliminated at the discretion of the port in the event that productivity at the terminal materially improves. Like the prior programs, the 2014 Container Carrier Program would be paid for entirely from revenues received from ICTSI under the Terminal 6 Lease the port said.