APM Terminals’ pitch to Virginia
Privatized terminal operations could change dynamic of Hampton Roads.
By Chris Dupin
APM Terminals (APMT), a subsidiary of the A.P. Moller-Maersk group, made an offer in late May under Virginia’s Public-Private Transportation Act to operate the Virginia Port Authority’s facilities in Hampton Roads, as well as at inland locations.
APMT said its offer is worth between $3.16 billion and $3.9 billion over a 48-year period.
In the days to come, however, the shipping industry will see whether any rival offers appear on the horizon. Virginia’s Department of Transportation has given other companies until July 12 to make alternative proposals. The state will then determine whether to advance one or none of the proposals by the end of July. It’s not obligated to accept any proposal.
Three separate privatization offers were made to the port authority in 2009, and all were turned down with the state opting to have Virginia International Terminals, the operating affiliate of VPA, continuing to run the port. Virginia’s Transportation Secretary Sean Connaughton said the 2009 bids were “received during a severe economic downturn that reduced the volume of cargo” and did not reflect the port’s value.
The attractiveness of the Hampton Roads area as a container shipping gateway was enhanced in 2010 with the completion of the Heartland Corridor, a public-private partnership that improved rail clearances so double-stack container trains could operate from the Port of Virginia to Chicago.
The opening in 2007 of APMT’s container terminal in Portsmouth, generally regarded as the most sophisticated in the nation, also garnered attention. It’s the only terminal in the United States to use semi-automated stacking cranes in its container yards, although similar technology is proposed for both the expansion at Global Terminal’s facility in Bayonne, N.J., and for the Middle Harbor expansion in Southern California’s Port of Long Beach.
Another reason why the Virginia port will be in the spotlight this year is because employers up and down the East and Gulf coasts are negotiating with the International Longshoremen’s Association on a new contract to replace their current pact, which expires on Sept. 30. While APMT continues to advance state-of-the-art terminal automation, ILA President Harold Daggett has made opposition to this automation a rallying cry during the past year.
Many industry analysts see stacking cranes and technology such as automated guided vehicles (AGVs) in use at the ECT Delta Terminal and proposed by APMT in Rotterdam as essential to efficiently working the biggest containerships now entering the Europe-Asia trade. (APMT has not announced plans for AGVs in the United States.)
VPA owns three terminals in Hampton Roads: Norfolk International Terminals, Portsmouth Marine Terminal, and Newport News Marine Terminal. It also operates an inland facility at Front Royal, Va. APMT wants to run them all, and has said it will even operate the Port of Richmond if that is beneficial to the state, although today it is operated by a third-party operator.
If accepted, the deal would represent a change in fortune for APMT, which had the vision to build the Portsmouth terminal from scratch at a cost of $540 million.
The company was frustrated in its ability to secure liner carrier tenants at the facility and realize the full potential of its investment, the cause of which was linked to the recession and VIT signing contracts with nearly every carrier calling the port.
With only its sister company, Maersk Line, and Evergreen (as well as their space-sharing partners) as customers after the terminal opened in 2007, the APMT facility operated at about one-third of its capacity.
In 2010, APMT agreed to lease the terminal to VPA for 20 years, which then moved carriers to the new facility.
But now APMT may be able to use Virginia’s Public-Private Transportation Act to win back and operate the terminal it built and once operated.
Eric Sisco, president of APM Terminals America, said his company’s current proposal is “more robust” than the three 2009 bids that the state rejected, offering Virginia additional compensation with more certainty of payment. He also pointed to APMT’s experience as a global container terminal operator. “We are proud of the proposal,” he said.
In addition, APMT may be in a better position than potential rival bidders in part because the 2010 lease agreement between VPA and itself says the port needs the consent of APMT to transfer or sublet the APMT terminal.
VPA said “operations at all of the VPA’s terminals will continue as usual,” while it reviews APMT’s or any competing proposals.
While APMT is one of the largest terminal operating companies in the world, there is a possibility the state might think twice about putting control of all Hampton Roads’ terminals under control of a single operator.
One analyst said APMT’s terminal in Elizabeth, N.J., is one of the largest in the Port of New York and New Jersey, a principal rival of Hampton Roads, especially for cargo bound to the Midwest. This raises the question as to whether APMT at some point may try to persuade shipping lines to route cargo through New York or Virginia to best benefit its facilities at either location.
But Sisco said “cargo will go according to where it will flow most readily. That decision is made by the shippers and consignees and not by the terminal operators.”
APMT, like other carrier-affiliated terminal operators, is also faced with the perception that at least some carriers calling its facilities are, at least indirectly, benefiting their competitor, Maersk. But a spokesman said carriers other than Maersk account for 55 to 60 percent of APMT’s business in the United States. Sisco added many of the current users of the VPA’s facilities are already APMT customers globally.
Nevertheless, in mid-June some carriers were expressing concern about the APMT proposal.
“By allowing this concession to be held by one single, private, foreign entity we believe that you will be causing irreparable harm to the future of the Port of Virginia,” said S.Y. Kim, managing director of Hanjin Shipping America, in a letter sent to Virginia Gov. Robert F. McDonnell.
Kazuhiro Matsukawa, president and CEO of “K” Line America, told Connaughton in a letter that his company was “gravely disturbed that assigning control of all the container terminals in Hampton Roads to a division of the AP Moller-Maersk Group will result in a preference for Maersk Line and prejudice against its competition.”