Commentary: Ponce port faces uphill slog for investors

The Ponce Port Authority in Puerto Rico is seeking a private port operator to revive the fortunes of the Port of the Americas.    The Ponce Port Authority in Puerto Rico is seeking a private port operator to revive the fortunes of the Port of the Americas, according to a public request for information.
   The government of Puerto Rico last decade poured $285 million to turn the old port of Ponce into a major transshipment hub for the container trade, but the expectation that ocean carriers would take advantage of a new, centrally located Caribbean facility has not panned out. 
   The gleaming container terminal has a long berth with a depth of 50 feet, two super post-Panamax ship-to-shore cranes and a container yard with an annual capacity of 500,000 TEUs per year.
   But so far the port is mostly empty, unable to attract much business from ocean carriers. It is a virtual ghost town.
   Analysts say the primary reasons undermining Ponce’s appeal are the Jones Act and high labor costs for stevedoring, which make the site uncompetitive with ports in Jamaica, the Dominican Republic, Bahamas and Panama, among others.
   The Jones Act is a 1920s-era law designed to protect the U.S. maritime industry. Under the law, vessels moving cargo between two U.S. points must be built in U.S. shipyards, registered in the United States and crewed by American citizens. U.S. shipyards are about four-times as expensive as some of their foreign counterparts. The United States has stricter regulations for security, safety and the environment than many other flag registries, which raises compliance costs for vessel operators. And American seafarers command much higher pay rates than most international sailors.
   Officials also had hoped to move some of the San Juan freight market, especially breakbulk cargo, to Ponce to free up space for marinas and other tourist-related activities, but the difficulty of trucking cargo back to the heavily populated north coasts has also undermined Ponce’s appeal.
   Trade between the United States and Puerto Rico goes through the Port of San Juan on the northern side of the island and the cargo is carried by dedicated domestic carriers. International ocean carriers do not use San Juan to offload cargo to smaller feeder ships to serve the U.S. market.
   The Ponce Port Authority says it wants to partially privatize the port through an agreement to give exclusive management control to a private-sector terminal operator.
   The RFI includes a questionnaire to gauge the potential interest of developers, terminal operators and equity investors in operating and expanding the facility, as well as developing a logistics park.
   The Ponce Port Authority is a new entity created in 2011 under a transfer of power to the municipality of Ponce that relieved the port of debt and other legal obligations, which remain with the original Port of Americas Authority.
   Future construction plans, presumably financed by a private investor, include 3,000 feet of additional berthing area and new container yards, to bring the port’s capacity to 2.2 million TEUs.
   More immediate plans call for realigning several berths to accommodate deeper draft vessels and further deepen the current deep-draft berth that progressively shallows on one end.
   The RFI asks for the preferences of interested parties related to types of contracts, payment structure, financing, revenue sharing, throughput guarantees and handling of bulk, breakbulk, general cargo and cruise business.
   Many analysts tried to warn Puerto Rican officials about the potential pitfalls of “build it and they will come” to Ponce. The government considered issuing a proposal for a concessionaire in 2010, but apparently didn’t get enough traction to go forward. 
   A new approach to Ponce’s business plans isn’t likely to change the underlying fundamentals going forward.

This commentary was published in the October 2014 issue of American Shipper.